These high-yield stocks are down as much as 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 July 13, and the numbers are expected to be ugly.

If you are an investor who wants current income, not only do you need higher yields to help counteract price increases, you need some surety that your dividends won’t be cut if the US economy heads into a recession.

Below is a screen of stocks whose prices have declined at least 10% this year, but also have high dividend yields that appear well-supported by free cash flow over the next 12 months, based on analysts’ estimates.

The MarketWatch US Economic Calendar includes estimates for all major coming releases of government numbers, by economists polled by Dow Jones Newswires and the Wall Street Journal. Economists expect the Consumer Price Index for June to show a year-over-year increase of 8.8%, up from a 40-year high of 8.6% in May.

It’s easy to say that if your dividend yield is lower than the CPI increase, you are losing buying power. Then again, nobody is affected by every element of the CPI index. You don’t buy new cars continuously, for example. Regardless, the higher the income, the better, especially if you need it now and have some comfort your payout won’t be cut.

Dividend stock screen

The screen began with the S&P 1500 Composite Index SP1500,
-0.02%,
which is made up of the S&P 500 SPX,
-0.15%,
the S&P 400 Mid Cap Index MID,
+ 0.72%
and the S&P Small Cap 600 Index SML,
+ 0.69%.

Here’s how the screen went:

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

  • 71 of them had suffered price declines of at least 10% year-to-date.

  • 48 of them have consensus estimates of free cash flow per share (or alternate figures) available for the next 12 months, from analysts polled by FactSet. The free-cash-flow estimates can be divided by the current share prices for estimated free cash flow yields. The FCF yields can be compared with the current yields to see if there is “headroom” to pay higher dividends. For many financial-services companies, especially banks and insurers, free cash flow estimates aren’t available. But in these heavily regulated industries, earnings per share are considered to be a good indicator of how much of the cash being generated will be available to cover dividends, so we used consensus EPS estimates. For real estate investment trusts, FCF data isn’t available. Instead, funds from operations (FFO), a non-GAAP measure widely accepted in the REIT industry to measure estimate dividend-paying ability, is used. FFO adds depreciation and amortization back to earnings, while netting out gains on the sale of real estate.

  • 37 have an estimated dividend “headroom” of at least 2.00%.

  • 19 of these have had no dividend cuts over the past five years.

It may seem a bit harsh to exclude companies that cut their regular dividends at any time over the past five years because the early stages of the pandemic coronavirus in 2020 were so dramatic. Then again, can you be sure the risk of another virus-driven downturn has been eliminated? Consider the risk to a REIT that owns hotel or retail properties.

Here are the 19 dividend stocks that passed the screen, sorted by dividend yield:

Company

Ticker

Industry

Dividend yield

Estimated FCF yield

Estimated headroom

Price change – 2022 through July 11

Industrial Logistics Properties Trust

ILPT,
+ 1.79%

REIT

9.48%

12.45%

2.97%

-44%

Brandywine Realty Trust

BDN,
+ 1.82%

REIT

8.40%

15.46%

7.07%

-33%

SL Green Realty Corp.

SLG,
+ 3.84%

REIT

8.32%

15.27%

6.95%

-39%

Medical Properties Trust Inc.

MPW,
+ 2.81%

REIT

7.50%

12.03%

4.52%

-35%

New York Community Bancorp Inc.

NYCB,
+ 2.02%

Savings Banks

7.43%

14.22%

6.79%

-25%

Hudson Pacific Properties Inc.

HPP,
+ 3.03%

REIT

6.89%

14.31%

7.42%

-41%

Janus Henderson Group PLC

JHG,
+ 1.32%

Investment Managers

6.75%

11.49%

4.74%

-45%

Rent-A-Center Inc.

RCII,
+ 2.09%

Finance / Rental / Leasing

6.68%

28.29%

21.61%

-58%

Innovative Industrial Properties Inc

IIPR,
+ 0.48%

REIT

6.29%

8.33%

2.04%

-58%

Highwoods Properties Inc.

HIW,
+ 1.60%

REIT

6.03%

11.94%

5.91%

-26%

CareTrust REIT Inc.

CTRE,
+ 1.44%

REIT

5.86%

8.20%

2.34%

-18%

Store Capital Corp.

STOR,
-0.52%

REIT

5.72%

8.35%

2.63%

-22%

MDC Holdings Inc.

MDC,
+ 1.14%

Homebuilding

5.68%

22.61%

16.93%

-37%

Hanesbrands Inc.

HBI,
+ 2.01%

Apparel / Footwear

5.61%

9.64%

4.03%

-36%

Dow Inc.

DOW,
+ 0.44%

Chemicals

5.49%

14.87%

9.39%

-10%

Douglas Emmett Inc

DEI,
+ 1.73%

REIT

5.09%

9.62%

4.53%

-34%

Universal Insurance Holdings Inc.

UVE,
-0.00

Property / Casualty Insurance

5.08%

13.33%

8.26%

-26%

Huntington Bancshares Incorporated

HBAN,
+ 1.42%

Regional Banks

5.04%

11.72%

6.67%

-20%

Best Buy Co. Inc.

BBY,
+ 1.08%

Electronics / 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 about each company’s long-term prospects. One easy way to begin is by clicking on the tickers in the table. Then click here for Tomi Kilgore’s detailed guide to the wealth of information for free on the MarketWatch quote page.

Don’t miss: Bank stocks are super cheap – even with the risk of recession

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