Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. I have searched for profitable companies that pay rich dividends and that raise their payouts significantly each year. I also looked for companies that have shown a significant book value growth over the past five years.
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 five years (per annum) is greater than 15%.
3. Dividend yield is greater than 2.0%.
4. Annual rate of dividend growth over the past five years is greater than 10%.
5. Book value growth over the past five years is greater than 10%.
After running this screen on December 14, 2012, before the market open, I obtained as results the three following stocks:
Copa Holdings SA (NYSE:CPA)
Copa Holdings, S.A., through its subsidiaries, provides airline passenger and cargo services. Copa Holdings, S.A. was founded in 1947, and is based in Panama.
Copa Holdings has a low trailing P/E of 12.47 and even a lower forward P/E of 10.22, it has also a very low PEG ratio of 0.81. The average annual earnings growth for the past five years was quite high at 17.80 and the average annual earnings growth estimates for the next five years is also quite high at 15.43%. The forward annual dividend yield is at 2.33% and the payout ratio is only 29%. Analysts recommend the stock; among the 17 analysts covering the stock, three rate it as a strong buy, 12 rate it as a buy and two rate it as a hold. The stock price is 4.19% above its 20-day simple moving average, 8.04% above its 50-day simple moving average and 21.32% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On November 07, Copa Holdings reported its 3Q financial results (here), operating and financial highlights:
Copa Holdings reported net income of US$111.9 million for 3Q12, or diluted earnings per share (EPS) of US$2.52. Excluding special items, Copa Holdings would have reported adjusted net income of US$97.6 million, or US$2.20 per share, an 8.3% increase over adjusted net income of US$90.2 million and US$2.03 per share for 3Q11.
Operating income for 3Q12 came in at US$114.1 million, a 14.9% increase over operating income of US$99.3 million in 3Q11. Operating margin for the period came in at 19.3%, compared to 20.9% in 3Q11, as a result of a 1.7% decline in unit revenues and a 0.4% increase in unit cost as a result of increased fuel costs.
Total revenues increased 24.5% to US$590.4 million. Yield per passenger mile increased 1.1% to 17.3 cents, while operating revenue per available seat mile (RASM) decreased 1.7% to 13.5 cents. However, adjusting for a 2.7% increase in average length of haul, adjusted yields increased 2.5% and adjusted RASM remained flat year over year.
The cheap valuation, the strong growth prospects, the analyst's recommendation, the growing dividends with a low payout ratio and the fact that the stock is in an uptrend; all these factors make the CPA stock quite attractive.
Greenhill & Co., Inc. (NYSE:GHL)
Greenhill & Co., Inc., an independent investment bank, provides financial advice on mergers, acquisitions, restructurings, financings and capital raising to corporations, partnerships, institutions and governments worldwide. The company was founded in 1996 and its headquarters is in New York, New York.
Greenhill has a low debt (total debt to equity is only 0.15) and the forward P/E is at 20.71. The average annual earnings growth estimates for the next five years is quite high at 17.7%. The forward annual dividend yield is quite high at 3.49% and the payout ratio is 127.5%. The stock price is 7.75% above its 20-day simple moving average, 6.99% above its 50-day simple moving average and 24.03% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.
On October 17, Greenhill reported its 3Q financial results (here), GHL reported revenue of $62.7 million, net income allocable to common stockholders of $8.6 million and diluted earnings per share of $0.28 for the quarter ended September 30, 2012. Robert F. Greenhill, Chairman, said:
Global transaction activity remained weak in the third quarter and for the year to date. While that inevitably affects our performance in absolute terms, we are pleased that we continued to demonstrate an ability to increase our market share in the pool of advisory fees globally.
Despite the expensive valuation, the strong growth prospects, the rich dividend and the fact that the stock is in an uptrend; all these factors make the GHL stock an interesting investment candidate.
Ritchie Bros. Auctioneers Incorporated (NYSE:RBA)
Ritchie Bros. Auctioneers Incorporated, an industrial auctioneer, sells various equipment to on-site and online bidders. The company was founded in 1963 and its headquarters is in Burnaby, Canada.
Ritchie Bros. has a low debt (total debt to equity is only 0.38) and the forward P/E is at 21.34 and the PEG ratio is at 1.76. The average annual earnings growth estimates for the next five years is quite high at 15.20%. The forward annual dividend yield is at 2.13% and the payout ratio is at 58.1%. On November 27, Ritchie Bros, the world's largest industrial auctioneer, announced (here) that it is now approved as a Wholly Owned Foreign Enterprise by the government of China - the first auction company to ever achieve this status - and is preparing to hold its first unreserved public auction at the Beijing Tianzhu Free Trade Zone: bringing the world to China. In my opinion, opening the huge Chinese market to Ritchie Bros. should sustain the company growth.