There are two main dividend investing strategies: high yield and high dividend growth. In general, we can say that the high-yield strategy (as the name implies) seeks high-yielding stocks. Due to the higher-than-average yield, the market often perceives these stocks as riskier compared to high dividend growth stocks. The high yield signals higher risk and may indicate weak growth prospects.

There are three types of high-yielding stocks:

1. High-quality dividend growth companies temporarily mispriced and on sale. These probably aren’t true high yielders, but sometimes, during bear markets or periods of extreme volatility, you might find a high-quality company trading at a depressed level so that its current yield may be 1% to 2% higher than its historical yield.
2. Structural high-yielding stocks. For this type of high-yielding stock, we think of a real estate investment trust (REIT) or master limited partnership (MLP).
3. Struggling companies with temporary high yields. The high yields here may be temporary, not because the stock price is about to rebound at any moment, but rather because the company is likely to either cut or eliminate its dividends.

If you are going to be a high-yield dividend investor, it helps to seek quality companies from either of the first two categories. Sadly, there won’t be many quality companies in the third category.

When investing in dividend yielders, your investment criteria should consider more than just the yield. In order to determine if a company can continue to pay out a high dividend yield, make sure you focus on stocks of companies that are financially healthy enough to sustain and even grow their dividend.

This month’s First Cut shows 15 high-yielding companies. The First Cut universe was limited to exchange-listed stocks with a share price above $3. Foreign stocks were excluded because of the uniqueness of their financial statements.

A filter requiring annual dividend increases over the last three years was specified. The three-year historical dividend growth rates provide a sense of dividend sustainability. Positive current earnings for the current fiscal year were also required as a minor financial strength screen. The current dividend yield must be greater than 4.0% in order to be superior to the current 30-year Treasury rate of 3.23%.
 

High-Yielding Dividend Payers
(Ranked by Dividend Yield)

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