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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Dividend Stocks Will Be Winners for a Whole Decade

Stocks in this article: MRK T LLY PBI WYNN MCD PEP

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Figuring out which companies may pay dividends is a daunting task for any investor. Think about Apple (AAPL), which has a massive cash hoard yet does not reward its shareholders with a dividend.

Still, Wells Fargo says as third opportunity for investors on the hunt for yield emerges with lower-than-average payout ratios and high free cash flow growth. The case is made stronger by the massive amount of cash on balance sheets (around $2 trillion) and a slowing but stable growth environment.

Adams says that this combination points to three sectors of the market, all of which are rated "overweight" by Wells Fargo's equity strategy team. They are consumer discretionary, technology and health care, all of which have below average but increasing payout ratios.

Adams notes that both consumer discretionary and technology companies have recorded among the fastest growth in free cash flow among sector over the last three years. Meanwhile, both health care and technology have the largest amount of cash sitting on balance sheets, Adams notes.

It hasn't been easy for health care investors this year. After ending 2011 as one of the best performing of the S&P 500's 10 sectors, health care is up only 3% this year, well below the rise of the overall market. Technology and consumer discretionary, meanwhile, have outperformed the broader market this year after lagging last year.

So how to the other sectors measure up for Wells Fargo? Industrials, consumer staples and utilities are rated "marketweight," while energy, materials, financials and telecom are rated "underweight."

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.
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