7 Cash Rich Stocks Offering Stingy Dividends

I currently track 100 dividend stocks in my D4L-Dashboard and have determined some of the lower rated stocks could be buys if the companies simply chose to increase their dividends. For various reasons their management has elected to keep a low payout ratio and deploy the excess cash elsewhere.

To identify these stingy companies, I used the following criteria on the companies I track:

• A Free Cash Flow Dividend Payout (FCFp) of 40% or less. This means that 60% of the company’s cash, after operating expenses, is going elsewhere.
• A sum of Debt to Total Capital (Debt) + FCFp of less than 50%. This should help weed out the companies holding the cash to pay interest.
• Trailing 12-month Free Cash Flow per share is greater than an average of the last 3 years. This weeds out companies where cash flow is decreasing.
• Cash on the balance sheet in excess of short-term debt. This weeds out companies that may have an immediate debt-servicing need for the cash.

Here are seven stocks out of the 100 that I track meeting the above criteria:

Aflac Incorporated (AFL) – 4-Stars – Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.

• FCF Payout: 10%
• Debt + FCFp: 34%
• Cash/ST Debt: 11.5 Times

C.R. Bard Inc. (BCR) – 4-Stars
Bard (C.R.) Inc is a diversified producer of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.

• FCF Payout: 13%
• Debt + FCFp: 19%
• Cash/ST Debt: No ST Debt (4.1 Times LT Debt)

Franklin Resources Inc. (BEN) – 2 Stars
Franklin Resources Inc. is one of the world’s largest asset managers, serving retail, institutional and high-net-worth clients.

• FCF Payout: 17%
• Debt + FCFp: 31%
• Cash/ST Debt: 91.2 Times

Donaldson Company (DCI) – 3 Stars – Analysis
Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.

• FCF Payout: 17%
• Debt + FCFp: 49%
• Cash/ST Debt: 1.6 Times

General Dynamics (GD) – 2 Stars – Analysis
General Dynamics is the world’s sixth largest military contractor and also one of the world’s biggest makers of corporate jets.

• FCF Payout: 25%
• Debt + FCFp: 48%
• Cash/ST Debt: 1.2 Times

Lancaster Colony (LANC) – 2 Stars
Lancaster Colony is a diversified Ohio-based company which manufactures and markets consumer products; glassware and candles; and automotive accessories.

• FCF Payout: 25%
• Debt + FCFp: 29%
• Cash/ST Debt: No ST Debt (1.3 Times LT Debt)

Walgreen Co. (WAG) – 3 Stars – Analysis
Walgreen Co is the largest U.S. retail drug chain in terms of revenues. It sells prescription and non-prescription drugs, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods.

• FCF Payout: 28%
• Debt + FCFp: 42%
• Cash/ST Debt: 230 Times

You could view this from a positive perspective and say the above dividends should be very safe and the companies are in an excellent position to continue to raise them each year. In dividend investing, cash is king, but at some point management has to be willing to share it with the company’s owners.

Full Disclosure: Long AFL. See a list of all my income holdings here.

Comments

[buoy:]

Maybe they don't need your money all that badly.

Aug 27 09:13 AM

[Thrift Maven:]

Franklin resources returned $1,000,000 for every $1,000 invested
during an 18 year period for the great '80's - '90's bull market. It was the most successful stock of those years. It is far better to let them handle the money than to pass out a few paltry dollars here and there. Put ten or twenty shares in your Roth IRA, reinvest those small dividends, let Franklin do what it does best and you should have a wonderful return in twenty five years.

Aug 27 09:23 AM

[Steve20423:]

This is a silly statement: about Franklin. You could make the same claim about GM, Bethlehem Steel , etc etc etc. What a company did decades ago is meaningless without some idea about what they plan to do tomorrow. Franklin might be a great company with great management but the NEW economy is changing and to advise putting money in any investment without constant monitoring could be a big mistake. Resources need to be allocated to where they will do the most good.


On Aug 27 09:23 AM Thrift Maven wrote:

> Franklin resources returned $1,000,000 for every $1,000 invested
>
> during an 18 year period for the great '80's - '90's bull market.
> It was the most successful stock of those years. It is far better
> to let them handle the money than to pass out a few paltry dollars
> here and there. Put ten or twenty shares in your Roth IRA, reinvest
> those small dividends, let Franklin do what it does best and you
> should have a wonderful return in twenty five years.

Aug 27 10:03 AM

[David Van K...:]

It's unfair to call a successful company that doesn't pay out dividends at the rate you wish "stingy." One needs to look at the entire financial structure of the company, and its history of allocating capital, to decide whether the company is allocating that capital successfully. Some companies, business models, and external circumstances lend themselves to higher payouts, and others don't. It's a balancing act.

Certainly some companies retain too much profit for too long, beyond any reasonable possibility of using it to grow the business. And other companies (like banks in 2008) pay out too much in dividends because they can't see the cliff in front of them. Neither approach is optimum.

Your analysis seems to place all the emphasis on whether the company has enough cash around to pay off its debt comfortably. That's certainly important. But there are many other legitimate uses for a company's profits: Healthy acquisitions, promising internal growth projects, R&D, well-conceived increases in marketing expenditures, well-controlled expansion, the list is endless. You lump all these together in the single sentence, "For various reasons their management has elected to keep a low payout ratio and deploy the excess cash elsewhere."

There are plenty of fine dividend-paying companies out there that meet all of your criteria and all of mine. You've done a fine job in the past of identifying them and explaining why they meet your criteria. That--along with updating analysis on companies whose dividends may be in peril--seems like time better spent than expending negative energy on bashing companies that you wish paid higher dividends.

Aug 27 10:05 AM