By Lawrence C. Strauss

A major focus for dividend investors is yield. Bigger is often better. But it shouldn't end there. Other factors worth considering include above-average dividend growth and a high free-cash-flow yield.

The latter "solidifies the future ability to pay dividends and continue to grow those dividends," Chris Senyek, chief investment strategist at Wolfe Research, tells Barron's.

He calculates free cash flow yield by dividing a company's free cash flow by its market capitalization plus net debt. The other leg of this strategy, consistent dividend growth, can signal that a company's business is in good shape overall.

Dividend growth in and of itself can be a solid strategy, as well, as evidenced by the S&P 500 Dividend Aristocrats. Those companies, which include Johnson & Johnson and Procter & Gamble, have paid out a higher dividend for at least 25 straight years. But adding the free-cash-flow yield factor to the mix provides another pillar of support, says Senyek.

He recently ran a screen culled from the largest 1,000 U.S. companies based on market capitalization. Companies in the top 20% for dividend growth and free-cash-flow yield made the cut.

Companies on the list include chip manufacturing equipment maker Applied Materials, semiconductor manufacturer Qualcomm, and broadband and entertainment company Comcast. Others include truck maker Paccar, container and packaging maker Owens Corning, and biotech company Amgen.

The sectors in this group of stocks are fairly concentrated among industrials, healthcare, consumer discretionary, and information technology. Still, "the sector composition will change around over time, " says Senyek, adding that financials don't show up on this stock screen, often owing to their relatively lower free-cash-flow generation compared with some other sectors.

Among the tech names that scored highly on dividend growth and free-cash-flow yield is Applied Materials. Earlier this year, it boosted its quarterly dividend to 46 cents a share from 40 cents. Its 2025 free-cash-flow yield of 4% handily exceeds its 1% dividend yield, according to Wolfe Research.

Qualcomm, whose dividend yields 2.2%, boasts a free-cash-flow yield of 5%. The chip maker earlier this year put through a quarterly dividend hike to 89 cents a share from 85 cents, the latest in a series of regular increases.

Comcast, which yields 3.8%, earlier this year declared a quarterly disbursement of 33 cents a share, up by more than 6% from 31 cents. Its free cash flow yield is 8%.

Paccar, yielding 1.4%, late last year declared a quarterly dividend increase of 10%, to 33 cents a share from 30 cents. It also announced an extra dividend of $3 a share. Its free-cash-flow yield is 6%.

Owens Corning, which yields 2%, in January began paying a quarterly dividend of 69 cents a share, versus 60 cents previously. Its free-cash-flow yield is 7%.

Amgen yields 3.2%, well below its free-cash-flow yield of 6%.

Among dividend strategies this year, high dividend yield has held up quite well. Through July 21, the Vanguard High Dividend Yield exchange-traded fund (ticker: VYM) returned nearly 7%, about a percentage point behind the S&P 500 index.

"There has been a lot of volatility, so investors have wanted to own high dividend-yield companies, which are viewed as more defensive," says Senyek.

Still, companies with above-market dividend growth and free-cash-flow yields are a sensible place for income investors to take a look, even in a volatile market like this one.

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July 25, 2025 21:30 ET (01:30 GMT)

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