Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. Furthermore, dividend-rich growth stocks with a high dividend growth history and which are in an uptrend, have a better chance to outperform the market.
I have searched for profitable companies with strong growth prospects. I also looked for companies which are in short-term uptrend, in mid-term uptrend and in long-term uptrend. Stocks in an uptrend are performing well and are in a buying mode.
I have elaborated a screening method which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
1. The stock is included in the Russell 3000 index. Russell Investment explanation:
The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investible U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.
2. Earnings growth estimates for the next 5 years (per annum) is greater than 12%.
3. Dividend yield is greater than 3.0%.
4. Annual rate of dividend growth over the past five years is greater than 10%.
5. Price to free cash flow is positive, (many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure).
6. The PEG ratio is less than 1.50.
7. Stock price is above 20-day simple moving average (short-term uptrend).
8. Stock price is above 50-day simple moving average (mid-term uptrend).
9.Stock price is above 200-day simple moving average (long-term uptrend).
After running this screen on November 24, 2012, I obtained as results the 3 following stocks:
BlackRock, Inc. (BLK)
BlackRock, Inc. is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors.
BlackRock has a trailing P/E of 15.21 and a low forward P/E of 13.04, the PEG ratio is at 1.22. The average annual earnings growth estimates for the next 5 years is 12.50%. The forward annual dividend yield is quite high at 3.07% and the payout ratio is 46.7%. The stock price is 3.48% above its 20-day simple moving average, 5.33% above its 50-day simple moving average and 7.60% above its 200-day simple moving average. On October 17, BlackRock reported its 3Q financial results (here). BlackRock beat expectations on revenues and beat expectations on earnings per share. Compared to the prior year quarter, revenue expanded and EPS increased. BlackRock's revenue increased 4.3% from a year earlier to $2.32 billion. Profit of $3.47 per share exceeded the $3.32 per share analysts' average estimates. All these factors make the stock quite attractive.
Leggett & Platt, Incorporated (LEG)
Leggett & Platt, Incorporated designs and produces various engineered components and products worldwide.
Leggett & Platt has a trailing P/E of 22.12 and a forward P/E of 16.93 and the PEG ratio is at 1.47. The forward annual dividend yield is very high at 4.23% and the payout ratio is at 93.5%. The average annual earnings growth estimates for the next 5 years is quite high at 15%. The stock price is 3.38% above its 20-day simple moving average, 7.09% above its 50-day simple moving average and 21.50% above its 200-day simple moving average. On October 29, the company reported its 3Q financial results (here). Leggett & Platt met expectations on revenues and beat expectations on EPS. Compared to the prior year quarter, revenue increased and earnings per share grew significantly, 3Q sales were $982 million, compared to $941 million last year and 3Q EPS was $0.45, an increase of 45% compared to $0.31 for the 3Q of 2011. All these factors make the stock quite attractive.
Watsco Inc. (WSO)
Watsco, Inc., together with its subsidiaries, engages in the distribution of air conditioning, heating, and refrigeration equipment in the United States.
Watsco has a low debt (total debt to equity is only 0.22) and it has a forward P/E of 19.47 and a PEG ratio of 1.45. The price to free cash flow for the trailing 12 months is very low at 6.71 and the current ratio is very high at 3.15. The current ratio is 3.48 and the average annual earnings growth estimate for the next five years is quite high at 16.77%. The forward annual dividend yield is quite high at 3.41% and the payout ratio is at 82.9%. The stock price is 4.20% above its 20-day simple moving average, 2.89% above its 50-day simple moving average and 7.02% above its 200-day simple moving average. On October 25, the company reported its 3Q financial results (here). Earnings per share increased 17% to a record $1.19 per diluted share on record net income of $41 million, compared to $1.02 per diluted share on net income of $34 million in 2011. Revenues increased 12% to a record $1.02 billion, including $103 million of sales added by new locations. The high dividend and the high growth prospects make the WSO stock quite attractive.