10 dividend stocks that probably will give you a raise this year

Even though the U.S. stock market is weak this year, there are plenty of companies with enough cash to raise their dividends.

And that’s reassuring because, despite the fact that the S&P 500 SPX, -0.09% Index was essentially flat last year and has fallen in 2016, you can sleep better at night knowing you are being paid to wait for better times. It is important, however, to avoid companies that might lower their payouts to preserve cash.

The free cash flow yield can be calculated by looking at the past 12 months’ cash flow and dividing that sum by the share price. This can then be compared to the current dividend yield to see if the company has any “headroom” to raise dividends. We can also look ahead, by basing the calculation on consensus 2016 free cash flow estimates.

Among the S&P 500, there are 217 stocks with dividend yields of at least 2.50%, as of Tuesday’s close. Among this group, FactSet has available estimates of 2016 free cash flow per share, or funds from operations (FFO) for real estate investment trusts, for 171. The list is pared further to 153, when we remove 18 companies (mostly in the energy and utilties sectors) expected by analysts to show negative free cash flow this year.

To come up with a more conservative list, we narrowed the list further to remove any companies (excluding the REITs, which all had positive FFO) showing negative free cash flow over the past 12 reported months for which data is available from FactSet.

That brought down the group to 138 companies.

The final cut was to remove any companies for which the past 12 available reported months’ free cash flow didn’t cover the current dividend. Then we had 127 companies.

Of this group of 127, here are the 10 S&P 500 companies that appear to have the most “headroom” to raise dividends, based on consensus 2016 estimates:

MarketWatch