Where To Find The Best High Dividend Stocks

Where can you find the best high dividend stocks? Every Industry Sector has certain dividend paying stocks that are the best stocks to buy for dividend income. However, some sectors feature companies with higher dividends than other sectors.

The Energy and Basic Materials sectors are two places where you can find some of the best stocks that offer a high dividend yield.

Several of the companies in these sectors are LP's, (Limited Partners), or MLP's, (Master Limited Partners), that are required to pay out at least 90% of their income to "unitholders", in return for not paying corporate taxes. (LP's and MLP's list their shares as units, hence the term, "unitholder", is the same as shareholder.)

One key thing to check right off the bat is the firm's dividend payout ratio, in other words, how much of their earnings are they paying out in the form of dividends. You should also look at their dividend growth rate over the last 5-10 years, if possible.

For LP's or MLP's, or REIT's, beware of firms with a dividend payout ratio above 100-110%, depending upon how they treat depreciation.

For other firms, excepting REIT's, you may want to screen for dividend payout ratios below 65-70%. Another metric to check out is the firm's operating profit margin. Is it reasonably higher than their dividend yield? If not, they may eventually have to cut their dividend, since their current margin can't sustain their current yield.

REIT's are another specially classified firm, that also pay out 90%-plus in dividends, in exchange for not paying corporate taxes. Due to this arrangement, you'll find many high dividend stocks in the REIT sub-sector of the Financials sector.

In the 2008-2009 credit crisis, there has been a lot of concern over the debt loads of many REIT's, especially those in the commercial real estate sector.

Since these types of REIT's finance projects with debt, investors have been concerned about the firms' ability to refinance current debt obligations. The easing of the credit crisis has helped this situation in 2009, and many firms have used the market rally to issue new stock, thereby recapitalizing.

One thing to note about the distributions, (dividends), from MLP's/LP's and REIT's, is that they do not qualify for the current 15% qualified dividend tax rate. To mitigate this, they classify part of their distributions as "Return of Capital". You may want to consult your accountant before investing in REIT's or MLP's/LP's, in order to determine your tax bite and net yield after taxes, etc.

Even though dividend yields have declined as stocks' prices have rallied in 2009, you can still find many high dividend stocks in the Basic Materials, Energy, and Financial sectors. In fact, a select few of these dividend stocks have yields over 10%, and have the earnings to support such a high dividend.