Seeking Alpha
Value, growth, long-term horizon, medium-term horizon
Profile| Send Message|
( followers)  

Do you prefer stocks that pay dividends you can rely on? If you do, surely you would like to focus on companies that will continue to pay those dividends in the long-term.

With this in mind we began by screening the S&P 500 for dividend stocks: those paying dividend yields between 1%-8%. We wanted to stay conservative so stayed away from the high-risk high yielding stocks above 8%.

To find companies with reliable dividends, we focused on 2 statistics from the balance sheet, namely the growth in receivables, and inventories.

Although receivables are considered to be an asset, it becomes a risk when receivables grow and revenues decline. We looked through more than 30 balance sheets to find those with negative trends in revenue relative to accounts receivable, with slower growth in revenue year-over-year than growth in accounts receivable, as well as receivables comprising a larger portion of current assets.

Receivables represent the portion of revenue not yet collected, so the smaller the portion of revenue and current assets, the better.

We were left with 15 names on our list. We didn't stop here!

We then moved to looking at growth in quarterly revenue slower than growth in quarterly inventory year-over-year. We also looked for companies with quarterly inventory increasing as a percent of current assets.

When revenue is growing slower than inventory, it may indicate that the company is having trouble selling its inventory - although this might just indicate inventory building or a change in sales policies.

We were left with 7 companies on our list. All have attractive dividends, but troubling accounting signals.

A Deeper Look

We look at Cliff Natural Resources (NYSE:CLF), which recently announced that it will take a $1b goodwill impairment charge in the fourth quarter of 2012 due to the acquisition of Consolidated Thompson Iron Mines.

For the third quarter of 2012, the company posted earnings of 59 cents per share,down 86% from last year. Sales in the quarter were down 26% from last year. This significant drop in earnings and top-line growth were due to the decline in iron ore prices, and higher labor mining and maintenance costs.

Click play below for the change in quarterly sales of Cliff Natural Resources versus others on our list.

The company's troubles don't end here. As off September 30th, 2012, the company has $3.9 billion in debt with about $2.5 billion in debt due before 2020. Can the company continue to re-finance its short-term debt, and extend the debt maturity schedule?

(click to enlarge)

Finally, a continued slowdown in the macro economy might mean a slowdown in construction spending. Although it is difficult to currently predict the decline in top line growth with a slowing economy, it's surely an important catalyst for the company's revenues. Do you think Cliff Natural Resources pays reliable dividends?

The List:

Do you think other stocks from our list pay sustainable dividend yields? Use this list as a starting point for your own analysis.

1. Agilent Technologies Inc. (NYSE:A): Provides bio-analytical and electronic measurement solutions to the communications, electronics, life sciences, and chemical analysis industries in the United States and internationally. Market cap at $15.45B, most recent closing price at $44.40. Revenue grew by 2.26% during the most recent quarter ($1,767M vs. $1,728M y/y). Accounts receivable grew by 7.33% during the same time period ($923M vs. $860M y/y). Receivables, as a percentage of current assets, increased from 15.44% to 19.94% during the most recent quarter (comparing 3 months ending 2012-10-31 to 3 months ending 2011-10-31).

Revenue grew by 2.26% during the most recent quarter ($1,767M vs. $1,728M y/y). Inventory grew by 12.92% during the same time period ($1,014M vs. $898M y/y). Inventory, as a percentage of current assets, increased from 16.12% to 21.91% during the most recent quarter (comparing 3 months ending 2012-10-31 to 3 months ending 2011-10-31). Dividend yield at 1.1%.

2. Peabody Energy Corp. (NYSE:BTU): Engages in the exploration, mining, and production of coal. Market cap at $6.67B, most recent closing price at $24.87. Revenue grew by 3.95% during the most recent quarter ($2,058.8M vs. $1,980.6M y/y). Accounts receivable grew by 15.35% during the same time period ($682.2M vs. $591.4M y/y). Receivables, as a percentage of current assets, increased from 19.68% to 25.7% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

Revenue grew by 3.95% during the most recent quarter ($2,058.8M vs. $1,980.6M y/y). Inventory grew by 57.69% during the same time period ($554.9M vs. $351.9M y/y). Inventory, as a percentage of current assets, increased from 11.71% to 20.9% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30). Dividend yield at 1.4%.

3. Cliffs Natural Resources Inc. : Produces iron ore pellets, lump and fines iron ore, and metallurgical coal products. Market cap at $5.19B, most recent closing price at $36.42. Revenue grew by -26.05% during the most recent quarter ($1,544.9M vs. $2,089.1M y/y). Accounts receivable grew by 2.01% during the same time period ($442.5M vs. $433.8M y/y). Receivables, as a percentage of current assets, increased from 22.77% to 26.57% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

Revenue grew by -26.05% during the most recent quarter ($1,544.9M vs. $2,089.1M y/y). Inventory grew by 11.66% during the same time period ($786.2M vs. $704.1M y/y). Inventory, as a percentage of current assets, increased from 36.96% to 47.21% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30). Dividend yield at 6.9%.

4. CONSOL Energy Inc. (NYSE:CNX): Engages in the production of multi-fuel energy and provision of energy services primarily to the electric power generation industry in the United States. Market cap at $7.1B, most recent closing price at $31.15. Revenue grew by -23.77% during the most recent quarter ($1,160.09M vs. $1,521.73M y/y). Accounts receivable grew by 2.8% during the same time period ($869.89M vs. $846.19M y/y). Receivables, as a percentage of current assets, increased from 44.49% to 50.86% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

Revenue grew by -23.77% during the most recent quarter ($1,160.09M vs. $1,521.73M y/y). Inventory grew by 10.28% during the same time period ($266.54M vs. $241.69M y/y). Inventory, as a percentage of current assets, increased from 12.71% to 15.58% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30). Dividend yield at 1.6%.

5. Eastman Chemical Co. (NYSE:EMN): Engages in the manufacture and sale of chemicals, plastics, and fibers in the United States and internationally. Market cap at $10.97B, most recent closing price at $71.51. Revenue grew by 24.67% during the most recent quarter ($2,259M vs. $1,812M y/y). Accounts receivable grew by 33.% during the same time period ($1,072M vs. $806M y/y). Receivables, as a percentage of current assets, increased from 34.24% to 40.1% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30).

Revenue grew by 24.67% during the most recent quarter ($2,259M vs. $1,812M y/y). Inventory grew by 49.29% during the same time period ($1,269M vs. $850M y/y). Inventory, as a percentage of current assets, increased from 36.11% to 47.47% during the most recent quarter (comparing 3 months ending 2012-09-30 to 3 months ending 2011-09-30). Dividend yield at 1.7%.

6. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Engages in the exploration, mining, and production of mineral resources. Market cap at $33.38B, most recent closing price at $35.16. Revenue grew by 8.43% during the most recent quarter ($4,513M vs. $4,162M y/y). Accounts receivable grew by 42.64% during the same time period ($1,629M vs. $1,142M y/y). Receivables, as a percentage of current assets, increased from 11.37% to 15.82% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31).

Revenue grew by 8.43% during the most recent quarter ($4,513M vs. $4,162M y/y). Inventory grew by 18.27% during the same time period ($4,576M vs. $3,869M y/y). Inventory, as a percentage of current assets, increased from 38.51% to 44.44% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31). Dividend yield at 3.6%.

7. Lockheed Martin Corporation (NYSE:LMT): Engages in the research, design, development, manufacture, integration, operation, and sustainment of advanced technology systems and products in the areas of defense, space, intelligence, homeland security, and government information technology in the United States and internationally. Market cap at $28.54B, most recent closing price at $88.21.

Revenue grew by -0.92% during the most recent quarter ($12,099M vs. $12,211M y/y). Accounts receivable grew by 8.23% during the same time period ($6,563M vs. $6,064M y/y). Receivables, as a percentage of current assets, increased from 43.03% to 47.37% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31). Revenue grew by -0.92% during the most recent quarter ($12,099M vs. $12,211M y/y). Inventory grew by 18.38% during the same time period ($2,937M vs. $2,481M y/y). Inventory, as a percentage of current assets, increased from 17.6% to 21.2% during the most recent quarter (comparing 3 months ending 2012-12-31 to 3 months ending 2011-12-31). Dividend yield at 3.6%.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 7 S&P 500 Dividend Stocks With Troubling Accounting Signals