These high yield stocks have fallen 58% this year. But their inflation-fighting dividends have room to grow.

It’s that time again – the monthly consumer inflation report will be released on July 13, and the numbers should be ugly.

If you’re an investor who wants current income, not only do you need higher yields to help counter price increases, but you need some certainty that your dividends won’t be reduced if the U.S. economy goes into recession.

Below is a screen of stocks that have fallen in price by at least 10% this year, but also have high dividend yields that look well supported by free cash flow over the next 12 months, according to analysts’ estimates.

MarketWatch’s U.S. economic calendar includes estimates for all upcoming major releases of government figures, according to economists polled by Dow Jones Newswires and The Wall Street Journal. Economists expect June’s consumer price index to post a year-over-year increase of 8.8% from a 40-year high of 8.6% in May.

It’s easy to say that if your dividend yield is lower than the increase in the CPI, you are losing purchasing power. Again, no one is affected by every element of the CPI index. You don’t continually buy new cars, for example. Either way, the higher the income, the better, especially if you need it now and are sure your payment won’t be reduced.

Dividend Stock Screen

The screen started with the S&P 1500 SP1500 composite index,
-0.02%,
which is made up of the S&P 500 SPX,
+0.03%,
the S&P 400 Mid Cap Index MID,
+0.61%
and the S&P Small Cap 600 SML Index,
+0.44%.

Here’s how the screen turned out:

  • 96 of the stocks had dividend yields of at least 5.00% as of the July 11 close, according to data provided by FactSet.

  • 71 of them had suffered price drops of at least 10% since the start of the year.

  • 48 of them have consensus estimates of free cash flow per share (or other numbers) available for the next 12 months, from analysts polled by FactSet. Free cash flow estimates can be divided by current stock prices to arrive at estimated free cash flow yields. FCF yields can be compared to current yields to see if there is “room” to pay higher dividends. For many financial services companies, especially banks and insurers, free cash flow estimates are not available. But in these heavily regulated industries, earnings per share is considered a good indicator of how much cash is generated that will be available to cover dividends, so we used consensus estimates of EPS. For real estate investment trusts, FCF data is not available. Instead, funds from operations (FFO), a widely accepted non-GAAP measure in the REIT industry to measure the estimated ability to pay dividends, is used. FFO adds depreciation and amortization to profits, while offsetting gains on the sale of real estate.

  • 37 estimated a dividend “margin” of at least 2.00%.

  • 19 of them have not had any dividend cuts in the past five years.

It might seem a bit harsh to exclude companies that have cut their regular dividends anytime in the past five years, because the early stages of the coronavirus pandemic in 2020 were so dramatic. Again, can you be sure that the risk of another virus-caused slowdown has been eliminated? Consider the risk for a REIT that owns hotel or commercial properties.

Here are the 19 dividend-paying stocks that made it through the screen, sorted by dividend yield:

Company Teleprinter Industry Dividend yield Estimated return in FCF Estimated margin Price change – 2022 until July 11

Industrial Logistics Property Trust

ILPT,
+1.94%

REITs

9.48%

12.45%

2.97%

-44%

Brandywine Estate Trust

NDB,
+1.99%

REITs

8.40%

15.46%

7.07%

-33%

SL Green Realty Corp.

SLG,
+3.95%

REITs

8.32%

15.27%

6.95%

-39%

Medical Properties Trust Inc.

MPW,
+2.49%

REITs

7.50%

12.03%

4.52%

-35%

New York Community Bancorp Inc.

NYCB,
+1.80%

savings banks

7.43%

14.22%

6.79%

-25%

Hudson Pacific Properties Inc.

PPH,
+3.03%

REITs

6.89%

14.31%

7.42%

-41%

Janus Henderson PLC Group

JHG,
+1.25%

Investment managers

6.75%

11.49%

4.74%

-45%

Rent-A-Center Inc.

ROI,
+3.44%

Financing/ Rental/ Leasing

6.68%

28.29%

21.61%

-58%

Innovative Industrial Properties Inc

IIRP,
-0.06%

REITs

6.29%

8.33%

2.04%

-58%

Highwoods Properties Inc.

Hi,
+1.39%

REITs

6.03%

11.94%

5.91%

-26%

CareTrust REIT Inc.

CTRE,
+1.49%

REITs

5.86%

8.20%

2.34%

-18%

Capital Corp Store

STOR,
-1.08%

REITs

5.72%

8.35%

2.63%

-22%

MDC Management Inc.

CDM,
+1.31%

construction of houses

5.68%

22.61%

16.93%

-37%

Hanesbrands Inc.

HBI,
+3.50%

Clothes shoes

5.61%

9.64%

4.03%

-36%

Dow Inc.

DOW,
+0.61%

Chemical products

5.49%

14.87%

9.39%

-ten%

Douglas Emmett Inc.

DEI,
+2.20%

REITs

5.09%

9.62%

4.53%

-34%

Universal Insurance Holdings Inc.

UVE,
-0.08%

Property/damage insurance

5.08%

13.33%

8.26%

-26%

Huntington Bancshares Incorporated

HBAN,
+2.07%

Regional banks

5.04%

11.72%

6.67%

-20%

Best Buy Co. Inc.

BBY,
+1.73%

Electronics and appliance stores

5.04%

11.75%

6.71%

-31%

Source: FactSet

If you are interested in any of the stocks listed here, do your own research to form an opinion on each company’s long-term prospects. A simple way to start is to click on the tickers in the chart. Then click here for Tomi Kilgore’s in-depth guide to the wealth of free information on the MarketWatch quotes page.

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