Just having a high yield is not necessary a desirable thing in and of itself. There are a couple of rules that govern my selection of high yielding stocks when the dividend is extremely high — as in more than 4%. First what percentage of cash does the company have to pay out to the shareholders? You will want to find out this information because it alerts you as to whether a high dividend paying stock will be able to maintain its payout into the future. If the company is paying out more than it can afford, it is a sure sign that the dividend will soon be slashed, which, as income investors, is not what we want.

The other thing to consider when looking at yield is if the company belongs to sub-group of stocks whose dividends are taxed at a higher rate. For instance, real estate investment trusts have in the past offered fantastic dividends (and the potential for share price appreciation that made them a sweet deal in the early 2000s) however as a REIT their dividends are taxes as income. Therefore while most dividend taxes are capped, a REIT’s dividend will be taxed at the rate of your income. Which makes the typical 6-7% dividend return much less appetizing.

Now, the thing that you can do if you want to take in some of this REIT dividend goodness is buy them in your Roth IRA where the tax mess isn’t something you are going to have to worry about.
Anyway, we might be getting a little off subject. Back to high dividend yielding stocks…

The advantage of a high dividend paying stock is two-fold. On the one hand you get a company that is going to pay you +3% a year for holding their issue. This, in and of itself, is desirable. But, the other thing you hope to achieve is to invest in a more stable company. Dividend payers are notoriously less wanton with their cash since they have to pay a big chunk out of earnings every quarter, year, etc to cut those dividend checks. And after the last year or two that we have been through investing in a more conservative company is to a lot of folks liking.

The other advantage of high dividend payers is that you get the return right away. If you own a share of GE you know that you are going to receive 2.4% this year. With that money you can do whatever you choose, but you know you are going to get it. You don’t have to wait until you sell to see a return, you’re going to pocket a percentage every time the dividend is paid out. Obviously, when you combine this with capital appreciation you can potentially enjoy a very nice deal. Plus, the great part of it is that with most online brokers you can automatically instruct your dividend payments to go towards the purchase of more shares which allows you to build up your stake in the company, therefore earning more dividends, allowing you to purchase more shares which pay you more dividends and so on and so on.

So considering all of that, you probably want to know what are the highest paying dividend stocks today? Well as I said, you are probably going to want to find more than just the dividend yield. Because if the company is paying out 90% of its cash to the dividend then it’s probably not going to last. But, still searching for high dividend companies can provide a good jumping off point.

Therefore, what I have done is run a screen at Yahoo Finance, which is actually a pretty good finance portal if you are currently paying for the same data, and I’ve pasted the URL here.

It is possible that this link won’t last, so let me just tell you what I did to find the highest yielding companies. I went to Yahoo Stock Screener and set the screen for any company with a market cap over $500M that was trading over $10/share and that was yielding over 5% and that gives me the list of every company that fits that criteria. When I ran the screen there were companies yielding over 23% though I didn’t go looking at the details. Just FYI: Usually a yield that sounds too good to be true, is to good to be true.

So, there are the basics on how to find high dividend stocks, plus a list of the highest dividend paying stocks. If you have any questions just leave a comment below.

Cheers,
Bryan

First, let’s remember why we invest in the market in the first place. We invest to make money. Oh sure, some people throw their money around to support corporations that are socially responsible, but even then the investors hope to make a profit. The fact is that people buy a stock today because they think that the price is going to be higher tomorrow. And that is the first thing that I look for when I search for interesting stocks. Do I think the stock can support a higher price?

That, capital appreciation, is what interests me in a security. Honestly there isn’t really anything else in it for me. So, I’d like to take a look at an example of the process that I use to narrow down my watch list once a stock has caught my attention. Let’s look at IMAX which I wrote about more than two years ago. There are a couple of reasons that IMAX stood out for me and those reasons will serve us well in this example.

IMAX caught my attention because it had an interesting story. And, after all, you are on a blog called Story Stocks so you can imagine how I go for stories. The story was simple. Over the years, over the decades even, American movie goers have been finding alternative entertainment options from movies. As a result of this movie revenues were trending down ward. Furthermore, it did not seem like theaters would really make great investments going forward. Also, the proliferation of home entertainment systems, DVDs, Blu-Rays, etc were killing the theatrical exhibition industry. The story on a traditional theater chain wasn’t that appealing. But IMAX, I figured was different. IMAX became a fixture on my Stocks to Watch List because it was different from a traditional chain.

My logic went as follows. If more people are staying home and watching movies because there home theater systems are nearly just as good as a movie theaters it is probably going to take something special to get them to go and see the movie in public. Well, the beauty of IMAX is that their experience can not be replicated in the home. I mean how many of us have a 60 foot viewing screen in our living room. So, thinking about it further, I came to conclusion that if fewer people go out to traditional theaters that will hurt regular exhibitors. However, if a higher percentage of total movie goers opt for the IMAX experience because the experience is so unique then I can see how that might lead to a higher stock price. And, as I said above, the reason we invest is to make money in the stock market.

So, as there were other elements of the IMAX story that made it an interesting investment option for me. The main draw was that I hypothesized that more people would be seeing Hollywood movies on the IMAX screen in the future. I could see the trend going my way over time and that could push revenues up, earnings higher, and lift the stock price. The key had to be the ability to exhibit Hollywood titles cheaply and ineffeciently. As it turned out, IMAX had been developing new technology to convert 35mm film to their format. So, I was intrigued, and this made me interested in IMAX as an investment possibility.

There were some warnings signs as well, but these made my interest even higher. It can always be dangerous to enter into an investment position where there is universal agreement on where the company is heading. Far better is there to be controversy about what the future might hold for a stock. With IMAX there were questions about debt and leadership. This did not trouble me as I knew that if the picture was too rosy then there would be a lot less upwards price movement in the stock. In other words, I would have been too late to the investment and it would actually make a better time to get out.

So, how can you use this information to find interesting stocks? It is not as difficult as you think. In fact, I would say there are only a couple of rules. The first thing to look at is can you see a trend unfolding in the next five to ten years that would positively impact the price of the stock. Remember you want to anticipate things ahead of the market but not too far ahead of the market. If you see some technology changing the game and nobody else is aware of it and it’s 30 years out it probably isn’t going to do you much good because you will have to wait on it. Get just ahead of Wall Street on a trend. The other thing you are going to want to look at is there disagreement about whether the trend will materialize or if the corporation will be able to capitalize on it? You don’t want agreement among investors about whether a stock is about to take off, what this means is that the move has already happened and a lot of money has already been made in the name.

Finally, I want to see a stock that I think can at least triple within three years. If you find a stock that looks interesting to you but it is carrying a 100 multiple (the price to earnings ratio) you have to wonder how much upside is in the name. And remember, more than anything else, we buy stocks to make money not to be proven right or wrong!

So, that’s a couple of things that stocks that I find interesting have in common. What methods do you use?

Perhaps you have heard that 75% of actively managed mutual funds will fail to keep pace with the general market over any significant period of time. Well, you heard right. With history as my guide, I can confidently proclaim that the vast majority of mutual funds will underperform the market over the next five years.

There are a number of reasons for this. Let’s look at a few:

1. Mutual funds are often overdiversified.

A diversified mutual fund must hold a minimum of 20 stocks, with many funds owning over 100 or even a thousand individual securities. As you might imagine it’s difficult to reap the rewards of a big winner if it represents 1% of your total assets. Furthermore, who has 100 or 1000 good investment ideas at any time. Of course that’s not the only reason funds fail to outperform the market.

2. Mutual fund managers must invest even when they believe the market is overvalued.

When a mutual fund has a successful period a boatload of new money often flows into it. The fund manager is forced to put this money to work buying more shares at a considerably higher cost or initiating new positions. A fund manager often can not or will not hold a significant cash position in wait of a better opportunity.

3. Even no-load funds bear expenses for shareholders.

All mutual funds have an annual expense ratio (the average for a stock fund is 1.4%). In effect the fund must outperform its respective benchmark by the amount of its expense ratio just to meet the return of the market. For instance, a general equity fund may charge you 1.25% for the honor of managing your money. But if it does not beat the S&P by about 1.15% (the SPY carries a .08 expense ratio), you’re losing money.

4. Mutual fund managers must report their holdings quarterly.

It’s often been said, and I believe it’s true, that no money manager ever lost his job investing in IBM. It’s a simple fact of life that no one wants to look foolish. So creativity is severely lacking among this group of professionals.

Now, all of this is good news. If you’re invested in actively managed domestic mutual funds, get out now. And where should one stash one’s cash? In an index fund? Well, I don’t believe that’s the most appealing option either as $10,000 invested in the S&P 500 10 years ago would be worth just $14,800 with all dividends reinvested. That clocks in at just over a 4% return annually. Hardly anything worth writing home about.

If you have the time and the inclination, I believe you’d do best in individual stocks. You do not have to overdiversify. Your expenses are limited to trading costs ($7 a trade). You’re never forced to buy. And you don’t have to publish your results for the world’s inspection.

So that begs the question, “What do I invest in?” Now your starting to talk my language.

Scour the web. If you’re reading this blog, you’ve taken an important first step. But don’t stop there. Check out the resources listed in the sidebars. (I think Peter Lynch’s One Up on Wall Street is a great place to start.) Read the Motley Fool. Create a model portfolio on Yahoo! Finance. And save, save, save.

After all, you have the advantages. The only thing the professionals have in their corner is an element of fear. They want you to believe that you can’t manage your own money, that you’ll somehow lose it all. The reality of the situation is that it’s likely you’ll do better than they will.

Generally the stocks I signal out for investigation on this blog share many traits. In an ongoing series I outline the qualifications of these story-stocks.

Naturally we’re all looking for investments that will generate a superior return on our capital. If we’re long the market, we’re looking for issues that will rise at a greater rate than the market as a whole. If we’re short, we search out the opposite. Let’s assume that over the long term you expect the market to rise and are looking for issues that will outperform the market as measured by some benchmark like the S&P 500.

When I go stock hunting, I’m probably rather a lot like you. I look for stocks that I think can double, triple, or more over a significant period of time.

If you were to present me with a list of ticker symbols my first order of business would be to check the market capitalization of each.

A company’s market cap illustrates the current value of the enterprise. For instance, a company with 100 million outstanding shares, trading at $10/share, carries a market capitalization of $1 billion.

Since I’m looking at the appreciation potential of a stock over the very long term, I prefer companies that are capitalized at less than $10 billion. There’s only really one reason for this: They can go much higher. For instance, General Electric is valued at around $340 billion. It’s a behemoth. Can it double or triple in value? Sure and it probably will. Do I think it’s a good investment? Probably not.

As a practical matter, General Electric, at $340 billion, can only grow so much. If the stock price appreciated 10% a year it would cross the $1 trillion mark in twelve years. The company would be about as valuable as the entire nation of Ireland. If it were to grow at 20% a year, it would reach $3 trillion over the same time period. In my opinion, it’s just not likely that GE can achieve a $3 trillion market cap in twelve years.

I narrow my search to companies that I believe can appreciate 20% annually, looking for corporations valued between $250 million and $10 billion. These are, by definition, smaller, more agile, and yet to fully mature. Naturally, these smaller companies can feasibly deliver 20% annual returns without straining the imagination. In twelve years a $250 million corporation, appreciating at 20% a year will achieve a market cap of $2.2 billion. A $1 billion operation would grow to $8.9 billion.

Returning to a point from above, it’s perfectably reasonable to expect that GE can appreciate in price in the future. However, it will take time for an enterprise that large to double, triple, or more. It will probably take a great deal of time because it’s already so large. The cat is out of the bag so to speak.

A smaller enterprise piques my attention much more. It can conceivablely grow much faster and offer greater returns over a comparably long time period. That’s why the companies I profile on story-stocks.com tend to fall within that $250 million to $10 billion size range. They still hold the possibility of making a huge move in the future. Larger, less nimble operations simply can’t fuel enough growth to power the share price as high.

Therefore, while General Electric may be a fantastic company, you won’t see it on the frontpage of this blog any time in the near future. It is a story that, for my purposes, has already unfolded. Stay tuned for the stories that will unfold in the very near term.

Sometimes a confluence of events serves to provide investors with a bountiful windfall or a demoralizing defeat. Often times the same series of events will produce both effects dependent only on which side of the trade one is on. That may be what has happened in the case of Jamba Juice (JMBA).

In the past six months Jamba’s stock has swooned from $8 a share in September to close yesterday at $2.76. Several factors contributed to the freefall. Last month the company reported fourth quarter and fiscal year 2007 results to the disappointment of the street. Analysts called for revenue to measure $64 million for the quarter and $327 million for the year. Jamba reported $54.5 and $317.1, respectively. The stock lost 15% in the session following the announcement.

Jamba Juice has continued to languish, shedding another 10% over the last several weeks. A downgrade, by a Wedbush Morgan analyst, and the general fears of recession which have hung over the market in early 2008 bear some of the blame. But, looking over the numbers, I’ve come to wonder if the street hasn’t overreacted somewhat.

At these levels Jamba Juice trades at just a .5 price to sales ratio using numbers from the prior twelve months. That’s downright cheap, especially for an outfit sitting on $44.5 million and carrying zero debt. And though revenues did not meet expectations, the company still delivered an 18% increase over 2006 sales.

While the current economic environment does not favor the company, the worst is already factored into the current price. In the event of a sustained recession, Jamba Juice would likely suffer. However, with $0.85 a share in the coffers, how much lower could the sale price recede?

Certainly economic conditions will improve in time. For investors with a considerable time horizon, Jamba Juice may prove an intriguing value.

Disclosure: I do not own shares in any of the companies mentioned.

Of all the stories I’ve come across in researching articles for this blog this might be my favorite, or at least the most fascinating. Today we’ll be talking robots. Rock ‘em. Sock ‘em. Robots. Yup, robots!

Founded by “roboticists” from MIT, iRobot Corp. (IRBT) operates on the cutting edge of technology. iRobot’s robotic offerings are targeted towards providing solutions to problems that are too “dirty, dull or dangerous” for humans to happily resolve. In the future robots may battle mankind for control of the earth, but for now they’re happy enough to do our vacuuming and mopping. According to the company its robotic offerings will in time extend to a “broad array of markets such as law enforcement, homeland security, commercial cleaning, elderly care, oil services, home automation, landscaping, agriculture and construction.” However, currently their products fall into two categories: military and household.

iRobot’s marketing expenditures increased in the first nine months of 2007 by 50% to a little over $30 million, while R%D, obviously the key component to the company’s future success, received a 19% bump to $13.1 million. Sales results somewhat disappointed the street. Total revenue increased by 16% on a year over year basis, however inventory increased by over 100% to $41 million in finished goods. The household market accounted for approximately 53% of iRobot’s revenue in the nine months ending Sept. 2007 with the government and industrial market making up the remainder. This is perhaps less worrisome moving forward than it might appear. Should the purchasing power of American consumers recede, which it seems likely it will, it is possible that military spending, which increased 39% in the first nine months of ‘07, can sustain the company until the American consumer rebounds. (Whenever that might be.)

However, the troubling aspect lies in the valuation respective to earnings. First of all, there’s no consensus on earnings at the moment. The four analysts with fourth quarter predictions are all over the map. The low estimate calls for $0.24 and the high estimate $0.53. The average, $0.42, is $0.50 higher than the loss of $0.08 that the company reported in the fourth quarter of 2006. For arguments sake, let’s say that company meets the average expectation and delivers 42 cents for the quarter and a nickel for the year. That would be a pretty darn good quarter, right? Well, yes and no.

Expectations for this most extraordinary story (stock) are immense because it IS a great story. Who wouldn’t want to participate in the robot boom that’s sure to happen in the 21st century? Judging from the current valuation, everybody. And unfortunately, that’s the problem.

Going back to our predictive fourth quarter report, let’s assume that the company meets. In that instance, the multiple for the trailing twelve months, assuming a fairly static share price, checks in at 360 with the forward multiple at 58. And to achieve the forward multiple the company would have to increase earnings by 600% to arrive at the estimate. While this is achievable, the current price doesn’t leave much room for price appreciation.

I am not arguing that it’s not a great story because it is. It’s the kind of macro-trend I like to get behind. The problem is that it’s an obvious macro-trend. It’s already been bid up. Like a train at the station everyone jumped on board the moment the car arrived at the platform. Where’s the upside?

It’s more likely, at this juncture, that several folks will need to evacuate the investment, bringing IRBT down to a more reasonable level before the train can again leave the station.

Disclosure: I do not own shares in any of the companies mentioned.

It sometimes takes courage to buy when the faint of heart are fleeing. In investing, like in life, cliches abound that command us to go against the grain and be greedy when others are fearful. However, equally important are the words of Kenny Rogers who advised that one ought to know when to hold ‘em, and know when to fold ‘em. These are the thoughts pulsing through my brain at the moment as I relfect upon one infoUSA (IUSA).

The company, which operates salesgenie.com and peddles various marketing lists, elicits in me the great, dichotomous emotions of investing: greed and fear. First, a quick digression. I came by infoUSA while reading a recap of this year’s slate of SuperBowl ads. For the second consecutive year, infoUSA ran ads for salesgenie.com that were universally panned as unfunny and somewhat more selectively panned as racist. I watched and I remember the ads well. They were fairly terrible especially by SuperBowl standards. I confess, this interested me. If the company minted money selling their various marketing wares, I could barely care if the ads were atrocious. And, actually, it occured to me that the ads in question were so bad they were in fact remarkably memorable. Since I know next to nothing about sales leads I had to check the story from the grassroots up. Some of what I found excited me. other tidbits terrified me.

The company isn’t quite minting money, but it’s doing fairly well. infoUSA registered approximately $688 million in sales in 2007 versus $435 million in 2006. So far so good. Furthermore, the company declared a quarterly dividend of $0.35/share in January, good for a 4% yield. Most interesting was the fact that the company trades at a p/s ratio of just .75 while growing profits at about 14% year over year. Plus the cash/debt situation is sterling. I was intrigued. This things is just too cheap, I thought. And I started to get a little greedy. Then I stumbled upon some other news.

I can’t say I was one hundred percent suprised to learn that management might not be super shareholder-friendly. Call me prejudiced, but there is something a little off-putting about a company that sells sales leads and marketing lists, I guess. But I digress. Further research indicated that Chairman and CEO Vin Gupta operated a travesty of an annual meeting in the summer of 2007 and (in addition to off-color SuperBowl ads) seems to enjoy floating company cash to hobnob with the who’s who of American politics. The company, the more I researched, seemed to ooze sleeziness.

And in crept the fear. These guys can’t be trusted with my money, I thought. And, as quickly as the thought had come to me, I decided I’d put infoUSA down for the time being. Perhaps, if management can promote a sense of competency, I will review this case in the near future.

How often does a company with $160 million in debt and nearly $17 million in losses in fiscal year 2006 capture my attention? Rather infrequently I must confess. However, the IMAX corportation has achieved the status of an exemption. IMAX controls a niche in the specialty exhibition business, and they may finally be leveraging that status into prolonged profitability and growth.

In December, IMAX announced a deal with AMC Entertainment to install 100 digital projection systems in theatres in 33 American markets. In July of 2008 the company will roll out the first 50 units. In January they followed this pact with the announcement of 12 more screens in China and the Phillipines. This deal increases the IMAX footprint by nearly 40%. And certainly caught my attention. But as I thought about the IMAX story further I came to a couple of conclusions.

For some time the motion picture industry has been struggling to attract viewers to theatres. Over time, and you can really go back decades, film attendance has been trending downward. There’s perhaps a myriad of reasons for this from competition from television and the internet to increasing sophistication of in home entertainment systems. However, IMAX, by the nature of 40 by 75 foot screens, provides an experience that can not be replicated in the home. It provides a unique experience for the consumer and it’s larger-life-life nature compliments the blockbuster film, both live action and animation. Evidently, moviegoers agree.

IMAX recently announced that box office receipts for 2007 topped $145 million, up from $8 million just five years before. Hollywood studios are increasingly incorporating IMAX exhibition into their broader release plans for their largest, most commercial offerings. Five of the ten highest grossing motion pictures of 2007 were also released in the IMAX format, with up to 13% of the total box office originating from IMAX exhibition. This seems likely to continue as IMAX continues to expand operations worldwide.

I subscribed to a newsletter from the Motley Fool not too long ago and received a copy of their Stocks 2007 publication. One of the companies highlighted, Marchex, purchased more than 100,000 domain names in 2006 for over $150 million. After this purchase, the company owned well over 200,000 unique URLs on the this world wide web.

Well, this got me to thinking, as there are only so many usable configurations of letters and numbers that might be suitable for such a thing. I wondered, how much can a portfolio of 200,000 domains be worth?

We’ll get to that in a moment. For the time being, Marchex has parked the vast majority of their sites and littered them with some pay-per-click ads. To be sure they’re not the most appealing destinations. But so what. They have 200,000 of them. Try lasvegasvacations.com or airbag.com to get an idea.

So, as is rather a lot like me, I wondered further: If Marchex paid $155 million for about 100,000 URLs and their current inventory numbers around 200,000 is it fair to reasonably infer that the entire portfolio could be currently valued at around $350 million? Seems reasonable. And the company holds $37 million in cash in its deposits. And the market cap of the entire enterprise? $325 Million.

So the land (so to speak) is worth $350 million and the $35 million in cash is good for, well, $35 million but the company as a whole is valued at $325 million? Plus there’s a 1% yield and revenue for 2006 clocked in at $127.8 million… Hmm… These numbers indicate there could be some room for upwards growth.

Consider my interest piqued in the Marchex story.

Disclosure: I do not own shares in any company mentioned.

Can Metretek (MEK), a small cap ($190 million) provider of gas and electric energy measurement products, services and systems continue to obliterate analysts projections? The company has substantially bested estimates for the last two quarters (by 39% and 112% respectively) and is expected to post Q4 earnings of $0.22 a share on Tuesday, March 13. The company, which is only followed by only a couple of firms, provided full year guidance of $0.68 to $0.72 per share for fiscal 2006.

I expect MEK to also issue further guidance for 2007. In the Q3 conference call the company offered preliminary guidance of $15.5 million in income, $137 million in revenue, and $0.89 a share in earnings. If Metretek can deliver on these numbers, year over year earnings would see 29% growth. Not too shabby for a company trading at 13 times forward earnings.

However, it is significant to note that the company derives a major percentage of its revenue from a single contract, with supermarket chain Publix. This, in and of itself, is a bit of a red flag. Though MEK did recently announced the finalization of at least five new contracts with utility companies worth around $11 million in revenue.

Management has steadily maintained its guidance for fiscal 2006 over the past few months. In the past, MEK has been able to blow by its own numbers, as management’s numbers pretty much serve as the street’s numbers. This leads me to believe that the company has been rather conservative in its estimates, allowing it to overdeliver and beat quite handily. It will be interesting to see if Metretek can outperform its own guidance once again.

I’ll be tuning in, that much is certain.