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, Portfolio123 (2,485 clicks)
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I have searched for very profitable companies that pay rich dividends and have raised their payouts at a high rate for the last five years. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time.

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 3.40%.
  2. The payout ratio is less than 75%.
  3. The annual rate of dividend growth over the past five years is greater than 5%.
  4. Forward P/E is less than 13.
  5. Average annual earnings growth estimates for the next five years is greater or equal 9%.
  6. Debt to equity is less than 0.50.

After running this screen on August 02, 2013, before the market open, I discovered the following three stocks:

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Ensco plc (NYSE:ESV)

Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide.

Ensco has a low debt (total debt to equity is only 0.40), and it has a very low trailing P/E of 10.81 and a very low forward P/E of 7.61. The PEG ratio is extremely low at 0.68, and the average annual earnings growth estimates for the next five years is very high at 16%. The forward annual dividend yield is quite high at 3.43%, and the payout ratio is only 37%. The annual rate of dividend growth over the past five years was very high at 71.88%.

On July 29, Ensco reported its second-quarter results, which beat EPS expectations by $0.06 and beat on revenues. In the report, Chairman, President and Chief Executive Officer Dan Rabun stated:

We continue to see strong, broad-based customer demand given the steady pace of new discoveries that must be appraised and developed. Based on our positive outlook, we recently ordered our eighth Samsung DP3 drillship, ENSCO DS-10, and our seventh Keppel FELS B Class jackup, ENSCO 110. These new assets reinforce our fleet standardization strategy that provides customers consistently high levels of operational excellence.

The compelling valuation metrics, the rich dividend, the good second quarter results, the strong earnings growth prospects, and the fact that the company consistently has raised dividend payments, are all factors that make ESV stock quite attractive.

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Chart: finviz.com

Maxim Integrated Products, Inc. (NASDAQ:MXIM)

Maxim Integrated Products, Inc. engages in designing, developing, manufacturing, and marketing various linear and mixed-signal integrated circuits worldwide.

Maxim Integrated Products has a very low debt (total debt to equity is only 0.31), and it has a trailing P/E of 19.80 and a very low forward P/E of 12.74. The current ratio is very high at 3.30, and the average annual earnings growth estimates for the next five years is quite high at 12.04%. The forward annual dividend yield is quite high at 3.55%, and the payout ratio is at 70%. The annual rate of dividend growth over the past five years was at 5.06%.

On July 25, Maxim reported its fiscal fourth-quarter 2013 results.

Fourth-Quarter Fiscal 2013 Financial Highlights

  • Revenue: $608 million
  • Gross Margin: 61.1% GAAP (62.3% excluding special items)
  • EPS: $0.40 GAAP ($0.44 excluding special items)
  • Cash, cash equivalents, and short term investments: $1.20 billion
  • Fiscal first quarter revenue outlook: $570 million to $600 million
  • Quarterly dividend increased 8% to $0.26 per share
  • New $1.0 billion share repurchase program authorized

In the report, Tunc Doluca, President and Chief Executive Officer, commented:

We are disappointed by the weakness in end market demand for our smartphone products which resulted in revenue and earnings below expectations. This was partially offset by revenue growth in 22 of the 24 market segments that we address. We continue to generate strong profits and cash flow, and we are confident in our strategy and long-term business model as demonstrated by the increase in our dividend and share repurchases.

The good valuation metrics, the rich dividend, the good earnings growth prospects, and the fact that the company consistently has raised dividend payments, are all factors that make MXIM stock quite attractive.

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Chart: finviz.com

Validus Holdings, Ltd. (NYSE:VR)

Validus Holdings, Ltd. through its subsidiaries, provides reinsurance, insurance, and insurance linked securities fund management services in the property, marine, and specialty lines markets worldwide.

Validus Holdings has a very low debt (total debt to equity is only 0.22), and it has a very low trailing P/E of 10.47 and a very low forward P/E of 6.61. The PEG ratio is at 1.16, and the average annual earnings growth estimates for the next five years is at 9%. The forward annual dividend yield is quite high at 3.42%, and the payout ratio is only 36%. The annual rate of dividend growth over the past five years was at 5.74%.

On July 25, Validus Holdings announced its second-quarter results, which beat EPS expectations by $0.19 and missed on revenues.

Highlights for the second quarter include the following:

  • Gross premiums written for the three months ended June 30, 2013 were $702.3 million compared to $627.1 million for the three months ended June 30, 2012, an increase of $75.2 million, or 12.0%.
  • Net premiums earned for the three months ended June 30, 2013 were $547.5 million compared to $447.6 million for the three months ended June 30, 2012, an increase of $99.8 million, or 22.3%.
  • Underwriting income for the three months ended June 30, 2013 was $117.7 million compared to $149.4 million for the three months ended June 30, 2012, a decrease of $31.7 million, or 21.2%.
  • Combined ratio of 78.5% which included $41.0 million of favorable loss reserve development on prior accident years, benefiting the loss ratio by 7.5 percentage points.
  • Net operating income available to Validus for the three months ended June 30, 2013 was $111.4 million compared to $171.2 million for the three months ended June 30, 2012, a decrease of $59.8 million, or 34.9%.
  • Net income available to Validus for the three months ended June 30, 2013 was $30.7 million compared to $167.6 million for the three months ended June 30, 2012, a decrease of $136.9 million, or 81.7%.
  • Annualized return on average equity of 3.3% and annualized net operating return on average equity of 11.9%.

In the report, Ed Noonan Validus' Chairman and CEO stated:

I am pleased to announce another very good quarter for Validus with diluted net operating income of $1.03 per share and an annualized net operating return on average equity of 11.9%. All three of our segments - Validus Re, AlphaCat and Talbot - performed strongly, with particularly notable numbers posted by Talbot, which had record second quarter net operating income of 56.6 million.

All these factors - the very low multiples, the rich dividend, and the fact that the company consistently has raised dividend payments -- make VR stock quite attractive.

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Chart: finviz.com

Source: 3 Good-Yielding Stocks That Have Raised Payouts By At Least 5% A Year For The Last 5 Years