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Arie Goren, Portfolio123 (473 clicks)
Long only, value, research analyst, dividend investing
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I have searched for profitable companies that pay rich dividends and that are rich in cash and have very low debt.

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 2.40%.
  2. The payout ratio is less than 60%.
  3. Last dividend declared is greater or equal the last dividend paid.
  4. Total debt to equity is less than 0.20.
  5. Price-to-cash ratio is less than 4.
  6. Price to book value is less than 1.40.

After running this screen on August 18, 2013, I discovered the following five stocks:

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American National Bankshares Inc. (AMNB)

American National Bankshares Inc. operates as the bank holding company for American National Bank and Trust Company that provides financial products and services to individuals and businesses in Virginia and North Carolina.

American National Bankshares has a very low debt (total debt to equity is only 0.17), and it has a very low trailing P/E of 11.48 and a low forward P/E of 14.68. The price-to-cash ratio is very low at 3.22, and the price to book value is quite low at 1.12. The forward annual dividend yield is high at 3.97%, and the payout ratio is at 46%.

On July 17, American National Bankshares reported its second-quarter financial results.

Second Quarter 2013 Highlights:

  • Q2 net income of $4.2 million and diluted EPS of $0.53
  • Net interest margin of 4.16% for Q2 2013
  • Nonperforming assets 0.88% of total assets
  • Tangible common equity to tangible assets 9.60%

American National Bankshares has completed two years since its merger with MidCarolina. Since then the company has focused on an asset quality improvement strategy related to its acquired loan portfolio. According to American National Bankshares, this strategy has been successful - just in the past year its nonperforming assets as a percent of total assets have declined to 0.88% from 0.99%.

EPS Improvement due to the growth of its loan portfolio and the significant improvement in its nonperforming assets can take AMNB stock back to its 52-week high of 26.00. In addition to possible capital gain, the very rich dividend gives an investor a nice income.

Since the company is rich in cash ($7.21 a share) and has low debt, there is a hardly risk that the company will reduce its dividend payment. Risks to the expected capital gain include a downturn in the U.S. economy, a stalled housing recovery, and U.S. financial reform.

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Chart: finviz.com

Ames National Corporation (ATLO)

Ames National Corporation operates as the bank holding company for First National Bank that provides commercial banking services primarily within the central and north central Iowa counties of Boone, Hancock, Marshall, Polk and Story.

Ames National has no debt at all, and it has a low trailing P/E of 13.92. The price-to-cash ratio is very low at 2.01, and the price to free cash flow for the trailing 12 months is also very low at 12.79. The forward annual dividend yield is quite high at 3.01%, and the payout ratio is only 42%.

On June 30, Ames National Corporation reported its second-quarter financial results. In the report, the company explained:

Net income for the company totaled $3,279,000, or $0.35 per share, compared to $3,309,000, or $0.36 per share in 2012. Net income decreased primarily due to higher other real estate owned expenses and lower net interest income, offset in part by higher securities gains. The increase in other real estate owned costs reflects the adjustment in the fair value of other real estate owned in the second quarter of 2013. The decline in fair value required the company to incur an expense which negatively impacted earnings. While the overall economy seems to be improving, commercial land sales continue to be sluggish. As of June 30, 2013, total assets were $1,206,914,000, a $49,190,000 increase compared to June 30, 2012. The increase in assets was mainly a result of the 5.9% growth in deposits from 2012 to 2013.

According to Ames National Corporation, it was able to put additional deposits to work through new opportunities to expand its loan portfolio. Net loans as of June 30, 2013, increased 3.8% over 2012 ending at $506,139,000 compared to $487,438,000 as of June 30, 2012. The company succeeded also to decrease its impaired loans from $6,719,000, or 1.36% of gross loans as of June 30, 2012, to $4,771,000, or 0.93% of gross loans as of June 30, 2013.

The expanded loan portfolio and the decline in its impaired loans should improve Ames National Corporation's profitability, and capital gains can be expected, in addition, to the rich dividend.

Since the company is rich in cash ($10.61 a share) and has no debt, there is a hardly risk that the company will reduce its dividend payment. Risk to the expected capital gain comes from the current interest rate environment which put pressure on the company's net interest margin, and in turn, has made it more challenging to maintain net interest income.

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Chart: finviz.com

AVX Corp. (AVX)

AVX Corporation, together with its subsidiaries, manufactures and supplies various passive electronic components and related products for use in electronic devices to store, filter or regulate electric energy.

AVX Corporation has no debt at all, and it has a trailing P/E of 22.24 and a forward P/E of 16.10. The price to book value is quite low at 1.11, and the price-to-cash ratio is very low at 2.12. The current ratio is very high at 6.20, and the average annual earnings growth estimates for the next five years is quite high at 12.00%. The forward annual dividend yield is at 2.67%, and the payout ratio is at 59%. The annual rate of dividend growth over the past three years was very high at 23.31% and over the past five years was also high at 13.40%.

The AVX stock price is 1.47% above its 20-day simple moving average, 5.72% above its 50-day simple moving average and 15.39% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 31, AVX Corp. reported its latest quarter financial results. For the quarter ended June 30, 2013, net sales increased by $16.2 million, or 4.6%, to 369.4 million compared to net sales of $353.2 million in the prior year first quarter. Net income for the quarter was $27.7 million, or $0.16 per diluted share.

AVX Corp. is expected to earn $0.68 in the current year, considering that the company has $6.18 a share in cash and no debt, its real P/E for the year is only 10.2, which gives a room to price appreciation, in addition, to the solid dividend.

Risks to the expected capital gain include a downturn in the U.S. economy and lower demand for electronic devices.

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Chart: finviz.com

CSP Inc. (CSPI)

CSP Inc., together with its subsidiaries, engages in developing and marketing information technology integration solutions and high-performance cluster computer systems to industrial, commercial and defense customers in the Americas, Europe and Asia.

CSP Inc. has no debt at all, and it has an extremely low trailing P/E of 3.70. The price-to-sales ratio is very low at 0.26, and the price-to-cash ratio is also very low at 1.54. The price to book value is quite low at 1.01, and the price to free cash flow for the trailing 12 months is at 26.25. The forward annual dividend yield is very high at 5.71%, and the payout ratio is only 21%.

On August 07, CSP Inc. reported its third-quarter fiscal 2013 financial results. For the third quarter of fiscal 2013, revenue declined 15% year over year to $19.0 million. For the first nine months of fiscal 2013, revenue increased 5% year over year to $65.7 million. Foreign exchange had a positive $100,000 effect on revenue for the three-month period and a negative $100,000 effect on revenue for the nine-month period. Net loss for the third quarter was $478,000, or $0.14 per share, compared with net income of $774,000, or $0.22 per diluted share, in the third quarter of fiscal 2012. Net income for the first nine months of fiscal 2013 was $377,000, or $0.11 per diluted share, compared with $1.7 million or $0.48 per diluted share in the first nine months of fiscal 2012.

CSP Inc. has had strong EPS growth history (13.15% annual for the last 5 years) and it has good expectations for the fourth quarter. The stock price decline after the latest report release seems to be exaggerated, and I think it will rebound. In addition to possible capital gain, the very rich dividend gives an investor a nice income.

Since the company is rich in cash ($4.53 a share) and has no debt, there is a hardly risk that the company will reduce its dividend payment.

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Chart: finviz.com

CSS Industries Inc. (CSS)

CSS Industries, Inc., a consumer products company, engages in the design, manufacture, procurement, distribution and sale of various occasion and seasonal social expression products primarily to mass market retailers primarily in the United States and Canada.

CSS Industries Inc. has no debt at all, and it has a trailing P/E of 15.99. The price-to-sales ratio is very low at 0.67, and the price-to-cash ratio is also very low at 3.49. The price to book value is very low at 0.95, and the price to free cash flow for the trailing 12 months is also very low at 8.51. The average annual earnings growth estimates for the next five years is at 8%. The forward annual dividend yield is at 2.44%, and the payout ratio is only 39%.

On July 30, CSS Industries reported its first-quarter fiscal 2014 financial results. In the report, the company explained:

Sales for the first quarter of fiscal 2014 decreased 22.8% to $47,117,000 from $61,067,000 in the first quarter of fiscal 2013. Approximately $8,324,000 of the lower sales level is due to the divestiture of the Halloween business, with the balance of the lower sales level primarily due to the timing of certain recurring product shipments to two customers that shipped in the first quarter of fiscal 2013 that are expected to ship again later this fiscal year. Loss from continuing operations before income taxes for the first quarter of fiscal 2014 was ($2,571,000) compared to ($1,333,000) in the first quarter of fiscal 2013. Loss from continuing operations for the first quarter of fiscal 2014 was ($1,667,000), or ($0.18) per diluted share, versus ($867,000), or ($0.09) per diluted share, in the first quarter of the prior fiscal year. Net loss for the first quarter of fiscal 2014, including discontinued operations, was ($1,667,000), or ($0.18) per diluted share, versus ($904,000), or ($0.09) per diluted share, in the first quarter of fiscal 2013.

Calculating CSS Industries' P/E, considering that the company has $7.05 a share in cash and no debt, gives a low ratio of 11.4, which gives it room to price appreciation, in addition, to the solid dividend.

Risks to the expected capital gain include; a downturn in the U.S. economy, and lower demand for seasonal and all occasion social expression products.

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Chart: finviz.com

Source: 5 Good-Yielding Stocks With Low Debt And Rich In Cash