3 Stocks to Buy With Dividends Yielding More Than 4%

By Dan Caplinger Markets Fool.com

High dividend yields catch income investors' eye, but what makes a smart stock pick is a company with strong fundamental prospects. Not every high-yielding stock fits the bill, but Ford Motor (NYSE: F), Blackstone Group (NYSE: BX), and Valero Energy (NYSE: VLO) all yield more than 4% while offering shareholders the potential to deliver significant share-price appreciation to investors as well.

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Ford moves down the road

Ford Motor has done extremely well in recent years, taking full advantage of the decline in gasoline prices and the strength of the U.S. economy that together have helped produce record sales figures for the auto industry in general. Yet even though Ford's fundamental performance has been good, investors haven't fared nearly as well in recent years. The stock has lost about a quarter of its value since 2013, with skeptics pointing to the idea that the car-buying binge is unsustainable in the long run and will eventually run its course, leaving Ford to see earnings decline.

Yet there are reasons to like Ford even after its subpar stock performance. The 4.8% dividend yield has helped cushion the total return blow for long-term shareholders, and the company has been increasingly generous with its payouts. From its $0.05-per-share payout in 2012, Ford doubled the dividend in 2013 and has since boosted it to $0.15 per share quarterly. Moreover, the company made a $0.05-per-share special dividend payment earlier this year. Combine that with an earnings multiple of just 11, and you can see that Ford is already priced for a possible decline in its bottom line with a margin of safety.

Image source: Getty Images.

Blackstone enjoys investing success

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Blackstone Group has done an incredibly good job of bringing in assets under management from many different sources. The company's iShares exchange-traded funds have retained their place atop the ETF industry, and numerous other investment vehicles have allowed Blackstone to boost its bottom line substantially. A rising stock market has helped boost Blackstone's assets, and the investment company has taken advantage of opportunities to grow its business and tap into other lucrative areas of the capital markets.

Blackstone's dividend varies from quarter to quarter, but based on its past four quarters of distributions, the stock has a trailing yield of nearly 5%. Moreover, if distributions return to where they were in 2015, a dramatic increase in yield is possible. As long as financial markets do well, Blackstone should follow suit.

Valero looks energetic

The energy industry has seen big ups and downs, but refineries like Valero Energy have had a slightly different experience from many other players in the sector. Cheap crude tends to be a good thing for Valero, as it reduces its input costs in producing the gasoline, diesel fuel, and other refined products that it then sells through its own network of gas stations and through third-party distribution outlets as well. As oil has recovered, Valero has seen its margins come under pressure, and the specter of regulation has also loomed over the refiner. Yet some see more hope for Valero ahead, as the possibility of less regulation under the Trump administration could make it easier for the company to comply with required standards while maximizing profit.

In the meantime, Valero has done a good job of returning some of its capital to shareholders, currently carrying a 4.2% dividend yield. Large boosts of $0.10 or more in the quarterly per-share dividend in each of the past three years has taken Valero's payout from $0.275 to $0.70 per share, and that strong history shows the overall confidence that the refiner has in its own future.

Top dividend stocks combine both high yields and attractive business fundamentals. When you get those two things in one package, it's worth looking more closely at a company to see whether it belongs in your dividend stock portfolio.

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Dan Caplinger owns shares of Ford. The Motley Fool owns shares of and recommends Ford. The Motley Fool has a disclosure policy.