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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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I have searched for very profitable companies with very strong growth prospects that pay rich dividends. Those stocks would have to show also a very low forward P/E.

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:

  1. Dividend yield is greater than 3.0%.
  2. The PEG Ratio is less than 1.25.
  3. Trailing P/E is less than 20.
  4. Forward P/E is less than 13.
  5. Average annual sales growth for the past 5 years is greater than 15%.
  6. Average annual earnings growth for the past 5 years is greater than 15%.
  7. Average annual earnings growth estimates for the next 5 years is greater than 15%.

After running this screen on February 14, 2013, before the market open, I discovered the following three stocks:

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Coffee Holding Co. (JVA)

Coffee Holding Co., Inc. engages in manufacturing, roasting, packaging, marketing, and distributing roasted and blended coffees in the United States and Canada.

Coffee Holding has almost no debt at all (total debt to equity is only 0.02), and it has a trailing P/E of 19.51, and a very low forward P/E of 6.88, the PEG ratio is at 1.22. The price to free cash flow for the trailing 12 months is very low at 6.88, and the price-to-sales ratio is also very low at 0.26. JVA records strong growth on all key parameters; the average annual sales growth for the past 5 years was very high at 24.80%, the average annual earnings growth for the past 5 years was also very high at 17.41% and the average annual earnings growth estimates for the next 5 years is quite high at 16.00%.

JVA pays dividends; the forward annual dividend yield is at 3.32%, and the payout ratio is only 32.0%. Only two analysts are covering the stock, rating it as a strong buy and as a buy. The company is trading 50.62% below its 52-week high and has 38.5% upside potential based on the consensus mean target price of $10.00.

On January 28, Coffee Holding announced its operating results for the year ended October 31, 2012. In this release, the company:

  • Reports record net sales of $173,656,215 for the fiscal year ended October 31, 2012;
  • Reports sales growth of 18.3% for the fiscal year ended October 31, 2012 compared to the fiscal year ended October 31, 2011;
  • Reports net income of $2,485,677, or $0.39 per share (basic) and $0.37 per share (diluted) for the fiscal year ended October 31, 2012; and
  • Reports payment of $0.15 in quarterly dividends in fiscal 2012 as compared to $0.12 paid during fiscal 2011.

Also in the release, Andrew Gordon, President and Chief Executive Officer, said:

We are pleased to report what we believe to be extremely positive results to our shareholders. Even though coffee prices fell over 40% and coffee was the worst performing traded commodity according to the Standard & Poor's GSCI during calendar 2012, we increased our revenues by 18% for 2012 as a substantial increase in poundage offset lower and extremely volatile coffee prices during the year. More importantly, our efforts to improve our gross margin were rewarded as we were able to increase gross margins by 1% to 6.8% for the year. With our renewed focus on margins and brand development at the forefront of our initiatives for 2013, we believe a 9% gross margin for the year is achievable.

The compelling valuation metrics, the strong growth prospects, the 38.5% upside potential based on the consensus mean target price of $10.00, and the fact that the company pays rich dividends are all factors that make JVA stock quite attractive.

JVA Dividend Yield Chart

JVA Dividend Yield data by YCharts

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Chart: finviz.com

SeaDrill Limited (SDRL)

Seadrill Limited provides offshore drilling services to the oil and gas industry worldwide.

Seadrill has a trailing P/E of 17.02 and its forward P/E is very low at 12.12, its PEG ratio is also very low at 0.77. SDRL records strong growth on all key parameters; the average annual sales growth for the past 5 years was very high at 29.42%, the average annual earnings growth for the past 5 years was also very high at 37.35% and the average annual earnings growth estimates for the next 5 years is very high at 22.09%.

SDRL pays dividends; the forward annual dividend yield is very high at 8.85% and the payout ratio is at 145.3%. The company is trading 5.4% below its 52-week high and has 15% upside potential based on the consensus mean target price of $43.64.

SDRL has a total cash per share of $1.63, and it is expected to post a profit of $2.79 a share in the current year and $3.13 in the next year, which should be barely enough to sustain such a high dividend payment of $3.36.

SDRL will report its latest quarterly financial results on February 28. SDRL is expected to post a profit of $0.61 a share, a 16.4% 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.

Even if SDRL would not be able to maintain such a high dividend payment of $3.36, The compelling valuation metrics, the strong growth prospects, the 15% upside potential based on the consensus mean target price of $43.64 are all factors that make this stock quite attractive.

SDRL Dividend Yield Chart

SDRL Dividend Yield data by YCharts

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Chart: finviz.com

Valassis Communications Inc. (VCI)

Valassis Communications, Inc., together with its subsidiaries, operates as a media and marketing services company primarily in the United States and Europe.

Valassis Communications has a very low trailing P/E of 10.58, and even a lower forward P/E of 8.33. It also has a very low PEG ratio of 0.40. The price to free cash flow for the trailing 12 months is very low at 6.81, and the price-to-sales ratio is also very low at 0.53.

VCI records strong growth on all key parameters; the average annual sales growth for the past 5 years was quite high at 16.46%, the average annual earnings growth for the past 5 years was also quite high at 16.72% and the average annual earnings growth estimates for the next 5 years is very high at 26.70%. VCI pays dividends; the forward annual dividend yield is quite high at 4.23% and the payout ratio is only 44.8%.

The stock price is 3.97% above its 20-day simple moving average, 8.01% above its 50-day simple moving average and 22.38% above its 200-day simple moving average, which indicates short-term, mid-term and long-term uptrend.

VCI will report its latest quarterly financial results on February 21. VCI is expected to post a profit of $0.95 a share, the same as 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 strong growth prospects, the rich dividend, and the fact that the stock is in an uptrend are all factors that make VCI stock quite attractive.

VCI Forward PE Chart

VCI Forward PE data by YCharts

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Chart: finviz.com

 

Source: 3 Dividend Paying Stocks With Strong Growth Prospects