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There are two main reasons this is true. First, MFI screens for high-earnings yield. This has the effect of finding undervalued stocks where the dividend yield is likely to be higher than normal. Also, since it screens stocks cheap against their trailing earnings, it also creates opportunity for capital gains in the stock price, in addition to dividend payments.
Second, the screen also looks for high returns on capital. High returns on capital are often a sign of a company with competitive advantages, and/or one that is well run by a competent management team. These kinds of companies are more likely to be able to sustain a dividend payment than ones that are poorly run or have few competitive advantages.Of course, dividend stocks are most useful when utilized as a source of stable income, preferably when the dividend payout can be counted on to grow over the years. There are several Magic Formula stocks with dividend yields that can be considered high (over 3%). But how can we determine if the yield is sustainable and likely to go up in the future?