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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:

ROE

= (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. American States Water Company (NYSE:AWR): Provides water, electric, and contracted services in the United States. Market cap at $909.3M, most recent closing price at $47.31. MRQ net profit margin at 13.98% vs. 13.03% y/y. MRQ sales/assets at 0.104 vs. 0.1 y/y. MRQ assets/equity at 2.873 vs. 2.952 y/y. Dividend yield at 3%, and payout ratio at 44.9%.

  2. Belo Corp. (NYSE:BLC): Operates as a television company. Market cap at $703.99M, most recent closing price at $7.49. MRQ net profit margin at 14.08% vs. 9.02% y/y. MRQ sales/assets at 0.106 vs. 0.096 y/y. MRQ assets/equity at 5.409 vs. 5.749 y/y. Dividend yield at 4.2%, and payout ratio at 38%.

  3. Corrections Corporation of America (NYSE:CXW): Operates privatized correctional and detention facilities in the United States. Market cap at $3.48B, most recent closing price at $34.74. MRQ net profit margin at 9.52% vs. 9.08% y/y. MRQ sales/assets at 0.15 vs. 0.147 y/y. MRQ assets/equity at 1.989 vs. 2.145 y/y. Dividend yield at 2.3%, and payout ratio at 26%.

  4. Deluxe Corp. (NYSE:DLX): Provides various personalized printed products, promotional products, and merchandising materials to small businesses and financial institutions in the United States, Canada, and Europe. Market cap at $1.63B, most recent closing price at $32.0. MRQ net profit margin at 10.97% vs. 10.34% y/y. MRQ sales/assets at 0.258 vs. 0.256 y/y. MRQ assets/equity at 3.687 vs. 4.896 y/y. Dividend yield at 3.13%, and payout ratio at 31%.

  5. Foot Locker, Inc. (NYSE:FL): Operates as a retailer of athletic footwear and apparel. Market cap at $4.82B, most recent closing price at $31.95. MRQ net profit margin at 6.96% vs. 4.73% y/y. MRQ sales/assets at 0.462 vs. 0.458 y/y. MRQ assets/equity at 1.441 vs. 1.455 y/y. Dividend yield at 2.25%, and payout ratio at 28.5%.

  6. PH Glatfelter Co. (NYSE:GLT): Manufactures and sells specialty papers and fiber-based engineered materials in the United States and internationally. Market cap at $749.19M, most recent closing price at $17.48. MRQ net profit margin at 4.95% vs. 3.11% y/y. MRQ sales/assets at 0.343 vs. 0.311 y/y. MRQ assets/equity at 2.169 vs. 2.417 y/y. Dividend yield at 2%, and payout ratio at 24.75%.

  7. Ingles Markets Inc. (NASDAQ:IMKTA): Operates a supermarket chain in the southeast United States. Market cap at $417.03M, most recent closing price at $17.19. MRQ net profit margin at 1.34% vs. 1.21% y/y. MRQ sales/assets at 0.604 vs. 0.56 y/y. MRQ assets/equity at 3.59 vs. 3.747 y/y. Dividend yield at 3.84%, and payout ratio at 35.3%.

  8. Nordstrom Inc. (NYSE:JWN): A fashion specialty retailer, offers apparel, shoes, cosmetics, and accessories for women, men, and children in the United States. Market cap at $10.36B, most recent closing price at $51.78. MRQ net profit margin at 5.2% vs. 5.13% y/y. MRQ sales/assets at 0.34 vs. 0.297 y/y. MRQ assets/equity at 4.387 vs. 4.398 y/y. Dividend yield at 2%, and payout ratio at 31.15%.

*Accounting data sourced from Google Finance

Source: 8 S&P 500 Dividend Stocks With Strong Sources Of Profitability