I have searched for very profitable companies that pay rich dividends and that have a very low trailing and forward P/E. Those stocks would have to also show good earnings growth prospects.
I looked for companies that are in a long-term uptrend. Stocks in an uptrend are performing well and are in a buying mode.
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:
- Dividend yield is greater than 5.8%.
- The payout ratio is less than 80%.
- Trailing P/E is less than 12.
- Forward P/E is less than 11.
- The PEG ratio is less than 1.40.
- Average annual earnings growth estimates for the next 5 years is greater than 6%.
- Stock price is above 200-day simple moving average (long-term uptrend).
After running this screen on March 05, 2013, before the market open, I discovered the following three stocks:
Ares Capital Corporation (NASDAQ:ARCC)
Ares Capital Corporation is a private equity firm specializing in acquisition, recapitalization, mezzanine debt, restructurings, rescue financing, and leveraged buyout transactions of middle market companies.
Ares Capital has a relatively low debt (the total debt to equity is 0.57), and the trailing P/E is very low at 8.80 and the forward P/E is also very low at 10.77. The dividend yield is very high at 8.30% and the payout ratio is at 76.4%.
The ARCC stock price is 0.67% above its 20-day simple moving average, 2.35% above its 50-day simple moving average and 11.03% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend. Analysts recommend the stock -- among the eighteen analysts covering the stock, eight rate it as a strong buy, five rate it as a buy and five rate it as a hold.
On February 27, Ares Capital reported its fourth-quarter and full-year 2012 financial results, which beat EPS expectations by $0.04. For the quarter ended December 31, 2012, Ares Capital reported GAAP net income of $175.1 million or $0.71 per share, Core EPS of $0.45 per share, net investment income of $94.5 million, or $0.38 per share, and net realized and unrealized gains of $80.7 million or $0.33 per share. In the report, the company announced that its board of directors has declared a first quarter dividend of $0.38 per share payable on March 29, 2013 to stockholders of record as of March 15, 2013. Also in the report, President Michael Arougheti commented:
Our strong fourth quarter results concluded a very good year for us in which we reported our highest level of annual core earnings per share, generated another year of net realized gains and increased our dividends and book value. We believe that our business is well positioned with no near term debt maturities, modest leverage and a significant amount of available debt capacity. Given our strong performance in 2012, we estimate that we will be carrying over undistributed taxable income into 2013 of approximately $0.96 per share.
The cheap valuation metrics, the good fourth-quarter 2012 results, the very rich dividend, and the fact that the stock is in an uptrend are all factors that make ARCC stock quite attractive.
ARCC Dividend Yield data by YCharts
NGP Capital Resources Company (NGPC)
NGP Capital Resources Company is a business development company specializing in investments in small and mid size and middle market companies.
NGP Capital has a low debt (total debt to equity is only 0.40) and it has a very low trailing P/E of 8.89 and a very low forward P/E of 9.12; the PEG ratio is also very low at 0.81. The average annual earnings growth estimate for the next 5 years is quite high at 11%. The forward annual dividend yield is very high at 9.00%, and the payout ratio is at 73.6%.
NGP Capital Resources will report its latest quarterly financial results on March 07. NGPC is expected to post a profit of $0.17 a share, a 70% rise 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.
On November 06, 2012, NGP Capital Resources reported its 3Q financial results.
- Total investment income: $6.3 million
- Net investment income: $3.4 million, or $0.16 per share
- Net realized gain on investments: $1.7 million, or $0.08 per share
- Net unrealized gain on investments: $7.1 million, or $0.33 per share
- Net increase in net assets resulting from operations: $12.2 million, or $0.57 per share
All these factors -- the very low multiples, the very rich dividend and the fact that the stock is trading way below book value (price to book value is only 0.73) -- make NGPC stock quite attractive.
NGPC Dividend data by YCharts
NGPC Dividend Yield data by YCharts
TAL International Group, Inc. (TAL)
TAL International Group, Inc. engages in leasing intermodal containers and chassis worldwide.
TAL International has a very low trailing P/E of 11.24 and a very low forward P/E of 9.10; the PEG ratio is also quite low at 1.12. The average annual earnings growth estimate for the next 5 years is quite high at 10%. The forward annual dividend yield is very high at 5.89%, and the payout ratio is at 60.7%.
The stock price is 7.75% above its 50-day simple moving average and 24.49% above its 200-day simple moving average. That indicates a mid-term and long-term uptrend.
On February 13, TAL International reported its results for the fourth quarter and full year of 2012, which beat EPS expectations by $0.09 and met expectations on revenues.
- TAL reported Adjusted pre-tax income of $1.60 per fully diluted common share for the fourth quarter of 2012, an increase of 2% from the fourth quarter of 2011. An increase in the residual value estimates used in TAL's depreciation calculations contributed $0.15 to Adjusted pre-tax income per fully diluted common share in the fourth quarter of 2012.
- TAL reported leasing revenues of $138.8 million for the fourth quarter of 2012, an increase of 11.8% from the fourth quarter of 2011.
- TAL reported Adjusted EBITDA of $141.7 million for the fourth quarter of 2012, an increase of 7.2% from the fourth quarter of 2011.
- TAL continued to grow its business aggressively during 2012, investing nearly $875 million in new container purchases and sale-leaseback transactions.
- TAL announced a quarterly dividend of $0.64 per share payable on March 28, 2013 to shareholders of record as of March 7, 2013.
In the report, Brian M. Sondey, president and CEO of TAL International commented:
TAL achieved outstanding operational and financial performance in 2012. We generated over $6.00 per share in Adjusted pre-tax income, grew our revenue earning assets by nearly 20%, and paid $2.35 in dividends per share. Our equipment utilization averaged almost 98% for the year.
The cheap valuation metrics, the good fourth-quarter 2012 results, the very rich dividend, and the fact that the stock is in an uptrend are all factors that make TAL stock quite attractive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.