Each company has a dividend yield of at least 3% and the ability to increase payouts.

With dividend stocks hot this year, some market experts are advising investors to be cautious and selective. Identifying companies with room to raise dividends significantly, rather than focusing on finding the highest yields, might be your best way forward.

That theme was explored by MarketWatch writer Jeff Reeves and Bob Phillips, managing principal of Spectrum Management Group. Interestingly, there was some overlap between their stock recommendations.

Phillips said the most important factor when considering a dividend stock is the likelihood of big dividend increases over time. Rising dividends are much more likely if a company’s free cash flow (remaining cash flow after capital expenditures) leaves plenty of so-called headroom for higher dividend payouts. He said it’s important not to overpay for a stock, which may be a tall order considering that we’re seven years into a bull market and that this year’s market gains have been driven by dividend stocks.

So we decided to take a deep dive into the S&P 1500 Composite Index — which includes the S&P 500 Index SPX, +0.05% the S&P 400 Mid-Cap Index MID, +0.15% and the S&P Small-Cap 600 Index — to identify possible dividend-stock bargains in every sector.

For each of the 11 sectors, we have listed up to three companies with forward price-to-earnings ratios (based on consensus 2017 earnings estimates) that are lower than the aggregate. Those companies also have dividend yields of at least 3%, with headroom to raise dividends, based on free cash flow yields, and are expected by analysts to increase their sales by at least 1% in 2017.

We have calculated free cash flow yields by dividing free cash flow per share for the past 12 months by the closing share price on Sept. 30.

Any screening approach has its flaws. For example, a company trading at a low price-to-earnings ratio relative to peers could have some major problems. Or not. Also, a company excluded from the list, because it is not expected to increase earnings next year, may be in that position simply because it sold or spun off a business unit.

But the screen can provide a starting point for your own research. You will need to do some work on your own to understand a company’s business and form an opinion about its likelihood of success within its industry over the coming years or decades.

Here are all 29 stocks that passed the screen, broken down by sector:
a1In comparison, the S&P 1500 consumer discretionary sector trades for 17.1 times weighted consensus 2017 earnings estimates.a2The consumer staples sector trades for 19.4 times weighted consensus 2017 EPS estimates.
a3The energy sector trades for 34.6 times weighted consensus 2017 EPS estimates.
a4The financial sector trades for 12 times weighted consensus 2017 EPS estimates.
a5The health-care sector trades for 15.1 times weighted consensus 2017 EPS estimates.
a6The industrial sector trades for 16.4 times weighted consensus 2017 EPS estimates.
a7The information-technology sector trades for 16.8 times weighted consensus 2017 EPS estimates.
a8The materials sector trades for 16.1 times weighted consensus 2017 EPS estimates.
a9The real-estate sector trades for 17 times weighted consensus 2017 FFO estimates. FFO stands for funds from operations. This non-GAAP figure adds depreciation and amortization back to earnings, while excluding gains or losses on the sale of investments. FFO is meant to gauge dividend-paying ability, and is used by most REITs.
a10The telecommunications-services sector trades for 13.6 times weighted consensus 2017 EPS estimates.
a11The utilities sector trades for 17.5 times weighted consensus 2017 EPS estimates.

Article and media originally published by Philip van Doorn at marketwatch.com