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, Portfolio123 (1,585 clicks)
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Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. I have searched for very profitable companies that pay rich dividends and that raise their payouts significantly each year. I also looked for companies that have a very low price to free cash flow (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 created a screening method that 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 of the following criteria:

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. Trailing P/E is less than 18.

3. Forward P/E is less than 14.

4. Average annual earnings growth estimates for the next 5 years is greater than 7%.

5. Price to free cash flow is less than 16.

6. Dividend yield is greater than 3.3%.

7. Annual rate of dividend growth over the past five years is greater than 8%.

8. The payout ratio is less than 65%.

After running this screen on January 6, 2013, I discovered the following four stocks:

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First of Long Island Corp. (NASDAQ:FLIC)

The First of Long Island Corporation operates as a bank holding company for The First National Bank of Long Island, which provides financial services.

The First of Long Island has a low trailing P/E of 13.17, and an even lower forward P/E of 11.89. The PEG ratio is at 1.88. The price to free cash flow for the trailing 12 months is very low at 11.36, and the average annual earnings growth estimates for the next five years is at 7%. The forward annual dividend yield is good at 3.39%. The annual rate of dividend growth over the past five years was quite high at 11.6%, and the payout ratio is at 41.6%. The stock price is 3.29% above its 20-day simple moving average, 3.77% above its 50-day simple moving average and 4.85% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrends.

First of Long Island will report its latest quarterly financial results on January 28. FLIC is expected to post a profit of $0.87 a share, a 11.3% rise from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Data: Yahoo Finance

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Chart: finviz.com

Greif, Inc. (NYSE:GEF)

Greif, Inc. manufactures and sells industrial packaging products worldwide.

Greif has a low forward P/E of 13.31 and a PEG ratio of 1.66. The price to free cash flow for the trailing 12 months is very low at 10.91, and the average annual earnings growth estimates for the next 5 years is at 10.75%. The forward annual dividend yield is good at 3.55%. The annual rate of dividend growth over the past five years was quite high at 8.9%, and the payout ratio is 63%. The stock is trading 14.2% below its 52-week high, and has 9.8% upside potential based on the consensus mean target price of $52.00. The stock price is 7.78% above its 20-day simple moving average, 11.69% above its 50-day simple moving average and 7.02% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrends.

On December 11, 2012, Greif reported its 4Q fiscal 2012 financial results. In the report, David B. Fischer, president and chief executive officer, said:

Our consolidated results for fiscal 2012 included two records, $304 million of free cash flow and operating profit of $84 million for our Paper Packaging segment, despite challenging global macroeconomic conditions. Solid results for Land Management and relatively stable conditions in North America helped to partially offset weak performance, especially in Europe, for our Flexible Products and Rigid Industrial Packaging segments. Acquisition integration and contingency actions during the past year to improve our businesses, coupled with full realization of a recently announced containerboard price increase, are expected to benefit the company`s 2013 performance.

All these factors -- the low multiples, the solid growth prospects, the rich dividend and the fact that the stock is in an uptrend -- make GEF stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Microsoft Corporation (NASDAQ:MSFT)

Microsoft has a very low debt (total debt to equity is only 0.17), and it has a low trailing P/E of 14.45. It also has a very low forward P/E of 8.33, and the PEG ratio is at 1.51. The average annual earnings growth for the past 5 years was at 7.01%, and the average annual earnings growth estimates for the next 5 years is at 9.59%. The price to free cash flow for the trailing 12 months is very low at 10.04. The forward annual dividend yield is at 3.44%. The annual rate of dividend growth over the past five years was very high at 16.9%, and the payout ratio is at 43%. The stock is trading 17.09% below its 52-week high and has 29% upside potential based on the consensus mean target price of $34.44. Most analysts recommend the stock -- among the 40 analysts covering the stock, 27 analysts rate it as a strong buy or a buy, and 13 analysts rate it as a hold.

The compelling valuation metrics, the rich dividend, the analysts' recommendation, the 29% upside potential based on the consensus mean target price of $34.44, and the fact that Microsoft is a global leader are all factors that make MSFT stock a bargain right now.

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Data: Yahoo Finance

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Chart: finviz.com

Raytheon Co. (NYSE:RTN)

Raytheon Company provides electronics, mission systems integration, and other capabilities in the areas of sensing, effects, and command, control, communications, and intelligence systems, as well as a range of mission support services in the United States and internationally.

Raytheon has a low debt (total debt to equity is 0.51), and it has a very low trailing P/E of 10.12. It also has a very low forward P/E of 10.91, and the PEG ratio is at 1.26. The average annual earnings growth for the past 5 years was at quite high at 14.93%, and the average annual earnings growth estimates for the next 5 years is at 8.02%. The price to free cash flow for the trailing 12 months is quite low at 15.81, and the price to sales ratio is very low at 0.80. The forward annual dividend yield is at 3.39%, and the annual rate of dividend growth over the past five years was very high at 13%. The payout ratio is only 31%. The stock price is 2.38% above its 20-day simple moving average, 4.80% above its 50-day simple moving average and 9.27% above its 200-day simple moving average.

On January 23, Raytheon will report its latest quarterly financial results. RTN is expected to post a profit of $1.30 a share, a 17.7% decline from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

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Data: Yahoo Finance

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Chart: finviz.com

Source: 4 Good Yield Dividend Growth Stocks With Low Price To Free Cash Flow