Sailing through turbulence time with high dividend yield stocks

In bull or bear markets, high dividend yield stocks are always a safer bet. Despite the recovery in stock prices since March 09, it may be wise to turn slightly more defensive and go for dividend yielding stocks now, in preparation for any potential turbulence ahead.

High-yield stocks are an attractive alternative to low returns in fixed income instruments or fixed deposits. Currently, 3-year Malaysian Government Securities (MGS) promise yields of around 3.3% while 1-year fixed deposit rates generate returns around 2.0-2.5%.

For investors with a smaller risk appetite but wish to gain entry into the stock market may find high dividend yield stocks as a good entry points. In bear markets, stocks with high dividend yields become even more desirable because they deliver real downside protection. In the current low interest rate environment, these stocks will provide better returns on investment.

We have short listed 20 high dividend yield stocks, which we feel are worth looking at. Our criteria for selection includes:

(1) Gross dividend yield of at least 6% for FY2010

(2) Strong management

(3) Stable earnings for consistency in dividend payout

(4) Preferably trading in single digits or close to the market PER or PBV

(5) Sound balance sheets.

Other than high yield stocks, we also included five high yield REITS for their stable income streams and consistency in dividend payout.

We have also selected 13 companies with high net cash per share which we believe may offer upside surprises in future dividend payments due to its cash flow generating capability.