Do you prefer stocks that pay part of their return in dividend income? If so, here's a list you might be interested in.
We ran a screen on the S&P 500 for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then ran a DuPont analysis on return on equity (ROE) profitability to find those with strong sources of profits.
DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:
= (Net Profit/Equity)
= (Net Profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit Margin)*(Asset Turnover)*(Leverage Ratio)
It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,
•Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
•Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio.
Companies with all of these characteristics are experiencing increasing profits due to operations and not due to increased use of financial leverage.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks pay reliable dividends? Use this list as a starting point for your own analysis.
1. Dr Pepper Snapple Group, Inc. (DPS): Engages in the manufacture and distribution of non-alcoholic beverages in the United States, Canada, and Mexico. Market cap at $9.2B, most recent closing price at $44.23. MRQ net profit margin at 11.71% vs. 10.07% y/y. MRQ sales/assets at 0.17 vs. 0.166 y/y. MRQ assets/equity at 3.878 vs. 4.073 y/y. Dividend at 3%, and payout ratio at 45.18%.
2. Nasdaq OMX Group Inc. (NDAQ): Provides trading, clearing, exchange technology, securities listing, and public company services worldwide. Market cap at $3.89B, most recent closing price at $23.61. MRQ net profit margin at 11.98% vs. 11.63% y/y. MRQ sales/assets at 0.083 vs. 0.072 y/y. MRQ assets/equity at 1.737 vs. 2.638 y/y. Dividend at 2.14%, and payout ratio at 12.42%.
3. Target Corp. (TGT): Operates general merchandise stores in the United States. Market cap at $40.98B, most recent closing price at $62.57. MRQ net profit margin at 3.76% vs. 3.38% y/y. MRQ sales/assets at 0.341 vs. 0.339 y/y. MRQ assets/equity at 3.032 vs. 3.174 y/y. Dividend at 2.29%, and payout ratio at 27.63%.
4. Union Pacific Corporation (UNP): Through its subsidiary, Union Pacific Railroad Company, provides rail transportation services in North America. Market cap at $57.51B, most recent closing price at $122.25. MRQ net profit margin at 19.5% vs. 17.72% y/y. MRQ sales/assets at 0.114 vs. 0.113 y/y. MRQ assets/equity at 2.408 vs. 2.427 y/y. Dividend at 2.24%, and payout ratio at 29.55%.
5. V.F. Corporation (VFC): Designs and manufactures, or sources from independent contractors various apparel and footwear products primarily in the United States and Europe. Market cap at $17.18B, most recent closing price at $155.94. MRQ net profit margin at 12.11% vs. 10.93% y/y. MRQ sales/assets at 0.311 vs. 0.272 y/y. MRQ assets/equity at 2.056 vs. 2.269 y/y. Dividend at 2.15%, and payout ratio at 31.41%.
Profitability data sourced from Fidelity, all other data sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.