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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.

I have searched for very profitable companies that pay rich dividends. Those stocks would have to show a very low price to free cash flow ratio. I also looked for companies where the average analysts' recommendation is a buy or better.

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 that all stocks comply with the following demands:

1. Price to free cash flow is less than 7.

2. Trailing P/E is less than 13.

3. Forward P/E is less than 11.

4. Dividend yield is greater than 3.0%.

5. The payout ratio is less than 50%.

6. Average analyst recommendations are bullish (less than 2).

After running this screen on January 01, 2013, I obtained the 7 following stocks as results:

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Belo Corp. (NYSE:BLC)

Belo Corp. operates as a television company in the United States.

Belo Corp. has a very low trailing P/E of 8.52 and a low forward P/E of 10.09. The price to free cash flow for the trailing 12 months is very low at 5.78. The forward annual dividend yield is very high at 4.17% and the payout ratio is at 37.4%. The company is trading 11.22% below its 52-week high and has 20.6% upside potential based on the consensus mean target price of $9.25.

The stock price is 4.01% above its 20-day simple moving average, 3.94% above its 50-day simple moving average and 11.19% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. Analysts recommend the stock -- among the four analysts covering the stock, three rate it as a strong buy or as a buy. On October 30, 2012, Belo Corp. reported its 3Q financial results (here), which beat EPS expectations by $0.02 and missed expectations on revenue. On that occasion, Dunia A. Shive, Belo's president and Chief Executive Officer, said:

Our strong cash generation has allowed for a special dividend and for the early redemption of our May 2013 notes in a net present value cash-positive transaction. Our solid financial position gives us the flexibility to pursue acquisitions and investments and consider further opportunities to increase shareholder returns.

All these factors -- the very low multiples, the rich dividend, the analysts' recommendations and the fact that the stock is in an uptrend -- make BLC stock quite attractive.

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Chart: finviz.com

Crown Crafts, Inc. (NASDAQ:CRWS)

Crown Crafts, Inc. provides infant and toddler products for consumer industry in the United States and internationally.

Crown Crafts has a very low trailing P/E of 9.62 and an even lower forward P/E of 7.58; the PEG ratio is very low at 0.53. The price to free cash flow for the trailing 12 months is very low at 6.55 and the average annual earnings growth estimates for the next 5 years is quite high at 18%. The forward annual dividend yield is very high at 6.40% and the payout ratio is 45.7%. Analysts recommend the stock, the two analysts covering the stock rate it as a strong buy and as a buy. On November 13, 2012, Crown Crafts reported its 2Q fiscal 2013 financial results (here). On that occasion, E. Randall Chestnut, Chairman, President and Chief Executive Officer said:

While we are not pleased with the results of the current quarter, we remain very confident in our position within the industry and with our major retailers, as well as in the strength of our products and brands, for several reasons. First, during the second quarter, we saw a 6.8% increase in sales of our own branded products. Second, our margins have improved as we continue to see the benefits of our quick response to increases in raw material prices in early fiscal 2012 when cotton prices were at all-time highs. Since that time, we have strategically reduced our dependence on cotton by successfully redesigning some of our product lines. We also selectively increased prices where appropriate, which positively impacted our bottom line. Lastly, despite the pressures on our top line, our earnings for the first half of fiscal 2013 are 3.4% higher than a year ago.

The cheap valuation, the strong growth prospects, the analysts' recommendations and the very high dividend yield are all factors that make CRWS stock quite attractive.

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Chart: finviz.com

Homeowners Choice, Inc. (NYSE:HCI)

Homeowners Choice, Inc., an insurance holding company, provides property and casualty insurance in Florida.

Homeowners Choice has no debt at all and it has a very low trailing P/E of 8.09 and even lower forward P/E of 6.71. The price to free cash flow for the trailing 12 months is very low at 3.16. The forward annual dividend yield is quite high at 4.33% and the payout ratio is only 28.8%. The company is trading 20.57% below its 52-week high and has 24% upside potential based on the consensus mean target price of $25.78.

Analysts recommend the stock-- all three analysts covering the stock rate it as a strong buy. The compelling valuation metrics, the rich dividend, the strong analysts' recommendation and the 24% upside potential based on the consensus mean target price of $25.78 are all factors that make HCI stock quite attractive.

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Chart: finviz.com

Horace Mann Educators Corp. (NYSE:HMN)

Horace Mann Educators Corporation, through its subsidiaries, operates as a multiline insurance company in the United States.

Horace Mann Educators has a very low debt (total debt to equity is only 0.19) and it has a very low trailing P/E of 7.92 and a very low forward P/E of 9.74, the PEG ratio is also very low at 0.99. The price to free cash flow for the trailing 12 months is very low at 4.66. The forward annual dividend yield is at 3.21% and the payout ratio is only 20.3%. The stock price is 2.85% above its 20-day simple moving average, 5.72% above its 50-day simple moving average and 12.27% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On October 30, 2012, Horace Mann Educators reported its 3Q financial results (here). On that occasion, Horace Mann's President and CEO Peter H. Heckman said:

Horace Mann's third quarter operating income was $0.62 per share, a $0.38 increase compared to the prior year. We continue to focus on profitably growing our businesses and are pleased with another quarter of stronger underlying earnings performance across all three segments of our multiline insurance platform.

The cheap valuation, the rich dividend, the fact that the HMN stock is selling way below its book value (price to book value is only 0.64) and the fact that the HMN stock is in an uptrend ; all these factors make the HMN stock quite attractive.

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Chart: finviz.com

MicroFinancial Inc. (NASDAQ:MFI)

MicroFinancial Incorporated, through its subsidiaries, operates as a specialized commercial finance company that provides microticket equipment leasing and rental, and other financing services in the United States.

MicroFinancial has a low trailing P/E of 11.38 and even a lower forward P/E of 10.25. The price to free cash flow for the trailing 12 months is extremely low at 1.27. The forward annual dividend yield is at 3.30% and the payout ratio is only 36.8%. Only one analyst is covering the stock rating it as a strong buy. On October 24, 2012, MicroFinancial reported its 3Q financial results (here).

Quarterly Highlights:

  • Net income was $2.3 million or $0.16 per diluted share based upon 14,716,500 shares;
  • Cash received from customers was $30.3 million or $2.06 per diluted share which represents an increase of 12.6% as compared to the same period last year;
  • Revenue increased by 9.2% to $15.0 million as compared to the same period last year;
  • Originations increased 19.1% to $23.3 million as compared to $19.6 million in the same period last year;
  • The Company paid a cash dividend of $0.06 per share.

The compelling valuation metrics, the rich dividend and the strong analyst's recommendation are all factors that make MFI stock quite attractive.

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Chart: finviz.com

The McClatchy Company (NYSE:MNI)

[I used data from finviz.com for The McClatchy Company (MNI) dividend yield, which turn out to be wrong. Please ignore the dividend data for this stock.]

The McClatchy Company operates as a newspaper publisher in the United States.

The McClatchy Company has an extremely low trailing P/E of 3.94 and a very low forward P/E of 5.11; the PEG ratio is also very low at 0.79. The price to free cash flow for the trailing 12 months is very low at 4.18. The forward annual dividend yield is very high at 11.01% and the payout ratio is 43.4%. The stock price is 4.07% above its 20-day simple moving average, 9.77% above its 50-day simple moving average and 35.31% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend. On October 25, 2012, The McClatchy Company reported its 3Q financial results (here). On that occasion, Pat Talamantes, McClatchy's President and CEO, said:

Our third quarter results demonstrate that we're making progress in an uncertain economy. The advertising trend continued to move in the right direction in the third quarter: Ad revenues were down 6.8% in the first quarter of 2012, down 5.7% in the second quarter of 2012 and down 5.4% this quarter. We were particularly pleased to see continued growth in our digital advertising revenues and are excited about initiatives underway to pursue new revenue in both advertising and subscriptions.

The very cheap valuation, the very rich dividend and the fact that the MNI stock is in an uptrend ; all these factors make the MNI stock quite attractive.

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Chart: finviz.com

The Toronto-Dominion Bank (NYSE:TD)

The Toronto-Dominion Bank, together with its subsidiaries, provides financial and banking services in North America and internationally.

The Toronto-Dominion Bank has a low trailing P/E of 12.42 and a very low forward P/E of 9.93. The price to free cash flow for the trailing 12 months is very low at 6.60. The forward annual dividend yield is quite high at 3.65% and the payout ratio is only 37.6%. Analysts recommend the stock -- among the seven analysts covering the stock, six rate it as a strong buy or as a buy. The stock price is 1.63% above its 20-day simple moving average, 2.62% above its 50-day simple moving average and 5.05% above its 200-day simple moving average. On December 06, 2012, The Toronto-Dominion Bank reported its 4Q fiscal 2012 financial results (here).

Fourth quarter financial highlights, compared with the fourth quarter last year:

  • Reported diluted earnings per share were $1.66, compared with $1.68.
  • Adjusted diluted earnings per share were $1.83, compared with $1.75.
  • Reported net income was $1,597 million, compared with $1,589 million.
  • Adjusted net income was $1,757 million, compared with $1,656 million.

The cheap valuation, the rich dividend and the fact that the TD stock is in an uptrend ; all these factors make the TD stock quite attractive.

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Chart: finviz.com

Source: 7 High-Yielding Stocks With Low Price-To-Free-Cash-Flow, That Analysts Recommend