Do you prefer stocks that offer both dividend income and the real possibility of capital gains? You might be interested in our list below.
We began by screening for low-debt dividend stocks: those paying dividend yields above 1%, with sustainable payout ratios below 50%, and debt-to-equity ratios below 0.1.
Profitability is a very important consideration when choosing among dividend stocks. If you want to be able to rely on a company's dividend, be sure that the company's profits are also reliable. With this in mind, we then analyzed sources of profitability using the DuPont formula.
The DuPont formula uses return on equity (ROE) for its profitability measurement. The higher the ROE, the more profitable the company appears, but this profitability can come from many sources -- some better than others.
In general, an encouraging DuPont breakdown implies one or more of the following:
-Improving Net Profit Margin, i.e., higher Net Income/Revenues
-Improving Asset Efficiency, i.e., higher Sales/Assets
-Decreasing Financial Leverage ratio, i.e., lower Assets/Equity
Companies passing all requirements are thus experiencing increasing profits due to operations, and not to increased use of leverage.
For an interactive version of this chart, click on the image below. Tool provided by Kapitall, analyst ratings sourced from Zacks Investment Research.
As a recap, these names have:
- Low debt: Total Debt/Equity ratio <.1
- Dividend yields between 1% and 7%, and sustainable payout ratios below 50%
- Encouraging DuPont breakdowns
- Market caps above $300 million
Do you think these stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.
1. Dick's Sporting Goods Inc. (DKS): Operates as a sporting goods retailer in the United States. Market cap at $5.52B, most recent closing price at $45.03. MRQ net profit margin at 3.82% vs. 3.52% y/y. MRQ sales/assets at 0.427 vs. 0.397 y/y. MRQ assets/equity at 1.8 vs. 1.904 y/y.
Dividend yield at 1.11%, payout ratio at 39%, and Debt/Equity at 0.01.
2. Helmerich & Payne Inc. (HP): Engages in the contract drilling of oil and gas wells in the United States and internationally. Market cap at $5.86B, most recent closing price at $55.38. MRQ net profit margin at 18.94% vs. 17.33% y/y. MRQ sales/assets at 0.145 vs. 0.14 y/y. MRQ assets/equity at 1.492 vs. 1.53 y/y.
Dividend yield at 1.1%, payout ratio at 5.24%, and debt/equity at 0.06.
3. The Men's Wearhouse, Inc. (MW): Operates as a specialty retailer of men's suits in the United States and Canada. Market cap at $1.53B, most recent closing price at $30.10. MRQ net profit margin at 7.74% vs. 6.82% y/y. MRQ sales/assets at 0.411 vs. 0.405 y/y. MRQ assets/equity at 1.388 vs. 1.402 y/y.
Dividend yield at 2.37%, payout ratio at 29%, and debt/equity at 0.
*Accounting data sourced from Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.