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Nov. 30, 2020, 4:10 p.m. EST

Only these five dividend stocks made the cut in a ‘safer and better’ screen

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By Philip van Doorn

In May 2019, two veteran money managers shared their philosophy with MarketWatch readers that investors shouldn’t be overly focused on the highest dividend yields when selecting stocks for income.

A new screen using the same criteria suggested by one of them now highlights five companies that make the cut. They are listed below.

The original article featured comments from Mike Loewengart, who is now the managing director of investment strategy at E-Trade (which was acquired by Morgan Stanley in October) and Lewis Altfest, CEO of Altfest Personal Wealth Management, which manages about $1.4 billion for private clients in New York. Both were interviewed again for this article.

Loewengart believes that a good approach for income-seeking investors is to focus on total return rather than dividend yield. If you are invested in a fund that tracks the S&P 500 Index /zigman2/quotes/210599714/realtime SPX +1.39% , such as the Vanguard 500 Index Fund /zigman2/quotes/201363336/realtime VFIAX +1.39% or the SPDR S&P 500 ETF /zigman2/quotes/209901640/composite SPY +1.38% , your current yield is 1.60%. If you were to withdraw 5% a year from your index-fund account, you wouldn’t need much additional growth to keep your balance from shrinking.

Here are average annual returns for the S&P 500 over various long periods through Nov. 23:

The index has performed very well over the long term since the 2008-2009 financial crisis. But if you go back 20 years, which factors in the bursting of the dot-com bubble in 2000, along with the credit crisis, the 7.2% average annual return would leave a comfortable margin over your 5% annual withdrawal (income) rate.

Of course, some investors will still want to select individual stocks for some of their portfolios.

Loewengart wasn’t surprised that the updated stock screen — a conservative value-oriented one — came up with a rather small set of companies, because “equity markets have risen considerably.” The S&P 500 Index has advanced 11% this year, excluding dividends. Its current dividend yield of 1.60% is down from 1.79% a year ago, according to FactSet. The decline in the yield has been exacerbated by some dividend cutting and suspensions, as well as more conservative decision-making by many companies that have continued to raise payouts.

Altfest said the stock-screening methodology below is still relevant, but “things have changed” because growth stocks have performed so well. For example, Amazon.com Inc. /zigman2/quotes/210331248/composite AMZN +4.57% is up 68% this year.

“Now, given where stocks are, and the types of stocks, you’re getting more of a play in value, because value does well when economies pick up steam. So that’s where there’s a target of interest,” he said.

Loewengart agrees that “value can be appropriate at this time,” because of this year’s outperformance in growth-oriented sectors. But he stressed that he was “not going to make any prediction” of how well value or growth strategies might perform.

As you see reports of record daily coronavirus case counts, it may be hard to consider value stocks for the eventual economic rebound. But with a reasonable hope for near-term deployment of vaccines from Pfizer Inc. /zigman2/quotes/202877789/composite PFE -0.63% and BioNTech SE /zigman2/quotes/214419716/composite BNTX -1.40% , Moderna Inc. /zigman2/quotes/205619834/composite MRNA +0.10% and AstraZeneca PLC /zigman2/quotes/200304487/composite AZN -0.63% , the U.S. may well be heading out of the pandemic economy in 2021.

“The value players can do very well in that period,” Altefest said.

Altfest’s suggested screen from May 2019 was to begin with a dividend yield of at least 3.00%, with growth of “at least 4% to 5% a year in revenue and profit.” He also suggested stocks with “lower volatility — in a beta of 1 or below.”

Beta is a measure of price volatility. If a stock has a beta of 1 when compared with the S&P 500 Index, for example, its price volatility for the selected period has matched that of the index. Lower beta means less price movement.

For the updated stock screen, we began with the S&P 500 and narrowed the list:

/zigman2/quotes/210599714/realtime
US : S&P US
3,851.85
+52.94 +1.39%
Volume: 2.34B
Jan. 20, 2021 4:58p
loading...
/zigman2/quotes/201363336/realtime
US : U.S.: Nasdaq
$ 355.66
+4.89 +1.39%
Volume: 0.00
Jan. 20, 2021
loading...
/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 383.89
+5.24 +1.38%
Volume: 61.84M
Jan. 20, 2021 8:00p
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,263.38
+142.62 +4.57%
Volume: 5.31M
Jan. 20, 2021 4:00p
P/E Ratio
95.57
Dividend Yield
N/A
Market Cap
$1565.85 billion
Rev. per Employee
$351,531
loading...
/zigman2/quotes/202877789/composite
US : U.S.: NYSE
$ 36.50
-0.23 -0.63%
Volume: 35.40M
Jan. 20, 2021 4:00p
P/E Ratio
23.64
Dividend Yield
4.27%
Market Cap
$204.16 billion
Rev. per Employee
$586,070
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/zigman2/quotes/214419716/composite
US : U.S.: Nasdaq
$ 103.23
-1.47 -1.40%
Volume: 1.62M
Jan. 20, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$25.21 billion
Rev. per Employee
$92,777
loading...
/zigman2/quotes/205619834/composite
US : U.S.: Nasdaq
$ 125.14
+0.13 +0.10%
Volume: 8.00M
Jan. 20, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$49.47 billion
Rev. per Employee
$72,541
loading...
/zigman2/quotes/200304487/composite
US : U.S.: Nasdaq
$ 52.24
-0.33 -0.63%
Volume: 13.63M
Jan. 20, 2021 4:00p
P/E Ratio
54.54
Dividend Yield
2.62%
Market Cap
$138.02 billion
Rev. per Employee
$346,812
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