4 Financial Dividend Growth Stocks In Uptrend

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 |  Includes: APO, FAF, GS, LUK
by: Arie Goren

The Financial sector has been a leader this year. The total return year to date (11/26/2012) is 20.9%, while the appreciation of the Russell 3000 index in the same period was only 11.4%. Nevertheless, it is still possible to find promising candidates among the stocks in this sector.

Stock Sectors' Total Returns, Year to Date, are shown in the chart below:

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Source: finviz.com

I have searched for very profitable companies with strong growth prospects in the financial sector which also pay dividends and have a low payout ratio. I also looked for companies which are in a short-term uptrend, in a mid-term uptrend and in a 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 investable 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 15%.

3. Dividend yield is greater than 1.6%.

4. The payout ratio is less than 33%.

5. Price to free cash flow is less than 11, (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 1.10.

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 26, 2012, before the market open, I obtained the following four stocks as a result:

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Apollo Global Management, LLC (NYSE:APO)

Apollo Global Management, LLC is a publicly owned investment manager. The firm primarily provides its services to pension and endowment funds, institutional investors, individual investors, pooled investment vehicles, and corporations.

Apollo Global Management has a trailing P/E of 17.42 and a very low forward P/E of 5.14, the PEG ratio is quite low at 1.02. The price to free cash flow for the trailing 12 months is very low at 10.23 and the average annual earnings growth estimates for the next 5 years is quite high at 17%. The forward annual dividend yield is 1.83% and the payout ratio is quite low at 31.8%. The stock price is 6.53% above its 20-day simple moving average, 6.88% above its 50-day simple moving average and 18.01% above its 200-day simple moving average. Analysts recommend the stock: Among the eleven analysts covering the stock, three rate it as a strong buy, five rate it as a buy and three rate it as a hold. All these factors make the APO stock quite attractive.

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Chart: finviz.com

First American Financial Corporation (NYSE:FAF)

First American Financial Corporation, through its subsidiaries, provides financial services in the United States and internationally.

First American Financial has a very low trailing P/E of 10.28 and a low forward P/E of 13.53 and the PEG ratio is very low at 0.51. The price to free cash flow for the trailing 12 months is very low at 10.42 and the average annual earnings growth estimates for the next 5 years is very high at 20.2%. The forward annual dividend yield is 2.04% and the payout ratio is very low at 21%. The stock price is 1.88% above its 20-day simple moving average, 3.96% above its 50-day simple moving average and 29.41% above its 200-day simple moving average.

On October 25, the company reported its 3Q financial results (here). On that occasion, Dennis J. Gilmore, chief executive officer for First American Financial Corporation said:

Our strong results in the third quarter were driven by the company's efficient operations and continued improvement in title activity. Open orders were up 29 percent year-over-year, primarily driven by refinancing activity which, combined with our commercial business, provides us with a healthy pipeline as we move into the fourth quarter.

The very low multiples make the FAF stock quite attractive.

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Chart: finviz.com

The Goldman Sachs Group, Inc. (NYSE:GS)

The Goldman Sachs Group, Inc. provides investment banking, securities, and investment management services, as well as a range of financial services to corporations, financial institutions, governments and high-net-worth individuals worldwide.

Goldman Sachs has a very low trailing P/E of 11.58 and even a lower forward P/E of 9.39 and the PEG ratio is very low at 0.49. The price to free cash flow for the trailing 12 months is extremely low at 2.08 and the average annual earnings growth estimates for the next 5 years is very high at 23.73%. The forward annual dividend yield is 1.66% and the payout ratio is very low at 19.2%. The stock price is 1.04% above its 20-day simple moving average, 0.92% above its 50-day simple moving average and 9.89% above its 200-day simple moving average. On October 16, Goldman Sachs reported its third quarter financial results. The net income was $1.5 billion, or $2.85 per share, analysts had been predicting $2.19 per share. Revenue also beat estimates, surpassed the $7.2 billion forecast by analysts and more than doubling to $8.4 billion, from $3.6 billion a year ago. GS stock looks quite attractive.

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Chart: finviz.com

Jefferies Group, Inc. (JEF)

Jefferies Group, Inc., together with its subsidiaries, operates as a securities and investment banking company in the Americas, Europe, and Asia.

Jefferies Group has a low trailing P/E of 14.29 and even a lower forward P/E of 11.79 and the PEG ratio is very low at 0.89. The price to free cash flow for the trailing 12 months is extremely low at 4.22 and the average annual earnings growth estimates for the next 5 years is quite high at 16%. The forward annual dividend yield is 1.86% and the payout ratio is very low at 26.5%. The stock price is 6.92% above its 20-day simple moving average, 9.22% above its 50-day simple moving average and 9.73% above its 200-day simple moving average. On September 18, 2012, two company officers bought a big quantity of JEF stocks, each one purchased 2,490,421 shares at $15.66 approximately $40 million each purchase. All these factors make JEF stock quite attractive.

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Chart: finviz.com

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in GS over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.