I have searched for very profitable tech companies that pay rich dividends with not too high payout ratios. Those stocks would have to show a very low debt and have their enterprise value well below their market cap.
Enterprise value is calculated as market cap plus debt, minority interest and preferred shares, minus total cash and cash equivalents. Since the enterprise value can serve as the theoretical takeover price of the company, when its value is well below the market cap it is possible to consider the company's stock in a deep discount.
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 all stocks to comply with all following demands:
- Dividend yield is greater than 3.0%.
- The payout ratio is less than 50%.
- Trailing P/E is less than 16.
- Forward P/E is less than 12
- Debt to equity is less than 0.30.
- The Enterprise Value is less than the Market Cap of the company.
After running this screen on February 14, 2013, before the market open, I discovered the following four stocks:
Espey Mfg. & Electronics Corp. (NYSEMKT:ESP)
Espey Mfg. & Electronics Corp., a power electronics design and original equipment manufacturing company, engages in the design, manufacture, and testing of electronic equipment that are used primarily in military and industrial applications in the United States.
Espey Mfg. & Electronics has no debt all, and it has a very low trailing P/E of 11.86 and an even lower forward P/E of 11.33 . The forward annual dividend yield is quite high at 3.92%, and the payout ratio is at 46.5%.
ESP has a total cash per share of $6.51 and it is expected to post a profit of $2.15 a share in the current fiscal year, which should be more than enough to sustain dividend payments of $1.00%.
On February 13, Espey Mfg. & Electronics reported results for the second quarter and the first six months of fiscal year 2013, ended December 31, 2012. In the report, the company said:
Net sales for the second quarter of fiscal year 2013, October 1 to December 31, 2012, remained consistent at $8.1 million as compared with last year's second quarter net sales of $8.3 million. The net income for the period was $1,071,776, $.48 per diluted share, as compared with $1,070,863, $.49 per diluted share for the corresponding period the last fiscal year.
The sales order backlog for the Company increased to $48.5 million at December 31, 2012, compared with last year's sales backlog of $36.1 million at December 31, 2011. New sales orders in the first half of fiscal 2013 were approximately $14 million, compared with new sales orders in the first half of fiscal 2012 of approximately $13.8 million.
Also in the report, Mr. Mark St. Pierre, President and CEO, commented:
Espey's second quarter and half-year financial results can best be described as 'solid' -- sales are trending flat and earnings, while up some 17% from last year at the half-year, have also trended flat for the most recent quarter. Sales and engineering development work on substantial, long-term new programs continue satisfactorily, but as predicted, is experiencing the effect of the continuing budgetary uncertainty in Washington D.C. Quite simply, all markets hate uncertainty, and the federal defense budgets upon which Espey largely depends are no different. Espey -- in common with the entire defense industry -- expects some continued softening until a long-term budgetary solution is finalized.
The cheap valuation metrics, the rich dividend, and the fact that the sales order backlog for the company increased significantly in the last quarter are all factors that make ESP stock quite attractive.
ManTech International Corporation (NASDAQ:MANT)
ManTech International Corporation provides technologies and solutions for national security programs in the United States and internationally.
ManTech International has a very low debt (the total debt to equity is only 0.17), and it has a very low trailing P/E of 9.05 and a very low forward P/E of 10.12. The price to free cash flow for the trailing 12 months is very low at 5.33, and the price-to-sales ratio is also very low at 0.36. The forward annual dividend yield is quite high at 3.26%, and the payout ratio is only 29.5%.
The stock price is 0.90% above its 20-day simple moving average, 0.34% above its 50-day simple moving average and 9.13% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.
MANT has a total cash per share of $5.65, and it is expected to post a profit of $2.70 a share in the current year and $2.55 in the next year, which should be more than enough to sustain dividend payments of $0.84.
MANT will report its latest quarterly financial results on February 19. MANT is expected to post a profit of $0.68 a share, a 18.1% 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.
The compelling valuation metrics, the rich dividend, the fact that the stock is in an uptrend, and that the stock is trading way below book value ( price to book value is only 0.83) are all factors that make MANT stock quite attractive.
Intel Corporation (NASDAQ:INTC)
Intel Corporation designs, manufactures, and sells integrated digital technology platforms primarily in the Asia-Pacific, the Americas, Europe, and Japan.
Intel has a very low debt (total debt to equity is only 0.26), and the trailing P/E is very low at 9.98. The forward P/E is also very at 10.12. The PEG ratio is very low at 0.85, and the average annual earnings growth estimates for the next five years is at 11.75%. The forward annual dividend yield is very high at 4.24%, and the payout ratio is only 42.3%.
INTC has a total cash per share of $3.66, and it is expected to post a profit of $1.94 a share in the current year and $2.10 in the next year, which should be more than enough to sustain dividend payments of $0.90.
Last week, it was published that Intel plans to launch an Internet television service this year with live and on-demand content. Intel's plan, if successful, would go further than products currently offered by Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), and Netflix (NASDAQ:NFLX) by offering live programming as well as on-demand content.
Intel is no longer the fast-growing company it used to be, but with such a cheap valuation metrics and such a high dividend yield, INTC stock is a safe bet.
Microsoft Corporation (NASDAQ:MSFT)
Microsoft has a very low debt (total debt to equity is only 0.20) and it has a low trailing P/E of 15.40 and a very low forward P/E of 8.87, the PEG ratio is at 1.84. The average annual earnings growth for the past five years was at 7.01% and the average annual earnings growth estimates for the next five years is at 8.38%. The price to free cash flow for the trailing 12 months is very low at 11.36. The forward annual dividend yield is at 3.28% and the payout ratio is at 45%.
The company is trading 13.09% below its 52-week high and has 18.8% upside potential based on the consensus mean target price of $33.29. Most analysts recommend the stock-- among the 38 analysts covering the stock, 24 analysts rate it as a strong buy or as a buy, and 14 analysts rate it as a hold.
MSFT has a total cash per share of $8.13, and it is expected to post a profit of $2.85 a share in the current year and $3.16 in the next year, which should be more than enough to sustain dividend payments of $0.92.
The compelling valuation metrics, the rich dividend, the analyst's recommendation, the 18.8% upside potential based on the consensus mean target price of $33.29, and the fact that Microsoft is a global leader are all factors that make MSFT stock a bargain right now.