Experience teaches us many things.  Portfolio managers with many years under their belts get anxious when markets are bubbly.  At times like these, we often look for relatively safe places to make a few bucks.

A formula that’s served me well is to identify a few stocks with these characteristics:

• Not outrageously far from its 52-week low
• In a sector that’s decidedly out-of-favor or just boring
• Offers a relatively high dividend yield
• Has earnings to pay the dividend
• Doesn’t owe too much money

You could buy one, five or a dozen (diversification doesn’t hurt) but I usually would stick to a manageable number that satisfy all criteria in different businesses.

If the stock hasn’t moved much for quite awhile, it can be because its industry is struggling (for example, energy related in Canada right about now) or has limited prospects (like the printing business). There are other reasons – it’s just not sexy.  Whatever the reason, the key to selection is a generous dividend yield, earnings to support it and a strong balance sheet.

Yes there’s more risk than in say Canada bonds, but as I type this the average yield on 3 to 5 year Canada bonds is a meager 1.42%.

The advantage of picking a few high-dividend paying stocks is not just the substantially better cash flow, but also the not unlikely prospect that there’ll be a catalyst for capital gains in the stocks.  The troubled industry turns around after a few years (patience is a virtue); the company is acquired by another bigger corporation, or others simply get turned on to the hefty dividend and drive the price higher.  Here’s my own selection of names FYI:

All the companies have market caps bigger than $500 million and dividend yields north of 3.5%.  The data is from the TMX free stock screener and I take no responsibility for its accuracy (can’t say why the EFY price is lower than the 52 week low for eg. LOL).   I picked the names in the sample mostly because they satisfied my criteria above and I’ve been familiar with these companies for many years as a financial analyst.