Bookmark and Share 27, Best High Yield Dividend Stocks

Kiplinger magazine's article Best Dividend Stocks of the S&P 500 to Buy Now lists two types of dividend stocks: High-Yielders and Dividend-Growers. The first group has dividend yields that are about twice the average S&P 500 yield (currently 2.0%). The second group has raised their dividends at least 10% per year for each of the last 5 years.

In addition to those criteria, they also screened for companies that have solid earnings outlooks, so that they are likely to maintain (or even boost) their dividend payouts. The result is a list of 9 stocks that they believe are worth owning now.

The 4 high-yield S&P 500 stocks Kiplinger chose are: GM, MO, STX, and VZ.

The 5 dividend-grower S&P 500 stocks Kiplinger chose are: ACN, CMI, IP, PFG, and ROK.

Let's look at each of these groups for covered call candidates.

High Yielders

These stocks all have current yields around 4%:

Symbol Recent Price Dividend Yield
GM35.614.1%
MO51.904.1%
STX55.493.8%
VZ49.494.4%

High Yielders With Covered Calls

For the June 18, 2015, expiration, here are some 1% per month (12% annualized or more) covered calls for each of those symbols (some symbols are listed more than once because they have more than 1 covered call with annualized yield > 12%):

high yield dividend stocks with covered calls for Jun 18

None of them have an earnings release prior to the June 18 expiration, so that's a risk-reducer. And the ones that have a the ex-dividend date in green have an ex-dividend date prior to the expiration date (in those cases, the return calculations assume you receive the dividend).

Going Out 2 Months To July

For a slightly longer covered call, say 2 months until the July 17, 2015, expiration, here are some double-digit annualized yields:

high yield dividend stocks with covered calls for Jul 17

One thing to watch out for with the July expiration is that STX releases earnings just prior to expiration on July 16. That may not be a problem if you intend to hold the stock for months but heads-up to short-term investors who may not want to take earnings risk.

Dividend Growers

These stocks have all grown dividends by at least 10% per year for each of the last 5 years:

Symbol Recent Price Dividend Yield
ACN96.692.1%
CMI140.532.2%
IP53.013.0%
PFG51.902.9%
ROK124.472.2%

Dividend Growers With Covered Calls

For the June 18, 2015, expiration, here are the double-digit return covered calls:

dividend grower stocks with covered calls for June 18

None of those have an ex-dividend date prior to the June expiration. In fact, if we go out 2 months then only one of the dividend growers has an ex-dividend date prior to expiration (PFG).

Here are the covered calls for the July 18 expiration for these stocks:

dividend grower stocks with covered calls for July 17

High Yield and Dividend Growth

Investing in high yield stocks, or stocks that are consistently growing their dividends, does not guarantee you won't lose. But if you keep your position sizes reasonable and stay diversified then there are certainly worse strategies you could employ. Layering on covered calls is an income-enhancing risk-reducer. As always, only invest in stocks that you are comfortable holding for the long term because you could wake up on Monday after expiration and find those in-the-money covered calls you sold expired out-of-the-money.

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