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Arie Goren, Portfolio123 (498 clicks)
Long only, value, research analyst, dividend investing
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I have searched for profitable companies that pay rich dividends and that raise their payouts significantly each year. I also looked for companies where the average analysts' recommendation is a buy or better.

I have created a screening method that shows stock candidates following these criteria. 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. Dividend yield is greater than 3.0%.

3. Annual rate of dividend growth over the past five years is positive.

4. Average annual earnings growth estimates for the next five years is greater than 11%.

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

After running this screen on January 15, 2013 before the market open, I discovered the following three stocks:

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Electro Rent Corporation (ELRC)

Electro Rent Corporation engages in the rental, lease, and sale of new and used electronic test and measurement equipment primarily for use in the aerospace, defense, telecommunications, electronics, industrial, and semiconductor markets in the United States and internationally.

Electro Rent Corporation has no debt at all, and it has a very low forward P/E of 13.66. The PEG ratio is at 1.09. The average annual earnings growth estimates for the next five years is quite high at 15%. The forward annual dividend yield is quite high at 5.28%, and the annual rate of dividend growth over the past five years was very high at 14.9%. The payout ratio is at 86%.

ELRC has a total cash per share of $0.42, and it is expected to post a profit of $0.94 a share in the current year and $1.11 in the next year, which should be enough to sustain dividend payments of $0.80.

Only one analyst is covering the stock, and rates it as a strong buy. The stock price is 1.82% above its 20-day simple moving average, 4.95% above its 50-day simple moving average and 2.24% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrends.

On January 5, Electro Rent reported its 2Q fiscal 2013 financial results. Total revenues increased 5.8% to $65.2 million for the fiscal 2013 second quarter from $61.6 million for the fiscal 2012 second quarter. Net income for the fiscal 2013 second quarter totaled $6.2 million, or $0.26 per diluted share, versus $6.0 million, or $0.25 per diluted share, for the fiscal 2012 second quarter.

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

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Data: Yahoo Finance

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Chart: finviz.com

Houston Wire & Cable Company (HWCC)

Houston Wire & Cable Company, through its subsidiaries, provides wire and cable products and related services in the United States.

Houston Wire & Cable has a very low trailing P/E of 12.99, and an even lower forward P/E of 10.99. The PEG ratio is also very low at 0.87. The average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is quite high at 3.15%, and the annual rate of dividend growth over the past five years was at 3.7%. The payout ratio is low at 40.9%.

HWCC is expected to post a profit of $0.92 a share in the current year and $1.04 in the next year, which should be enough to sustain dividend payments of $0.36.

Analysts recommend the stock. Among the four analysts covering the stock, two rate it as a strong buy, one rates it as a buy, and one rates it as a hold.

All these factors -- the cheap valuation, the rich dividend and the analysts' recommendations -- make HWCC stock quite attractive.

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Data: Yahoo Finance

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Chart: finviz.com

Williams Companies, Inc. (WMB)

The Williams Companies, Inc. operates as an energy infrastructure company in the United States.

The Williams Companies has a trailing P/E of 31.58, and a forward P/E of 27.43. The average annual earnings growth estimates for the next 5 years is at 11.5%. The forward annual dividend yield is quite high at 3.88%, and the annual rate of dividend growth over the past five years was very high at 26.7%. The payout ratio is at 122.6%.

WMB has a total cash per share of $0.69, and it is expected to post a profit of $1.13 a share in the current year and $1.22 in the next year, which should be barely enough to sustain dividend payments of $1.30.

Analysts recommend the stock. Among the 13 analysts covering the stock, three rate it as a strong buy, nine rate it as a buy and one rates it as a hold. The stock price is 1.90% above its 20-day simple moving average, 3.21% above its 50-day simple moving average and 5.78% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrends.

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

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Data: Yahoo Finance

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Chart: finviz.com

Source: 3 Rising Good Yield Dividend Stocks That Analysts Recommend