PERSONAL FINANCE

14 High Dividend Stocks You Can Count On

MATT KRANTZ 11:14 AM ET 11/19/2019

I t's easy to chase high dividend stocks — and even easier to lose money on them if
they fall. There's a better way to find high dividend yields you can count on to make you
money — which includes stocks like REIT Store Capital (STOR), a slew of banks like PNC
Financial (PNC) and pet pharmacy PetMed Express (PETS).
 Error loading media:

All things held equal, when a stock falls the dividend yield rises. In other words, if you
own a company with a massive yield that's rising, you're likely losing money on the
underlying stock. That's not a successful long-term strategy. It's actually a common way
to lose money.

What's an investor looking for high dividend stocks to do then? Find stocks with
market-beating yields and shares that at least keep pace with the market long term.
That way you get a rich dividend that isn't eroded by a faltering stock price.

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To help you find such opportunities, Investor's Business Daily pinpoints high dividend
stocks that yield 50% more than the Standard & Poor's 500 (yielding roughly 2%). But,
just as importantly, they have a stock price that at least keeps up with the market.

High Dividend Stocks: Math Distorts Reality

A rising dividend yield may simply be masking a money-losing stock. Math and the way
dividend yields are calculated is why this happens. The formula for dividend yield is:
 Dividend yield = Annual dividend/Stock share price

Why does this equation matter? A falling stock can make a dividend yield look great.

Let's say you buy a $30-a-share stock that pays $3 a year in dividends. You might be
initially thrilled with your impressive 10% annual dividend yield ($3 dividend divided by
$30 stock price). The stock's yield is 400% larger than the S&P 500's roughly 2% yield.

Now, the stock crashes to $15 a share and the company holds the dividend the same.
Applying the same dividend yield formula, the stock's dividend yield doubles to 20%.
Looks great. But wait a second, despite the higher yield, you're worse off because you
lost $15 a share on the stock.

It will take five years of $3 dividend payments just to break even on your stock loss.

This is why chasing yield is often a bad idea when looking for high-dividend stocks. High
yields are often a mathematical distortion of a declining stock.

Chasing Yield Can Cost You Money

Losing money on a dividend-paying stock is not just a theory. It's a common occurrence.
In fact, 407 stocks in the S&P 500 paid a dividend going into 2018, says S&P Global
Market Intelligence. Of those dividend-paying stocks, 259, or 64%, saw their shares fall
enough during the year to wipe out the entire year's dividend yield, or worse.

Don't think high dividend stocks were any safer, either. Going into 2018, 96 S&P 500
members paid market-beating yields of 3% or higher. Of those, 47, or about half,
suffered 3% or greater stock declines during the year.

The Kraft Heinz Company (KHC) $31.18 0.68 2.25%

Price

40

34
 34

30

26

23

20

21,500,000

Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19

Provided by Nasdaq Last Sale Last Update:10:23 AM EST 12/05/2019

Real-time quote and/or trade prices are not sourced from all markets.

Take Kraft Heinz (KHC), one of Warren Buffett's high dividend stocks darlings, as an
example. The stock yielded 3.22% going into 2018. Shares of the food company
dropped 45% though, during the year. That left investors with a net loss of 41.4%, even
with the fat dividend.

Keep in mind, too, companies paying high dividends can cut them when the business
wanes. General Electric (GE) cut its storied dividend in the fourth quarter of 2018 to
just a penny a share, down from the 12 cents a share it paid previously.

High Dividend Stocks: IBD's Better Approach

So, if chasing yield doesn't work, what does? One IBD strategy looks for high-dividend
stocks with signs of stability going for them. Specifically, these stocks have:

! High dividend yields of 3%-plus. That's 50% higher than the S&P's roughly 2% yield.

! Three- and five-year earnings growth of 10%-plus.

! Earnings stability of 20 or better. Earnings stability is measured by looking at how

much earnings per share swings from the five-year trend. A lower number indicates
more stability.
! No cuts to the dividend.

IBD also only looks at stocks that have at least kept pace with the S&P 500 the past five
years (a 50% gain through the end of the second quarter). That way, owning the high-
dividend stocks at least didn't cost you in lost opportunity.

Finally, stocks also must have a Relative Strength Rating of 70 or higher out of a
possible 99. This means the stock outperforms 70% of all stocks in IBD's database.

You might think no stocks can clear all these hurdles. Actually, 14 did.

High Dividend Yield Winner: PetMed Express

Petmed Express Inc (PETS) $21.52 0.17 0.78%

Price

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20

15

256,000

26 10 24 07 21 05 19 02 16 30 13 27 11 25 08 22 06
May Jun Jul Aug Sep Oct Nov Dec

Provided by Nasdaq Last Sale Last Update:10:23 AM EST 12/05/2019

Real-time quote and/or trade prices are not sourced from all markets.

When you've narrowed down the list of high-dividend stocks this much, it's OK to look
for the best dividend yield. That title goes to PetMed Express. Based in Delray, Fla,
PetMed sells prescription and non-prescription medicines for pets. The stock yields
4.8%, well above the market.
Pets are turning into a big business as dogs and cats practically become members of
people's families. Research outlet Reports and Data estimates the animal-health
market will be worth $70 billion by 2026. Grand View Markets says the industry was
valued at $44.74 billion in 2018 and will grow 5.7% on a compound annual basis from
2019 to 2026. Supplies related to production animals accounted for about two-thirds
of the 2018 market. Pets and other companion animals were the remaining third.

Shares of PetMed are up 68% over the past five years. Earnings grew at a 16%
annualized clip the past three years and are stable. On top of this, the company boosted
its dividend by more than 11%.

Now, that's a reliable dividend.

Dividend Darling: Store Capital

Real estate investment trusts, like Store Capital tend to be high payers because tax
rules require them to return 90% of their taxable income to shareholders annually.

Given that REITs must pay out nearly all earnings as dividends, it's not surprising to see
one on the list of high dividend stocks. Scottsdale, Ariz.-based Store Capital runs single
tenant operational real estate properties. Store Capital's tenants range from
restaurants, childcare facilities, retailers, movie theaters and health clubs. The industry
diversification helps to protect Store Capital from an slowdown in a particular business
it collects rent from.

Store Capital Corp (STOR) $39.85 0.25 0.62%

Price

40

35
 792,000

26 10 24 07 21 05 19 02 16 30 13 27 11 25 08 22 06
May Jun Jul Aug Sep Oct Nov Dec

Provided by Nasdaq Last Sale Last Update:10:23 AM EST 12/05/2019

Real-time quote and/or trade prices are not sourced from all markets.

The number that matters most to investors, though, is 3.5%. That's the dividend yield,
which is backed up with 11% average annual, highly stable, earnings growth the past
x out
three years. The dividend has also risen by a healthy 8% clip. And rather than wiping
dividends,
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Banks Flex Their Dividend Power

Several banks, including PNC Financial and Suntrust (STI), show why durable earnings
coupled with dividend yields can be a powerful combination.

Take PNC. The Pittsburgh-based bank's 3% dividend yield calls out to income-seeking
investors. But our analysis shows there's more to it than just a market-beating payout.
Double-digit earnings growth the past five years and 18% earnings growth the past
three show the bank is tapping new routes of expansion. Most promising is the bank,
following the financial crisis, is committed to dividend growth. PNC boosted its
dividend 18%. All this, and an acceptable Relative Strength of 86.

The Full List Of IBD High Dividend Stocks You Can Count On

All told, investors don't have to resort to companies with shaky fundamentals or falling
stock prices to get high dividend stocks. You just need to know how, and where to look.

We show the results of the screen with all 14 high dividend stocks, with yield, EPS
growth, dividend growth, Relative Strength and 5-year price change.

3 Year EPS EPS EPS 5 5-Year

Symbol Company Indicated Growth Growth YR Dividend Relative Price
Yield % Rate (%) Rate % 5 Stability Growth Strength Change
Year %

Aircastle
(AYR) 4 19 10 18 11 98 56
Ltd

Grupo
(PAC) Aero Del 3.6 10 12 7 18 92 64
Pac Ads

MDC
(MDC) 3 28 29 16 5 92 71
Holdings

Store
(STOR) 3.5 11 23 15 8 88 92
Capital

(AVGO) Broadcom 3.3 30 38 12 78 86 243

PNC
(PNC) 3 18 10 7 18 86 73
Financial

PetMed
(PETS) 4.8 16 17 16 11 82 68
Express

Suntrust
(STI) 3.2 23 15 8 25 81 80
Banks

Federal
(AGM) Agric Mtg 3.4 22 16 12 44 79 173
Cl C

Regions
(RF) 3.8 25 17 8 26 77 64
Financial

Bank Of
(BOH) 3 11 10 2 8 74 54
Hawaii

Citizens
(CFG) 3.6 31 26 6 38 74 54
Financial

Old
(ORI) Republic 3.5 13 13 14 17 71 65
Intl

United
(UBCP) Bancorp 4.4 12 12 4 13 71 52
Oh
Source: Investor's Business Daily through Nov. 19, 2019

Follow Matt Krantz on Twitter @mattkrantz

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PERSONAL FINANCE

Franklin Income Fund's Ed Perks Talks

Dividends

Franklin Income Fund’s Ed Perks has shifted some weight to stocks from bonds in
the current environment. (Franklin Templeton)
ADAM SHELL 08:00 AM ET 12/02/2019

W e're living in a low-yield world, which makes generating income a challenge for
investors in general and Franklin Income Fund in particular.

The Federal Reserve has cut interest rates three times this year to inoculate the
economy from risks posed by trade tensions and weak growth overseas.

The 10-year Treasury yield has declined to 1.75% from 3% a year ago — and below the
roughly 2% dividend yield on the S&P 500 stock index. (A $100,000 investment earning
1.75% nets just $1,750 a year in interest income, or $145 per month, hardly a king's
ransom.)

Where To Find Yield?

And $15 trillion in foreign government bonds now yield zero or less, a Deutsche Bank
report noted recently. (That means bondholders get back less money than they paid to
buy the bonds.)

So, what's an investor in search of income to do?

View The Full Special Report

To get some ideas on how fund investors can generate enough income to bolster
returns in a diversified portfolio or support a lifestyle on a fixed income without taking
tons of risk, IBD caught up with Ed Perks, manager of Franklin Income Fund (FKIQX).
The $74.7 billion Franklin Income Fund, which sports a 3.8% 30-day yield and invests in
Treasuries, investment-grade and high-yield corporate bonds, convertible securities
and dividend-paying stocks, has been around for more than 70 years.

Challenges Franklin Income Fund Manager Sees

IBD: Generating investment income isn't easy in this environment is it?

Ed Perks: As we look back on this post-financial crisis period, and the intent of global
central banks to lower rates to stimulate economic activity after a severe recession, it
has posed a challenge for income-oriented investors and retirees that rely upon the
yield their investments generate to supplement their incomes. That's something that
will continue to be a challenge. The Fed and other global central banks remain
concerned about the global economy and are still very accommodative.

IBD: Should people be thinking about income investing in a different way and be buying
dividend-paying stocks as well as bonds?
Perks: From our perspective, a multi-asset approach is beneficial. Returns from fixed-
income investments will be lower from a yield perspective. So, there's an argument for
owning equities for yield, and maybe in greater proportions than what you've
historically seen in an income strategy.

More Than Bonds

IBD: So as with Franklin Income Fund, it's not just about owning bonds or bond funds?

Perks: I've been managing income strategies since 2002 and there's more opportunity
now to generate income in stocks. Not only is the dividend yield in stocks higher today
than the 10-year Treasury, I would take it a step further: What is going to happen to
that income stream in 10 years if you own a 10-year Treasury? The coupon on that note
is going to remain stable. Our expectation is there will be dividend growth in the S&P
500 in the next 10 years, so the income you're getting every year owning stocks will
rise.

Yield Opportunities

IBD: What parts of the stock market present new yield opportunities for Franklin
Income Fund and investors in general?

Perks: Financials would be one attractive sector. Coming out of the financial crisis one
of the casualties in this sector was dividend growth. But financials are now stronger
financially. They've improved their balance sheets, and their capital ratios are better. As
we look forward, we think dividend growth in the financials will be higher than the
overall equity market.

The best example might be tech stocks. At the start of the 2000s, the number of tech
companies paying dividends was much lower and their commitment to dividend growth
was nonexistent. Tech companies today have embraced dividends and are committed to
dividend growth. Something like Texas Instruments (TXN), I can earn a 3% yield from a
company with a very attractive long-run dividend growth profile and the opportunity to
grow dividends going forward.

IBD: How important is it that Texas Instruments' stock price has outperformed the S&P
500 over the long term, certainly the last five years? The chipmaker's stock is up 115%
vs. 50% for spy. Should investors insist that dividend stocks have strong fundamentals
or some other reason that their stock portfolio will preserve or increase capital while
generating yield?

Perks: We don't think strong price appreciation is required to make a dividend stock
attractive. While we look for fundamentally sound companies, we don't always see
price gains like that of Texas Instruments. Southern Company (SO) is an example of this
and a good contrast with Texas Instruments — while total returns have been attractive
for Southern Company over the last five years, they have been more dividend driven
(yield now 4.0%), which is attractive for the Franklin Income Fund.

IBD: Franklin Income Fund has about 30% of its assets in equity and 47% in fixed
income. Aren't stocks inherently riskier?

Perks: Stocks will have a higher level of risk if you invest in them in isolation, even those
with defensive qualities and stable earnings that have outperformed. Although yields
are attractive, valuations might be stretched in some instances. That's a higher risk
income strategy that many investors, especially given where we are in the economic
and market cycle, will be less comfortable with. You have to be thoughtful about it, and
you have to understand your risk tolerance.

Offsetting Risk

IBD: Is there a way to offset the added risk of using stocks to generate income?
Perks: Adding in short- to intermediate-duration Treasuries to a dividend stock
portfolio makes a lot of sense. There is an inverse correlation we see in periods of doubt
about the economy and market. We haven't had challenges of late, markets have been
fairly strong and have been grinding quietly higher. But earlier in 2019 we did see some
volatility, and we did see bonds perform relatively well, so they're still an important
stabilizing effect on a portfolio today. We think that is an important dynamic when
thinking about your portfolio. Generate more of the income from the portfolio today
from equities and controlling that equity risk by having allocation to higher-quality
assets.

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IBD: With yields on short-term bonds near those of long-term bonds, it gives investors
a chance to invest at higher yields with less risk, too, right?

Perks: Yes, you can get some yield today even from relatively short-duration, very high-
quality Treasuries. Short- and intermediate-duration Treasuries do look more attractive
to us today than they did two years ago when rates were much lower on the front end
of the yield curve (i.e. when short-term rates yielded much less than longer-term
Treasuries).

What About Indexes?

IBD: Does it make sense for investors who want broad bond-market diversification to
opt for a one-stop shopping option like an index fund or ETF?

Perks: Certainly, there are core bond fund ETFs that exist and that investors can
incorporate into their portfolios. Costs are certainly low on these products.
IBD: How does Franklin Income Fund differ from an index approach?

Perks: Franklin Income Fund is an actively managed strategy centered around a

philosophy that undervalued or out-of-favor securities capable of generating attractive
income over the near term can often be overlooked by market participants with a short
time horizon. Through active asset allocation and diligent security selection — which an
index approach would not incorporate — we believe our differentiated and often
"contrarian" perspective can contribute to compelling income generation and total
returns for investors.

IBD: What do you see as the biggest risk for bonds and fixed income heading into 2020?

Perks: Longer term, inflation expectations changing. They've come down more recently
and that's been fuel for some of the bond market rally that we've seen in 2019. We are
kind of long in the cycle, but as we look out three to five years, we still have things, like
higher wages, that certainly could pressure inflation higher and maybe change peoples'
expectations for where inflation is going to be in the future. And really (expectations
are) all it takes to lead to a pretty meaningful shift higher in interest rates.

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PERSONAL FINANCE

Active Bond Funds Seek To Enhance Yield,

Lower Risk Relative To Benchmarks

MARIE BEERENS 08:00 AM ET 12/02/2019

A s yields have remained lower for longer, bond investors and fund managers
have been scratching their heads about where to find fixed income investments without
incurring excessive risk.

Fortunately, the market always has something on offer no matter where in the
economic cycle it is.

"In this environment, there's a huge demand for yield and income," said Marilyn Watson,
head of the global fundamental bond product strategy team at BlackRock. "When you
look at where rates were at the end of last year and one year on to now, it's very
difficult now for investors to find very stable sources of income compared to one year
ago."

Keep Fixed Income Investments Diversified

As a result, she says it's paramount to be very diversified. That said, just owning an
index "is much trickier," she points out. Some of the weaker credit names have suffered
from idiosyncratic risk. Meanwhile, the high-quality names or those with solid
fundamentals have been performing very well, she explains.

Other Articles In This Special Report:

Where To Find Decent Yields
How To Compare Two Dividend Stocks
Are REITs Good Yield Investments?

Fixed income investments have had an amazing run so far this year. The Bloomberg
Barclays U.S. Aggregate Bond Index was up 8.45% through Nov. 19. The index is a proxy
for all investment-grade bonds in the U.S. It offers a yield of 2.25% and a duration of 5.6
years. Duration indicates the sensitivity of bond prices to changes in interest rates. The
higher the number, the more prices can be expects to fall if rates rise. There are many
passively managed mutual funds and ETFs that track the U.S. Aggregate Bond Index.

But, as Watson noted, when you're invested in a passive index fund, you may be taking
on excessive risk. That could come from interest-rate risk, through duration exposure.
Or it could be credit risk, through exposure to weak names in the index. Moreover, the
index' strong performance this year stems from considerable price appreciation in
bonds as rates have fallen sharply. Such a scenario may not repeat itself .

Where To Find Safe Yield In Fixed Income Investments?

So, where can investors find yield in fixed income investments while limiting exposure
to these risks as much as possible?
Whether you're considering a mutual fund or an ETF, this may be a good time pick an
actively managed fund to enjoy the expertise of a seasoned fund manager. Fixed income
funds have seen incredible inflow this year. And many of the new launches include
active funds to meet investor demand.

The advantage of an actively managed fund is that managers do bottom-up research to

pick specific fixed income investments that meet strict fundamental criteria. They also
have the flexibility to rebalance the fund on a regular basis and under- or overweight
specific names or sectors. The fees on those funds are usually higher than on index
funds.

Proof Is In The Return

"I think the proof is in the return profile (of actively managed bond funds)," said Lisa
Hornby, portfolio manager at Schroders Investment Management. "Even inclusive of
fees, those returns are higher than passive funds. Particularly in a market environment
like today, you have to be very selective in where you take your risk."

When looking at bond sectors, corporate bonds tend to be either fairly valued or
expensive today, so many managers are looking elsewhere to find stable returns. One
sector that is cheap relative to where it's been historically and vs. other sectors in fixed
income investments is the securitized sector (structured products), especially agency
mortgage-backed securities (MBS), says Hornby.

An agency MBS is issued by one of three quasi-governmental agencies such as GNMA,

FNMA or Freddie Mac. It carries close to zero default risk and is considered a very safe
investment.

"These types of securities offer very safe income opportunities for investors," said Brian
Quigley, manager of Vanguard Short-Term Federal Fund (VSGBX). "What we invest in is
generally short duration, so investors are taking less interest-rate risk, and all of the
assets are guaranteed either by the Federal government or agencies of the Federal
government. So, these allow investors to earn yield while avoiding corporate default
risk or credit spread widening risk."

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The $4.8 billion actively managed fund invests in debt issued or guaranteed by the U.S.
government or Federal agencies. It carries a yield of 1.7%, costs just 0.2% in annual fees
and is up 3.86% year to date.

Eye On After-Tax Returns

A more unique offering, actively managed Hartford Schroders Tax-Aware Bond Fund
(STWTX) invests in both taxable and tax-free fixed income investments with the goal of
boosting after-tax returns. It currently holds 64% in municipal bonds, with the rest
allocated to corporates, agency MBS and U.S. Treasurys. The $341 million fund yields
1.56%, charges a 0.49% annual fee and is up 7.28% year to date. The fund carries a
duration of 3.58 years. It also has an equivalent ETF, the Hartford Schroders Tax-Aware
Bond (HTAB), which was launched last year and charges an annual fee of 0.39%.

Hornby says that the fund is opportunistic in terms of its duration. This means that
when rates fall, it will shorten its duration and when rates rise, it will lengthen its
duration. It uses a model that tries to ensure that in the next three years, the fund does
not draw down on principal. "So, we use the income in the fund to offset any potential
adverse rate shocks," she says. The fund started the year with a six-year duration, while
now it's closer to 3.6 years. In addition, the fund has also been more defensive in its
corporate bond allocation.
Diversification and liquidity are key in this market, she explains. "When you start to see
valuations becoming more expensive, you really want to have liquidity in your portfolio
because when the next shock occurs, you want to be positioned to take advantage of it."

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