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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 very profitable companies that pay very rich dividends and that have a very low price to free cash flow. Those stocks would have to show also a very low debt and a low price-to-book-value ratio.

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. The forward dividend yield is greater than 4.30%.
  2. The payout ratio is less than 65%.
  3. Price to free cash flow for the trailing 12 months is less than 14.
  4. Price to book value is less than 1.50.
  5. Trailing P/E is less than 16.
  6. Debt-to-equity ratio is less than 0.50.

After running this screen on July 22, 2013, before the market open, I discovered the following three stocks:

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Calamos Asset Management Inc. (NASDAQ:CLMS)

Calamos Asset Management Inc. is a publicly owned investment manager.

Calamos Asset Management has a low debt (total debt to equity is only 0.46), and it has a trailing P/E of 15.91 and a forward P/E of 17.82. The price-to-sales ratio is very low at 0.71, and the price-to-book value is also low at 1.12. The price to free cash flow for the trailing 12 months is extremely low at 1.96, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is very high at 4.55%, and the payout ratio is at 63%.

The CLMS stock price is 2.42% above its 20-day simple moving average, 2.57% above its 50-day simple moving average and 4.31% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

CLMS will report its latest quarterly financial results on August 05. CLMS is expected to post a profit of $0.15 a share, a 67% 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, and the fact that the stock is in an uptrend are all factors that make CLMS stock quite attractive.

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Chart: finviz.com

Citizens & Northern Corp. (NASDAQ:CZNC)

Citizens & Northern Corporation operates as the bank holding company for Citizens & Northern Bank that provides various banking and mortgage services to individual and corporate customers in north central Pennsylvania, and southern New York.

Citizens & Northern Corporation has no debt at all, and it has a very low trailing P/E of 11.86 and a very low forward P/E of 13.36. The price to free cash flow for the trailing 12 months is very low at 13.20, and the price-to-book-value is at 1.42. The forward annual dividend yield is very high at 4.74%, and the payout ratio is at 56%.

The CZNC stock price is 5.61% above its 20-day simple moving average, 6.45% above its 50-day simple moving average and 11.05% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 18, 2013 Citizens & Northern Corporation issued a press release announcing that the company's Board of Directors has declared a dividend on its common stock of $0.25 per share, payable August 9, 2013, to shareholders of record as of July 29, 2013. Declaration of the dividend was made at the July 18, 2013 meeting of the C&N Board of Directors.

The very low multiples, the very rich dividend, and the fact that the stock is in an uptrend are all factors that make CZNC stock quite attractive.

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Chart: finviz.com

Nevsun Resources Ltd. (NYSEMKT:NSU)

Nevsun Resources Ltd., a gold and base metal mining and exploration company, together with its subsidiaries, engages acquisition, exploration, development, and production of mineral properties in Africa.

Nevsun Resources has no debt at all, and it has an extremely low trailing P/E of 5.70 and even a lower forward P/E of 4.89. The price-to-sales ratio is at 1.33, and the price-to-book-value is low at 1.03. The price to free cash flow for the trailing 12 months is very low at 7.11, and the current ratio is very high at 16.60. The forward annual dividend yield is very high at 4.31%, and the payout ratio is only 25%.

NSU will report its latest quarterly financial results at the beginning of August. NSU is expected to post a profit of $0.03 a share, a $0.16 decline from the company's actual earnings for the same quarter a year ago.

All these factors - the very low multiples, the very rich dividend, and the fact that the company is rich in cash ($1.68 a share) and has no debt -- make NSU stock quite attractive.

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Chart: finviz.com

Source: 3 High-Yielding Stocks With Low Price To Free Cash Flow And Low Debt