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

Do you like to invest in stocks with dividend income, but you are also cautious of fundamentals that might mean a declining dividend payout? Here, we keep a cautious stance, and analyze companies which pay an attractive dividend but report profitability weaker than its peers.

We first looked for stocks in the S&P 500 index for those with a dividend income of at least 1% but not more than 7%. This allows us to focus on stocks with good credit profiles, and away from the high-yield space.

We then looked for those with weak profitability compared to industry peers, with lower gross, operating, and pretax margins than their industry averages by at least 5% on each margin. This indicates that these companies are taking a smaller percentage of their revenues as profits, and they also have less control over their cost structures.

We then looked at the income statement for these companies to analyze profitability. We compared the companies' gross, operating, and profit margins with their industry averages to find those less profitable than their industry peers.

Interactive Chart: Press play to see how the dividend yields have changed for these three companies over the past two years.

How long do you think it will take these companies to become more competitive with its peers? Use the list below as a starting point for your detailed analysis:

1. Broadcom Corp. (NASDAQ:BRCM): Designs and develops semiconductors for wired and wireless communications.

  • Market cap at $18.46B, most recent closing price at $32.45.
  • TTM gross margin at 53.85% vs. industry average at 59.52%. TTM operating margin at 10.65% vs. industry average at 19.01%. TTM pretax margin at 8.19% vs. industry average at 16.21%.
  • Dividend yield at 1.23%.

2. Coca-Cola Enterprises Inc. (NYSE:CCE): Produces, distributes, and markets non-alcoholic beverages in Europe.

  • Market cap at $9.98B, most recent closing price at $34.76.
  • TTM gross margin at 40.27% vs. industry average at 58.05%. TTM operating margin at 12.38% vs. industry average at 21.72%. TTM pretax margin at 10.83% vs. industry average at 20.9%.
  • Dividend yield at 1.84%.

3. Fidelity National Information Services, Inc. (NYSE:FIS): Provides banking and payments technology solutions worldwide.

  • Market cap at $10.84B, most recent closing price at $36.96.
  • TTM gross margin at 42.94% vs. industry average at 48.78%. TTM operating margin at 19.2% vs. industry average at 33.64%. TTM pretax margin at 13.55% vs. industry average at 23.43%.
  • Dividend yield at 2.16%.

4. Health Care REIT, Inc. (NYSE:HCN): Engages in investment, development, and management of properties.

  • Market cap at $16.15B, most recent closing price at $62.19.
  • TTM gross margin at 31.27% vs. industry average at 40.36%. TTM operating margin at 31.27% vs. industry average at 37.92%. TTM pretax margin at 10.43% vs. industry average at 20.12%.
  • Dividend yield at 4.92%.

*Profitability data sourced from Fidelity, all other data sourced from Finviz.

Source: 4 S&P 500 Dividend Stocks With Weaker Profitability Than Peers