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High Yield Stock Watchlist Criteria
Author’s Note: There were some changes made to my watchlist criteria after struggling to obtain at least comparable returns to the Vanguard High Yield Dividend ETF (VYM) under my previous filters. Please read on to see if these filters are in line with the types of companies you want to invest in.
The companies listed on this watchlist are stable, with a track record of paying and raising their dividends consistently. Each of the companies on my watchlist is a large cap stock, which equates to a market cap of at least $10 billion.
Next, the current annual dividend yield of the companies on this watchlist is at least 3%. While there could be some debate as to what qualifies a company as “high yield,” 3% is sufficient for me. In addition to the 3% yield, a 10-year dividend growth rate of at least 5% is the next filter used in hopes to at least keep up with inflation.
Lastly, a company must be able to maintain a growing dividend for me to consider investing in it, so a trailing twelve-month payout ratio of less than 100% is used as the final filter.
I use dividend yield theory to determine if a stock is potentially undervalued or overvalued. This simple idea suggests a company’s yield should revert to the mean over time. An example below is Amgen Inc (AMGN), the current yield is 3.12% while its five-year average is 2.74%. The difference is 38 basis points or approximately 14%, suggesting the stock could be undervalued. It is worth noting I consider any stock that is overvalued or undervalued by 5% to be approximately fairly valued, see also Broadcom Inc (AVGO) below.
| Company | 10 Year DGR | Dividend Yield (01/12/23) |
Div. Yield (5 Year Avg.) |
Overvalued / Undervalued |
| Amgen Inc | 28.81% | 3.12% | 2.74% | -14% |
| Broadcom Inc | 40.17% | 3.18% | 3.33% | 5% |
| Cisco Systems Inc (CSCO) | 18.20% | 3.09% | 2.83% | -9% |
| Chevron Corp (CVX) | 5.56% | 3.24% | 4.43% | 27% |
| Intel Corp (INTC) | 5.92% | 4.89% | 2.50% | -96% |
| Medtronic PLC (MDT) | 10.02% | 3.39% | 2.18% | -56% |
| 3M Co (MMM) | 10.41% | 4.62% | 2.96% | -56% |
| Morgan Stanley (MS) | 26.51% | 3.47% | 2.24% | -55% |
| Pfizer Inc (PFE) | 6.91% | 3.46% | 3.42% | -1% |
| Philip Morris International Inc (PM) | 5.57% | 4.98% | 5.36% | 7% |
| PNC Financial Services Group Inc (PNC) | 15.36% | 3.62% | 2.56% | -41% |
| Pioneer Natural Resources Co (PXD) | 56.00% | 1.90% | 1.35% | -41% |
| United Parcel Service Inc (UPS) | 6.97% | 3.34% | 2.82% | -18% |
| US Bancorp (USB) | 13.15% | 4.08% | 2.83% | -44% |
| Exxon Mobil Corp (XOM) | 6.55% | 3.27% | 5.49% | 40% |
Goal
The goal of my high yield watchlist is to discover companies to add to my dividend growth portfolio in an attempt to consistently exceed the market return of the Vanguard High Dividend Yield ETF. Through December 2022, an equally weighted portfolio of these 15 stocks mentioned above would have outperformed VYM by slightly more than 1%. VYM was lost 0.46% during 2022 while the stocks above have gained 0.57%.
| Symbol | December Returns | 2022 Return |
| AMGN | -8.30% | 20.43% |
| AVGO | 2.32% | -13.27% |
| CSCO | -4.18% | -22.46% |
| CVX | -2.08% | 58.48% |
| INTC | -12.11% | -46.65% |
| MDT | -0.80% | -22.55% |
| MMM | -4.80% | -29.60% |
| MS | -8.65% | -10.40% |
| PFE | 2.21% | -10.42% |
| PM | 2.83% | 12.36% |
| PNC | -6.13% | -18.56% |
| PXD | -3.22% | 38.87% |
| UPS | -8.38% | -16.27% |
| USB | -2.86% | -19.12% |
| XOM | -0.93% | 87.36% |
| VYM | -3.49% | -0.46% |
Final Thoughts
This high yield dividend watchlist is used to identify companies worthy of further research. Stock prices fluctuate continuously, and although there are legitimate reasons for an increase or decrease, occasionally there are times the market is just overreacting to a short-term issue. I believe if you can identify the reason(s) and determine for yourself if a decline in stock price is justified, you can minimize risk in your portfolio by purchasing a company’s stock when their yield is higher than normal.
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