The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
By Lisa Springer
NEW YORK (
) -- Creating a list of high-yielding stocks is simple, but seasoned investors know that high yield alone is not a good reason to own a stock. That's because sometimes high-yield stocks report earnings that are too weak to sustain the current dividend.
If your goal is to build a portfolio that's able to deliver steady income through good times and bad, then you'll need to find high-yielding stocks with solid fundamentals, good earnings growth and a more conservative payout.
Companies with modest payouts have a higher safety margin and the ability to increase the dividend to maintain the payout during bad times, or even raise the payout during good times. This makes these stocks especially appealing. In fact, studies show high-yield stocks that also have low payout ratios deliver the best long-term returns.
With this in mind, I created a list of high-yield stocks with room to boost future payouts. I ran a screen for stocks yielding more than 3% while paying out less than 40% of earnings and at least five years of positive earnings growth.
three high-yield champions
that could easily afford to raise dividends.
1. BHP Billiton
BHP Billiton is the world's top producer of major commodities such as aluminum, coal, copper, manganese, iron ore, uranium, nickel, silver and titanium minerals. These are all natural resources that have become increasingly scarce, so BHP is ideally positioned to benefit as rising demand pushes up prices.
BHP is quickly expanding. It plans to spend $80 billion in the next five years to boost output of iron ore, copper and coal. Last year, it acquired U.S. shale assets, making the company the world's 10th largest independent oil and gas producer as well. The company also has a major advantage in that most of its major assets are located in low-risk regions such as Australia, Canada and Europe.
BHP also has a strong balance sheet and exceptional annual cash flow -- $30 billion -- which exceeds total debt of $25 billion. This has earned BHP a debt rating of "A+" from ratings agency Standard & Poor's.