By Al Root

It might be time for investors to consider a dividend turducken.

The turducken is a chicken, stuffed into a duck, stuffed into a turkey. Why settle for one tasty meat when you can have three? Wolfe Research Chief Investment Strategist Chris Senyek recently applied that logic to dividend-paying stocks to identify new ideas with high potential for income-oriented investors, using a few of his favorite screens.

Barron's then narrowed his list down to a dozen solid stocks yielding at least 2% each.

Senyek, who has a nose for winning dividend strategies, updates his ideas every few months. Many of his picks have outperformed dividend benchmarks while keeping pace with the market so far this year.

His favorites include the so-called Dividend Aristocrats, companies that have raised dividends for 25 consecutive years. He also likes relatively high-yielding stocks, although he prefers to avoid the highest-yielding stocks, which are "often caught in two challenging crosshairs: very slow growth in the early/middle of the [business] cycle and potentially the risk of a dividend cut later cycle," Senyek writes.

For a recent example of how that dynamic played out, look no further than Dow Inc., which cut its dividend in half, to 35 cents per quarter from 70 cents, in July amid persistently weak industry profitability. Dow stock was yielding almost 10% before the cut. Now it yields about 6%, with the stock down roughly 25% since the cut.

Senyek prefers stocks in the second-highest-yielding quintile, which historically have outperformed their higher-yielding kin by about one percentage point a year -- while also producing fewer Dow-like shocks. Another of his favorite themes: companies "with the powerful combination of high dividend growth and high free-cash-flow yield." Strong free cash flow provides a measure of safety, while high dividend growth demonstrates that management knows what to do with owners' cash -- return some of it.

All of his criteria make sense and have yielded solid results for investors. Senyek combined some of his classic criteria to screen for high-yielding aristocrats with strong free-cash-flow yields and rapid dividend growth.

The dozen stocks that survived our criteria, in no particular order, are Chevron, IBM, Procter & Gamble, paint maker PPG Industries, industrial gas producer Air Products, industrial supplier Illinois Tool Works, Colgate-Palmolive, medical products company Becton Dickinson, natural-gas distributor Atmos Energy, freight broker C.H. Robinson Worldwide, business services provider Automatic Data Processing, and home-improvement retailer Lowe's.

The group yields an average of 2.5%, better than the 2.3% average yield for dividend payers in the S&P 500 index. And while the stocks have, on average, grown dividends faster than peers, they are paying out roughly 50% of net income as dividends, the same ratio for dividend payers in the S&P 500.

Balance sheets aren't a concern for the dozen. Net debt to earnings before interest, taxes, depreciation, and amortization, or Ebitda, a common measure of financial strength, is about 2.3 times for the group, just above the two-times ratio for S&P 500 dividend payers.

Nor are the dozen especially pricey stocks, trading for about 19 times estimated 2026 earnings. Dividend payers in the S&P 500 trade for about 21 times. The entire index trades for closer to 22 times estimated 2026 earnings.

As always, a screen is only a starting point. After identifying potential new ideas -- using factors such as dividend yield or growth -- the harder work of business analysis and valuation begins.

Write to Al Root at allen.root@dowjones.com

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(END) Dow Jones Newswires

August 15, 2025 21:31 ET (01:31 GMT)

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