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Many investors prefer using free cash flow instead of net income to measure a company's financial performance because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure.

I have searched for highly profitable companies that pay solid dividends and that have a very low price to free cash flow. Those stocks would have to show a very low PEG ratio and strong earnings growth prospects. I also looked for companies that are in a short-term, mid-term and 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. All the data for this article were taken from Yahoo Finance and finviz.com.

The screen's formula requires all stocks to comply with all following demands:

  1. Dividend yield is greater than 2.0%.

  2. The payout ratio is less than 60%.

  3. Trailing P/E is less than 15.

  4. Forward P/E is less than 15.

  5. Price to free cash flow is less than 14.

  6. The PEG ratio is less 1.0.

  7. Average annual earnings growth estimates for the next 5 years is greater or equal 14%.

  8. Stock price is above 20-day simple moving average (short-term uptrend).

  9. Stock price is above 50-day simple moving average (mid-term uptrend).

  10. Stock price is above 200-day simple moving average (long-term uptrend).

After running this screen on April 29, 2013, before the market open, I discovered the following four stocks:

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Destination Maternity Corporation (NASDAQ:DEST)

Destination Maternity Corporation engages in the design and retail of maternity clothing in the United States. It offers casual and career wear, formal attire, lingerie, sportswear, and outerwear.

Destination Maternity has almost no debt at all (total debt to equity is only 0.02), and it has a very low trailing P/E of 14.78 and a very low forward P/E of 12.42. The PEG ratio is very low at 0.99. The price to free cash flow for the trailing 12 months is very low at 13.47, and the average annual earnings growth estimates for the next 5 years is very high at 15%. The forward annual dividend yield is quite high at 3.0%, and the payout ratio is at 45%.

The DEST stock price is 0.32% above its 20-day simple moving average, 1.47% above its 50-day simple moving average and 13.81% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On April 25, Destination Maternity announced operating results for the second quarter of fiscal 2013. The company's diluted earnings per share for its second quarter fiscal 2013 increased 16% compared to the prior year, and were at the top end of its January 31, 2013 earnings guidance range. The company also announced that its Board of Directors declared a regular quarterly cash dividend of $0.1875 per share payable June 28, 2013, representing an increase of 7.1% compared to the company's previous quarterly dividend amount.

In the report, Ed Krell, Chief Executive Officer of Destination Maternity Corporation, noted:

We are pleased with our continued positive momentum in delivering increases in earnings and comparable sales during the second quarter, despite very unfavorable weather conditions for the month of March. Our second quarter fiscal 2013 diluted earnings per share of $0.44 were 16% higher than last year's second quarter diluted earnings of $0.38 per share, and were at the top end of our prior earnings guidance range of $0.38 to $0.44 per share that we provided in our January 31, 2013 press release. This represents our third consecutive quarter of achieving both a comparable sales increase and a significant increase in earnings over the prior year, showing the continued progress we have made with our sales initiatives, while maintaining strong operational and expense discipline. Our progress in improving our comparable sales results can be seen by our adjusted comparable sales increases of 2.4% for the second quarter and 3.1% for the first six months of fiscal 2013, both adjusted for the calendar timing shift as described later in this press release.

The compelling valuation metrics, the rich dividend, the strong earnings growth prospects, and the fact that the stock is in an uptrend are all factors that make DEST stock quite attractive.

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Chart: finviz.com

The Hackett Group, Inc. (NASDAQ:HCKT)

The Hackett Group, Inc. operates as a strategic advisory and technology consulting firm primarily in the United States and Western Europe.

The Hackett Group has very low debt (total debt to equity is only 0.26), and it has a very low trailing P/E of 9.51 and a very low forward P/E of 9.33. The PEG ratio is extremely low at 0.48. The price to free cash flow for the trailing 12 months is very low at 9.02, and the average annual earnings growth estimates for the next 5 years is very high at 20%. The forward annual dividend yield is at 2.06%, and the payout ratio is only 19%. Analysts recommend the stock: Among the four analysts covering the stock, two rate it as strong buy, one rates it as a buy and one rates it as a hold.

The HCKT stock price is 0.52% above its 20-day simple moving average, 7.1% above its 50-day simple moving average and 15.57% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

The Hackett Group will report its latest quarterly financial results on May 06. HCKT is expected to post a profit of $0.10 a share, a 25% 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 cheap valuation metrics, the solid dividend, and the strong earnings growth prospects, and the fact that the stock is in an uptrend are all factors that make HCKT stock quite attractive.

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Chart: finviz.com

PDL BioPharma, Inc (NASDAQ:PDLI)

PDL BioPharma, Inc. engages in intellectual property asset management and patent portfolio and related assets investment activities.

PDL BioPharma has an exceptionally low trailing P/E of 5.31 and an exceptionally low forward P/E of 4.01. The PEG ratio is extremely low at 0.38. The price to free cash flow for the trailing 12 months is very low at 8.54, and the average annual earnings growth estimates for the next 5 years is quite high at 14%. The forward annual dividend yield is very high at 7.79%, and the payout ratio is only 40%.

The PDLI stock price is 3.04% above its 20-day simple moving average, 6.72% above its 50-day simple moving average and 8.05% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

PDL BioPharma will report its latest quarterly financial results on May 03. PDLI is expected to post a profit of $0.35 a share, a 20.7% 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.

The compelling valuation metrics, the very rich dividend, the good earnings growth prospects, and the fact that the stock is in an uptrend are all factors that make PDLI stock quite attractive.

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Chart: finviz.com

Safety Insurance Group Inc. (NASDAQ:SAFT)

Safety Insurance Group, Inc. provides private passenger automobile insurance products primarily in Massachusetts and New Hampshire.

Safety Insurance Group has no debt at all, and it has a very low trailing P/E of 12.82 and a forward P/E of 14.99. The PEG ratio is very low at 0.85. The price to free cash flow for the trailing 12 months is very low at 11.30, and the average annual earnings growth estimates for the next 5 years is quite high at 15%. The forward annual dividend yield is quite high at 4.93%, and the payout ratio is at 58%.

The SAFT stock price is 0.12% above its 20-day simple moving average, 1.11% above its 50-day simple moving average and 7.39% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Safety Insurance Group will report its latest quarterly financial results today, April 30. SAFT is expected to post a profit of $0.79 a share, a 28.8% 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 good earnings growth prospects, and the fact that the stock is in an uptrend are all factors that make SAFT stock quite attractive.

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Chart: finviz.com

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.

Source: 4 Dividend Stocks With Very Low Price To Free Cash Flow And In An Uptrend