Do you like the comfort that dividend income can bring? Do you follow the trends of smart money managers? We researched stocks with this in mind.
We started by looking for stocks with a return on investment (ROI) above the industry average. ROI is a popular measure of profitability. It is calculated by dividing net profits by total assets.
We took this a step further by looking for stocks that pay a dividend yield of at least 1%, but not higher than 5%. This allowed us to focus on names with a strong credit profile. We now have a list of dividend stocks with a ROI above industry average.
Finally, we researched their 13F's looking for those with bullish sentiment from institutional investors, with significant net institutional purchases over the last quarter representing at least 5% of share float. This indicates that institutional investors such as hedge fund managers and mutual fund managers expect these names to outperform into the future.
3 stocks met the criteria.
A Closer Look
We looked at National Research Corp. (NRCI) in more detail. The stock has had a nice run in the past 1-year being up more than 50%. Today the stock trades around $58.65 versus its 52-week range of $36.40-$61.58. It trades with a P/E multiple of 24 times. Although it is tough to find direct competitors, there are companies such as Gallup Inc., Press Ganey Associates, and SDI Health, which fall within the same area. These companies are all privately held.
National Research Corp. maintains a lean balance sheet with $15 million in cash & cash equivalents, and zero public debt. Also, the company generated around $12 million free cash flow for the nine months ended September 30th, 2012. The company has returned cash to shareholders in the form of dividends. The stock yields 2.1%.
National research also has a stock repurchase program. As of September 30th, 2012, the remaining number of shares that could be purchased is 190,862.
Interactive Chart: Press Play to compare changes in analyst changes over the last two years for the three stocks mentioned below.
Would you invest in these companies? Use this list as a starting point for your analysis.
1. Lear Corp. (LEA): Engages in the design and manufacture of automotive seat systems and related components for automobiles and light trucks.
- Market cap at $5.41B, most recent closing price at $55.79.
- TTM Return on Investments at 36.62% vs. an industry average at 12.69%.
- Net institutional purchases in the current quarter at 5.5M shares, which represents about 5.93% of the company's float of 92.69M shares. The 2 top holders of the stock are Robeco Investment Management, and Harris Associates.
- Dividend yield at 1.22%.
2. National Research Corp. : Provides performance measurement and improvement services, healthcare analytics, and governance education to the healthcare industry in the United States and Canada.
- Market cap at $404.02M, most recent closing price at $58.81.
- TTM Return on Investments at 19.1% vs. an industry average at 9.22%.
- Net institutional purchases in the current quarter at 290.6K shares, which represents about 11.18% of the company's float of 2.60M shares. The 2 top holders of the stock are BESSEMER Group, and Kayne Anderson Rudnick Investment Management.
- Dividend yield at 2.11%.
3. Quality Systems Inc. (QSII): Develops and markets health-care information systems.
- Market cap at $1.15B, most recent closing price at $19.37.
- TTM Return on Investments at 19.73% vs. an industry average at 12.04%.
- Net institutional purchases in the current quarter at 7.1M shares, which represents about 17.77% of the company's float of 39.96M shares. The 2 top holders of the stock are Brown Capital Management, and Clifton Park Capital.
- Dividend yield at 3.6%.
* All accounting data sourced from Google Finance
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.