Subscribers both then and now follow a strategy that diverges from the typical high-income orientation of most dividend hounds. Weiss views the level of a stock's dividend yield not as an income stream, but as a measure of valuation. For that reason, she targets stocks with dividend yields at the high end of their historic ranges, and comparatively low prices. Some of her picks have dividend yields well above the market averages, while others sport below-market yields of 2% or less. What matters is that their dividend yield is relatively low or high for them.

Of the 350 dividend-paying stocks she follows, the 35 she classifies as undervalued represent "buy" candidates that have declined in price enough to so that their dividend yields are at the high end of their historic ranges. To be worthy of purchase, they must also have other favorable characteristics, such as a dividend that is well protected by earnings, a dividend payout ratio high enough to ensure safety and a reasonable debt-to-equity ratio.

Several stocks in the undervalued category meet her dividend-yield criteria, but fail to make the grade in other respects. Even though Eastman Kodak, Fleet Boston, PNC Financial Group and Xcel Energy all have historically high yields, they have all received "dividend in danger" warnings from Weiss.

An unprecedented 49 stocks in her universe have received this red flag, an indication that "they are paying out more in dividends than their earnings would justify. If a company isn't making money, it stands to reason that it will have trouble paying dividends." Usually, Weiss prefers a dividend payout ratio of 50% or less, meaning that no more than half of a company's profit is being paid to shareholders as dividends.

Her "Pick of the Litter" stocks listed in each issue merit "the highest investment consideration." To join this elite group, a stock must be undervalued according to her dividend-yield criteria and have raised its dividends at a compound annual rate of at least 10% over the last 12 years. Its price must not exceed two times book value, and it must sell for 20 times earnings or less. Other criteria include a dividend payout ratio of 50% or less, and debt of 50% or less of total capitalization. Her December 2002 issue lists LSI Industries (LYTS), Royal Caribbean (RCL), Ruddick Corp. (RDK) and Weis Markets (WMK) as the four "Pick of the Litter" stocks meeting these requirements.

When a stock reaches the overvalued range, its dividend yield is historically low and its price unattractively high, she says, and investors should consider a sale. Currently, she classifies as overvalued 87 of the 350 stocks she follows.

Between the undervalued and overvalued are other categories. The stocks in the Rising Trends group have moved up at least 10% from their undervalued levels, and most are rated as "holds." Declining Trends stocks have moved down at least 10% from overvalued levels, but remain unattractive because their prices are at or near the undervalued range.

Real estate investment trusts, usually a staple of dividend lovers' portfolios, rarely appear in the newsletter. "I'm not particularly fond of REITs because they have to pay out 90% of their earnings as dividends," says Weiss. "So dividends can drop quickly if earnings falter." She also avoids bonds with maturities over three years because of interest rate risk.

In addition to using dividend yield as a stock selection tool, Weiss uses it as a market-timing indicator. A low historic yield for market averages such as the Dow Jones Industrial Average is a bearish signal and, as such, may warrant a retrenchment from equities. A higher yield signals undervaluation, and possibly a higher stock allocation.

As a market-timing indicator, however, the newsletter "has had a poor record over the last decade," notes a report by Hulbert. "For much of this period, in fact, it has been strongly bearish."