I have searched for profitable companies that pay rich dividends with a low payout ratio and that have good earnings growth prospects. Those stocks would have to show a very low debt and a low price-to-cash 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:
- The forward dividend yield is greater than 3.00%.
- The payout ratio is less than 50%.
- Total debt to equity is less than 0.20.
- Average annual earnings growth estimates for the next five years is greater than 10%.
- Price to free cash flow for the trailing 12 months is less than 16.
- Price to cash is less than 20.
- Forward P/E is less than 15.
After running this screen on August 12, 2013, before the market open, I discovered the following three stocks:
Delek Logistics Partners, LP (DKL)
Delek Logistics Partners, LP owns and operates crude oil and refined products logistics and marketing assets in the United States.
Delek Logistics Partners has no debt at all, and it has a very low trailing P/E of 8.31 and a low forward P/E of 14.87. The price to free cash flow for the trailing 12 months is at 15.14, and the price-to-sales ratio is very low at 0.36. The PEG ratio is very low at 0.78, and the average annual earnings growth estimates for the next five years is quite high at 10.70%. The forward annual dividend yield is high at 5.24%, and the payout ratio is only 27%.
Analysts recommend the stock. Among the 6 analysts covering the stock, two rate it as a strong buy, three rate it as a buy, and only one rates it as a hold.
On August 06, Delek Logistics reported its second-quarter financial results. The company reported net income of $11.8 million, or $0.47 per diluted limited partner unit. Distributable cash flow of $12.8 million was approximately 18 percent better than the forecast provided in the prospectus filed with the Securities and Exchange Commission on November 1, 2012. On July 26, 2013, Delek Logistics declared a regular cash distribution of approximately $9.7 million, or $0.395 per unit payable on August 13, 2013, which equates to $1.58 per unit on an annualized basis. This represents a 2.6 percent increase from the first quarter 2013 distribution of $0.385 per unit, or $1.54 per unit on an annualized basis, and is 5.3 percent higher than Delek Logistics' minimum quarterly distribution of $0.375 per unit, or $1.50 per unit on an annualized basis.
DKL Stock Summary
In my opinion, DKL stock is a good investment right now.
Silicon Motion Technology Corp. (SIMO)
Silicon Motion Technology Corporation, a fabless semiconductor company, designs, develops, and markets semiconductor solutions for the multimedia consumer electronics market.
Silicon Motion has no debt at all, and it has an extremely low trailing P/E of 3.94 and a very low forward P/E of 10.45. The PEG ratio is extremely low at 0.20, and the current ratio is very high at 4.70. The price to book value is very low at 0.36, and the price to cash is exceptionally low at 0.60. The price to free cash flow for the trailing 12 months is very low at 1.79, and the average annual earnings growth estimates for the next five years is very high at 20%. The forward annual dividend yield is high at 5.35%, and the payout ratio is only 41%.
On July 29, Silicon Motion Technology reported its second-quarter financial results, which beat EPS expectations by $0.01.
Second Quarter 2013 Financial Highlights
- Net sales increased 2% quarter-over-quarter to US$58.3 million from US$57.4 million in 1Q13
- Gross margin (non-GAAP1) increased to 48.4% from 41.0% in 1Q13
- Operating expenses (non-GAAP) increased to US$16.8 million from US$15.6 million in 1Q13
- Operating margin (non-GAAP) increased to 19.7% from 13.7% in 1Q13
- Diluted earnings per ADS (non-GAAP) increased to US$0.27 from US$0.17 in 1Q13
In the report, Silicon Motion's President and CEO, Wallace Kou, said:
In the second quarter, revenue from New Growth Products increased by approximately 30% sequentially as a result of stronger than expected sales of SSD+embedded controllers, in particular, sales of our eMMC controllers. Strong sales of smartphones and tablets, both global flagships and low-cost models, in both global markets and in China, have been driving strong demand for our eMMC controllers from our flash partners Samsung and SK Hynix. We believe we have about half of the fast growing China eMMC market. In the second quarter, due to strong SSD+embedded growth, revenue from SSD+embedded products was larger than our combined card and USB flash drive revenue and accounted for over half of our total controller sales.
SIMO Stock Summary
In my opinion, SIMO stock is an excellent investment right now.
Fortress Investment Group LLC (FIG)
Fortress Investment Group LLC is a publicly owned investment manager.
Fortress Investment has a very low debt (total debt to equity is only 0.14), and it has a very low forward P/E of 9.44. The price-to-cash ratio is very low at 6.14, and the average annual earnings growth estimates for the next five years is quite high at 15%. The price to free cash flow for the trailing 12 months is very low at 5.18. The forward annual dividend yield is at 3.17%, and the payout ratio is at 49%.
Analysts recommend the stock. Among the 7 analysts covering the stock, one rates it as a strong buy, five rate it as a buy, and one rates it as a hold.
On August 01, Fortress Investment reported its second-quarter results, which beat EPS expectations by $0.10 and missed on revenues.
Second-Quarter 2013 Financial Highlights summary
- Fortress declares a cash dividend of $0.06 per dividend paying share for the second quarter of 2013
- Management Fee Paying Assets Under Management ("AUM") of $54.6 billion as of June 30, 2013, a 2% decline from the first quarter of 2013 and a 14% increase from the second quarter of 2012
- GAAP net loss of $2 million for the second quarter of 2013; GAAP book value per share of $2.53 as of June 30, 2013
- Pre-tax distributable earnings ("DE") of $148 million, or $0.30 per dividend paying share, for the second quarter of 2013, compared to pre-tax DE of $50 million, or $0.09 per dividend paying share, for the second quarter of 2012
- Net cash and investments of $2.88 per dividend paying share as of June 30, 2013, up from $2.40 per dividend paying share as of December 31, 2012
- $754 million of gross embedded incentive income across funds as of June 30, 2013, that has not been recognized in DE
- Total uncalled capital, or "dry powder," of $6.6 billion as of June 30, 2013, including approximately $5.3 billion available for general investment purposes
- Subsequent to quarter end, paid in full $89 million of outstanding corporate debt
In the report, Randal Nardone, Chief Executive Officer said:
We had an outstanding second quarter and first half of the year, founded on the strength of investment performance we delivered for our limited partners. Looking ahead, we see uniform strength in the leading indicators of future performance - investment returns, capital formation, new business initiatives and embedded value. We continue to see substantial upside for our limited partners and our shareholders. I look forward to serving as Fortress's Chief Executive Officer at this very exciting time for our company.
FIG Stock Summary
In my opinion, FIG stock is quite attractive.