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Arie Goren, Portfolio123 (506 clicks)
Long only, value, research analyst, dividend investing
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I tried to create a good-yielding stock portfolio that can outperform the market by a big margin, but at the same time, would have a very low risk. The following screen shows such promise. I have searched for profitable companies that are included in the Russell 3000 index that pay solid dividends with a low payout ratio. Those stocks also would have to show low debt.

The screen's method that I use to build this portfolio requires all stocks to comply with all following demands:

  1. The stock is included in the Russell 3000 index.
  2. The stock does not trade over-the-counter [OTC].
  3. Price is greater than 1.00.
  4. Market cap is greater than $100 million.
  5. Dividend yield is greater than 2.0%.
  6. The payout ratio is less than 40%.
  7. Total debt to equity is less than 0.40.
  8. The ten stocks with the lowest payout ratio among all the stocks that complied with the first seven demands.

I used the Portfolio123's powerful screener to perform the search and to run back-tests. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance, finviz.com and Portfolio123.

After running this screen on August 14, 2013, before the market open, I discovered the following ten stocks:

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The table below presents the dividend yield, the payout ratio, the forward P/E, and the total debt to equity for the ten companies.

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Helmerich & Payne Inc. (HP)

Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells.

Helmerich & Payne has a very low debt (total debt to equity is only 0.05), and it has a very low trailing P/E of 10.24 and a very low forward P/E of 12.32. The forward annual dividend yield is quite high at 2.97%, and the payout ratio is only 6.6%. The annual rate of dividend growth over the past three years was high at 11.87%, and over the past five years was also high at 9.24%.

The HP stock price is 2.08% above its 20-day simple moving average, 4.48% above its 50-day simple moving average and 11.98% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 26, Helmerich & Payne reported its fiscal third-quarter 2013 results, which beat EPS expectations by $0.10 and was in-line on revenues. In the report, Chairman and CEO Hans Helmerich commented:

In light of the challenging rig market, we are pleased with the strong quarterly results corresponding to our drilling operations. Also during the most recent quarter, the Board approved a significant increase in dividends paid to shareholders. After doubling the dividend at the end of last year, in June the dividend was increased again from $0.15 to $0.50 per share per quarter. We are confident that our strong capital structure allows us to pursue growth opportunities and, at the same time, return meaningful cash to shareholders.

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

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Source: Portfolio123

Golar LNG Ltd (GLNG)

Golar LNG Limited, a midstream liquefied natural gas (LNG) company, engages in the transportation, regasification and liquefaction, and trading of LNG.

Golar LNG Ltd has a very low debt (total debt to equity is only 0.22), and it has a very low trailing P/E of 3.32 and a forward P/E of 18.38. The forward annual dividend yield is high at 4.76%, and the payout ratio is only 12.4%.

The GLNG stock price is 5.73% above its 20-day simple moving average, 11.14% above its 50-day simple moving average and 5.07% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

GLNG will report its latest quarterly financial results on August 29. GLNG is expected to post a profit of $0.26 a share, a 41% 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 stock is in an uptrend -- make GLNG stock quite attractive.

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Chart: finviz.com

Delek US Holdings Inc (DK)

Horace Mann Educators Corporation, through its subsidiaries, operates as a multiline insurance company in the United States.

Delek US Holdings, Inc. operates as an integrated downstream energy company that operates in petroleum refining, logistics, and convenience store retailing businesses.

Delek US Holdings has a low debt (total debt to equity is only 0.30), and it has a very low trailing P/E of 6.28 and a very low forward P/E of 11.07. The price-to-sales ratio is very low at 0.20, and the PEG ratio is extremely low at 0.53. The price to free cash flow for the trailing 12 months is very low at 9.51, and the average annual earnings growth estimates for the next five years is quite high at 11.92%. The forward annual dividend yield is at 2.05%, and the payout ratio is only 12.9%. The annual rate of dividend growth over the past five years was at 7.21%.

On August 07, Delek US reported its second-quarter financial results. Delek US reported net income of $46.6 million, or $0.78 per diluted share, versus net income of $67.8 million, or $1.15 per diluted share in the second quarter 2012. Lower earnings were primarily due to the refining segment, which faced less favorable market conditions in the second quarter 2013 compared to the prior-year-period, as a decline in the 5-3-2 Gulf Coast crack spread reduced margins. In addition, the differential between WTI Midland and WTI Cushing narrowed on a year-over-year basis.

In the report, Uzi Yemin, Chairman, President and Chief Executive Officer of Delek US said:

During the second quarter, we benefited from our focus on continuous improvement in our operations as we increased our throughput rate at our Tyler refinery to a record level. In addition, our logistics segment performed well and continued to benefit from increases in the price of RINs. We completed our strategic initiative to improve our crude slate flexibility by increasing pipeline access to Midland sourced crude at both refineries and adding crude by rail sourcing capacity at our El Dorado refinery. With the new pipeline access in place, we now have access to 87,000 barrels per day of Midland crude out of our 140,000 barrels per day capacity. In July, we took another step toward further unlocking the value of our logistics assets through the first drop-down to Delek Logistics since the IPO last year. Our balance sheet remains strong giving us the ability to continue investing in our business while returning value to our shareholders.

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

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Chart: finviz.com

Symantec Corp (SYMC)

Symantec Corporation and its subsidiaries provide security, backup, and availability solutions worldwide.

Symantec has a very low debt (total debt to equity is only 0.38), and it has a trailing P/E of 25.43 and a very low forward P/E of 12.68. The average annual earnings growth estimates for the next five years is quite high at 9.12%. The forward annual dividend yield is at 2.23%, and the payout ratio is only 14%.

The SYMC stock price is 6.56% above its 20-day simple moving average, 14.22% above its 50-day simple moving average and 22.12% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 30, Symantec reported its first-quarter fiscal 2014 results, which beat EPS expectations by $0.08 and beat on revenues.

In the report, Steve Bennett, president and chief executive officer, Symantec said:

I'm proud of the team's performance despite the ongoing work to right-size and transform the company. I'm also pleased that we delivered better than expected results. While the hard work is just beginning, I'm confident we have the right team in place to execute our multi-year roadmaps, implement our critical go-to-market changes and continue to make progress on our successful transformation.

All these factors - the low multiples, the solid dividend, the good latest quarter financial results, and the fact that the stock is in an uptrend -- make SYMC stock quite attractive.

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Chart: finviz.com

Marathon Petroleum Corp (MPC)

Marathon Petroleum Corporation, together with its subsidiaries, engages in refining, transporting, and marketing petroleum products primarily in the United States.

Marathon Petroleum has a low debt (total debt to equity is only 0.29), and it has a very low trailing P/E of 7.62 and a very low forward P/E of 8.20. The price-to-sales ratio is very low at 0.27, and the PEG ratio is also very low at 0.54. The average annual earnings growth estimates for the next five years is very high at 14%. The forward annual dividend yield is quite high at 2.30%, and the payout ratio is only 14.1%.

The MPC stock price is 4.63% above its 20-day simple moving average, 1.59% above its 50-day simple moving average and 3.07% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

The compelling valuation metrics, the solid dividend, and the fact that the stock is in an uptrend are all factors that make MPC stock quite attractive.

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Chart: finviz.com

Phillips 66 (PSX)

Phillips 66 operates as an independent downstream energy company.

Phillips 66 has a very low debt (total debt to equity is only 0.30) and it has a very low trailing P/E of 8.01 and a very low forward P/E of 8.35. The price-to-sales ratio is very low at 0.21, and the PEG ratio is also very low at 0.80. The price to free cash flow for the trailing 12 months is very low at 9.77, and the average annual earnings growth estimates for the next five years is at 10%. The forward annual dividend yield is at 2.15%, and the payout ratio is only 14.3%.

On July 31, Phillips 66 reported its second-quarter financial results, which missed EPS expectations by $0.34.

Second-Quarter Highlights

  • Generated operating cash flow of $968 million; $1.2 billion excluding changes in working capital
  • Returned $738 million of capital to shareholders through dividends and share repurchases
  • Received Board authorization for $1.0 billion of additional share repurchases
  • Reduced debt by $500 million
  • Reported year-to-date annualized ROCE of 18 percent
  • Impacted by unplanned downtime in Chemicals and Refining
  • Experienced lower crude and product differentials
  • Processed a 68 percent advantaged crude slate in the U.S.
  • Increased refined product exports to 181,000 barrels per day
  • Launched master limited partnership, Phillips 66 Partners LP (PSXP)
  • Closed on sale of the Immingham Combined Heat and Power Plant

In the report, Greg Garland, chairman and CEO of Phillips 66 said:

We continued to generate strong cash flows, despite less than favorable market conditions. This enabled us to return more than $700 million of capital to our shareholders and strengthen our balance sheet, as planned. Reinforcing our commitment to creating shareholder value, our board of directors has authorized another $1.0 billion of share repurchases, in addition to the previously authorized $2.0 billion program.

The compelling valuation metrics, and the solid dividend, are all factors that make PSX stock quite attractive.

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Chart: finviz.com

Valero Energy Corp (VLO)

Valero Energy Corporation operates as an independent petroleum refining and marketing company.

Valero Energy has a low debt (total debt to equity is only 0.37), and it has a very low trailing P/E of 7.33 and a very low forward P/E of 7.47. The price-to-sales ratio is very low at 0.15, and the PEG ratio is also quite low at 1.16. The price to free cash flow for the trailing 12 months is very low at 9.47, and the average annual earnings growth estimates for the next five years is at 6.30%. The forward annual dividend yield is at 2.44%, and the payout ratio is only 14.8%. The annual rate of dividend growth over the past five years was quite high at 6.25%.

The VLO stock price is 3.96% above its 20-day simple moving average, 2.77% above its 50-day simple moving average and 4.30% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 23, Valero Energy reported its second quarter 2013 results; EPS was at $0.96, a $0.02 better than estimates. Revenue was at $34.03 billion, topped street estimates of $30.18 billion on the same basis. In the report, Valero Chairman and CEO Bill Klesse said:

Valero performed well financially given the margin environment and maintenance activities. We also returned $364 million in cash to our stockholders through dividends and stock buybacks in the second quarter. On May 1, we spun off 80 percent of the outstanding equity in CST Brands to our stockholders. We also entered into long-term supply agreements with CST Brands, and they became Valero`s largest wholesale marketing customer. We recently completed two significant projects at our St. Charles refinery in connection with our strategy to increase production of high-quality diesel. At the end of June, we started up the Diamond Green Diesel joint venture biofuels plant, and in July, we started our new hydrocracker.

The compelling valuation metrics, the solid dividend, the very low payout ratio, and the fact that the company consistently has raised dividend payments, are all factors that make VLO stock quite attractive.

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Chart: finviz.com

NVIDIA Corp (NVDA)

NVIDIA Corporation, a visual computing company, develops graphics chips for use in personal computers (PC), mobile devices, and supercomputers.

NVIDIA has no debt at all, and it has a trailing P/E of 16.02 and a low forward P/E of 14.33. The price to cash is very low at 2.87, and the average annual earnings growth estimates for the next five years is quite high at 12.0%. The forward annual dividend yield is at 2.09%, and the payout ratio is only 16.1%.

On August 8, NVIDIA reported its second-quarter fiscal 2014 results, which beat EPS expectations by $0.03. The company reported revenue of $977.2 million, up 2.4 percent from $954.7 million in the previous quarter. GAAP earnings per diluted share were $0.16, up 23.1 percent from $0.13 in the previous quarter. Non-GAAP earnings per diluted share were $0.23, up 27.8 percent from $0.18 in the previous quarter.

In the report, Jen-Hsun Huang, president and chief executive officer of NVIDIA said:

The GPU business continued to grow, driving our fourth consecutive quarter of record margins. We also began shipping GRID virtualized graphics, which puts the power of NVIDIA GPUs into the datacenter. We look forward to a strong second half, with new Tegra 4 devices coming to market, SHIELD moving beyond the U.S. and broader sampling of Project Logan, our next-generation Tegra processor, which brings Kepler, the world's most advanced GPU, to mobile.

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Chart: finviz.com

AFLAC Inc (AFL)

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products.

Aflac Incorporated has a very low debt (total debt to equity is only 0.36), and it has a very low trailing P/E of 8.60 and a very low forward P/E of 9.45. The price to free cash flow for the trailing 12 months is extremely low at 2.25, and the average annual earnings growth estimates for the next five years is at 5.0%. The forward annual dividend yield is at 2.28%, and the payout ratio is only 18.4%. The annual rate of dividend growth over the past five years was very high at 16.85%.

The AFL stock price is 1.67% above its 20-day simple moving average, 5.47% above its 50-day simple moving average and 16.16% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 30, Aflac reported its second-quarter financial results, which beat EPS expectations by $0.11 and beat on revenues. Total revenues rose 2.4% to $6.0 billion during the second quarter of 2013, compared with $5.9 billion in the second quarter of 2012. Net earnings were $889 million, or $1.90 per diluted share, compared with $483 million, or $1.03 per share, a year ago.

All these factors - the very low multiples, the solid dividend, the fact the company consistently has raised dividend payments, and the fact that the stock is in an uptrend -- make AFL stock quite attractive.

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Chart: finviz.com

Brooks Automation Inc (BRKS)

Brooks Automation, Inc. provides automation, vacuum, and instrumentation solutions for semiconductor manufacturing, life sciences, and technology device manufacturing markets worldwide.

Brooks Automation has no debt at all, and it has a very low trailing P/E of 5.38 and a low forward P/E of 19.8. The PEG ratio is extremely low at 0.30, and the average annual earnings growth estimates for the next five years is very high at 18%. The forward annual dividend yield is quite high at 3.42%, and the payout ratio is only 19.6%.

On August 8, Brooks Automation reported its third-quarter fiscal 2013 results, which missed EPS expectations by $0.01.

Fiscal-Third Quarter of 2013 Financial and Operational Highlights:

  • Revenues were $118.1 Million; Order Bookings increased $6.8 million on a sequential basis to $128.1 million;
  • Brooks Life Science Systems Bookings increased to $18.5 million;
  • GAAP Earnings Per Share was $0.02; Adjusted Earnings Per Share excluding special charges was $0.03
  • Cash flow from Operations was $12.9 million;
  • Cash, Cash Equivalents and Marketable Securities as of June 30, 2013 were $150.7 million, or $2.26 per diluted share with no Debt;
  • Generated 17 Design-in-Wins for Semiconductor and Adjacent market customers.
  • Summary of GAAP and Non-GAAP Earnings

The compelling valuation metrics, the rich dividend, and the strong earnings growth prospects, are all factors that make BRKS stock quite attractive.

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Chart: finviz.com

Back-testing

In order to find out how such a screening formula would have performed during the last year, last 5 years and last 14 years, I ran the back-tests, which are available by the Portfolio123's screener.

The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmarks (S&P 500, Russell 3000), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.

Since some readers could not get the same results that I got in some of my previous posts, I am giving, in the charts below, the Portfolio123 exact codes which I used for building this screen and the back-tests. The number of stocks left after each demand can also be seen in the chart.

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One-year back-test

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Five-year back-test

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14-year back-test

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Summary

The good-yielding dividend screen has given much better returns during the last year, the last five years and the last 14 years than the S&P 500 and the Russell 3000 benchmarks. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in all the three tests. Furthermore, the maximum drawdown, which normally is much bigger in a small portfolio than in the benchmarks, was much smaller in the last five years and the last fourteen years tests.

One-year return of the screen was very high at 53.44%, while the return of the S&P 500 index during the same period was at 20.34% and that of the Russell 3000 index was at 22.45%.

The difference between the good-yielding dividend screen to the benchmarks was even more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 18.50%, while the average annual return of the S&P 500 index during the same period was only 2.20% and that of the Russell 3000 index was at 2.91%. The maximum drawdown of the screen was at 43.53%, while that of the S&P 500 was at 56.39% and the maximum drawdown of the Russell 3000 index was at 57.07%.

Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.

Source: Good-Yielding Dividend Portfolio With Very Low Risk