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I have searched for very 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 3.40%.
  2. The payout ratio is less than 60%.
  3. Total debt to equity is less than 0.30.
  4. Price-to-cash ratio is less than 7.
  5. Trailing P/E is less than 15.
  6. Forward P/E is less than 15.

After running this screen on August 25, 2013, I discovered the following three stocks:


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Arrow Financial Corporation (NASDAQ:AROW)

Arrow Financial Corporation operates as the holding company for Glens Falls National Bank and Trust Company, and Saratoga National Bank and Trust Company that provide various commercial and consumer banking, and financial products.

Arrow Financial has a very low debt (total debt to equity is only 0.11), and it has a low trailing P/E of 14.65 and a low forward P/E of 14.81. The price-to-cash ratio is low at 6.25, and the average annual earnings growth estimates for the next five years is at 6.90%. The forward annual dividend yield is quite high at 3.79%, and the payout ratio is 56%.

The AROW stock price is 0.28% above its 20-day simple moving average, 1.98% above its 50-day simple moving average and 7.34% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 18, Arrow Financial Resources reported its second-quarter results, which beat EPS expectations by $0.01. Net income for the second quarter of 2013 was $5.2 million, a decrease of $387 thousand, or 6.9%, from net income of $5.6 million for the second quarter of 2012. Diluted earnings per share for the quarter was $0.43, an 8.5% decrease from the comparable 2012 quarter, when diluted EPS was $0.47.

In the report, the company explained:

At June 30, 2013, Arrow reached record highs for total loans and demand deposits, and remained near the record highs for total assets, total deposits, total equity, and assets under trust administration set at March 31, 2013. In addition, both of our subsidiary banks are growing their branch networks. Saratoga National Bank and Trust Company opened a new office in the Clifton Park area of southern Saratoga County, New York, on April 1, and Glens Falls National Bank and Trust Company will open a new branch near Exit 18 of the Northway in Queensbury, New York, this fall.

The record highs for total loans and demand deposits should improve Arrow Financial Corporation's profitability, and capital gains can be expected, in addition, to the rich dividend.

Since the company is rich in cash ($4.22 a share) and has a low debt and its payout ratio is low, 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

IDT Corporation (NYSE:IDT)

IDT Corporation operates as a telecommunications company. The company operates in two segments, Telecom Platform Services and Consumer Phone Services.

IDT Corporation has a very low debt (total debt to equity is only 0.27), and it has a very low trailing P/E of 7.81 and a very low forward P/E of 11.66. The price-to-cash ratio is very low at 2.24, and the price-to-sales ratio is very low at 0.23. The price to free cash flow for the trailing 12 months is very low at 10.18. The forward annual dividend yield is quite high at 3.43%, and the payout ratio is only 27%.

The IDT stock price is 2.27% above its 50-day simple moving average and 47.38% above its 200-day simple moving average. That indicates a mid-term and long-term uptrend.

IDT Corporation has recorded strong EPS growth, but negative revenue and dividend growth, during the last five years, as shown in the table below.

Source: Portfolio123

IDT will report its latest quarterly financial results on September 29. IDT is expected to post a profit of $0.28 a share, a $0.26 rise from the company's actual earnings for the same quarter a year ago.

On August 01, IDT Corporation announced that its subsidiary, IDT Payment Services, a licensed money transmitter, has launched an international money transfer service over its flagship Boss Revolution payment platform. Boss Revolution customers can now send money overseas reliably, affordably and conveniently.

Considering IDT's very good valuation, and its new promising payment services, capital gains can be expected, in addition, to the rich dividend.

Since the company is rich in cash ($7.79 a share) and has a low debt and its payout ratio is very low, there is a hardly risk that the company will reduce its dividend payment.


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Chart: finviz.com

Merchants Bancshares Inc. (NASDAQ:MBVT)

Merchants Bancshares, Inc. operates as the bank holding company for Merchants Bank that provides banking products and services to individual consumers, businesses, and municipalities.

Merchants Bancshares has a very low debt (total debt to equity is only 0.20), and it has a very low trailing P/E of 13.13 and a very low forward P/E of 11.85. The price-to-cash ratio is very low at 3.59, and the average annual earnings growth estimates for the next five years is at 5%. The forward annual dividend yield is quite high at 3.47%, and the payout ratio is at 46%.

The MBVT stock price is 0.51% above its 20-day simple moving average, 4.39% above its 50-day simple moving average and 12.04% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

On July 22, Merchants Bancshares reported its second-quarter results, which beat EPS expectations by $0.05. The company announced net income of $4.03 million and $7.63 million, or diluted earnings per share of $0.64 and $1.21 for the three and six months ended June 30, 2013, respectively. This compares to net income of $3.74 million and $7.35 million, or diluted earnings per share of $0.60 and $1.17 for the three and six months ended June 30, 2012, respectively.

In the report, the company said that the quarter was driven in large part by its continued growth in average loans. This growth allowed the company to hold the line on net interest income and the net interest margin.

The valuation metrics of the company indicate that MBVT stock is quite cheap, and capital gains can be expected, in addition, to the rich dividend.

Since the company is rich in cash ($9.00 a share) and has a low debt, and its payout ratio is low, 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.


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Chart: finviz.com

Source: 3 Good-Yielding Stocks With Low Debt And Rich In Cash