I have searched for profitable companies that pay rich dividends with low payout ratio, and that have a 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:
- Price is greater than 2.00.
- Market cap is greater than $100 million.
- The forward dividend yield is greater than 3.10%.
- The payout ratio is less or equal 50%.
- Trailing P/E is less than 20.
- Forward P/E is less than 16.
- Total debt to equity is less than 0.20.
After running this screen on September 04, 2013, before the market open, I discovered the following three stocks:
Simmons First National Corporation (SFNC)
Simmons First National Corporation, through its subsidiaries, provides a range of banking products and services to individual and corporate customers in Arkansas.
Simmons First National Corporation has almost no debt at all (total debt to equity is only 0.05), and it has a low trailing P/E of 14.81 and a low forward P/E of 13.98. The price-to-cash ratio is extremely low at 0.85, and the price to book value is also very low at 0.99. The forward annual dividend yield is quite high at 3.46%, and the payout ratio is only 50%.
On July 18, Simmons First National reported its second-quarter financial results, which missed EPS expectations by $0.01. The company reported net income of $6.6 million and diluted earnings per share of $0.40, an increase of $0.02, or 5.3%, compared to the same quarter last year. Year-to-date net income was $12.5 million, or $0.76 diluted earnings per share, an increase of $0.01 the same period last year.
Through the second quarter of 2013, the Company has repurchased approximately 327,000 shares at an average price of $25.50. The Company plans to continue to allocate its earnings, less dividends, to its stock repurchase program.
Simmons First National has strong regulatory capital, much better than "well-capitalized" demand, as shown in the table below.
Source: company report
Since Simmons First National has compelling valuation metrics, and it is trading below book value, SFNC stock can move higher. Furthermore, the rich dividend represents a nice income.
Since the company is very rich in cash ($28.51 a share) and has almost no debt and its payout ratio is low, there is hardly a risk that the company will reduce its dividend payment.
Risks to the expected capital gain include a downturn in the U.S. economy, and decline in the company's interest margin from its actual 3.96% level.
The Female Health Company (FHCO)
The Female Health Company engages in the development, manufacture, marketing, and sale of consumer healthcare products.
The Female Health Company has no debt at all, and it has a trailing P/E of 15.73 and a forward P/E of 15.46. The current ratio is very high at 3.80. The forward annual dividend yield is quite high at 3.18%, and the payout ratio is only 45%.
On August 01, The Female Health Company reported its third-quarter fiscal 2013 financial results. The Company reported net revenues of approximately $7.3 million and net income of $726,911, or $0.03 per diluted share, for the three months ended June 30, 2013, compared with net revenues of approximately $8.7 million and net income of $2,549,743, or $0.09 per diluted share, for the three months ended June 30, 2012.
In the report, the company said:
We generated $12.8 million in positive cash flow from operations during the first nine months of Fiscal 2013 and ended the third quarter with a very strong balance sheet. Cash balances increased 125% to $11.9 million, while working capital increased 24% to $13.6 million, during the nine-month period. We remain debt-free, and our stockholders' equity increased 10% to a record $26.7 million during the first nine months of the current fiscal year.
The Female Health Company has recorded strong revenue and EPS growth during the last year, the last three years and the last five years, as shown in the table below.
The Female Health Company has recorded strong revenue and EPS growth, and considering its good valuation, FHCO stock can move higher. Furthermore, the rich dividend represents a nice income.
Since the company has no debt and its payout ratio is very low, there is hardly a risk that the company will reduce its dividend payment.
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and decline in the acceptance of its main product the FC2.
Himax Technologies, Inc. (HIMX)
Himax Technologies, Inc. designs, develops, and markets semiconductors for flat panel displays. The company was founded in 2001 and is headquartered in Tainan, Taiwan.
Source: company presentation
Himax Technologies has a very low debt (total debt to equity is only 0.17), and it has a trailing P/E of 19.06 and a very low forward P/E of 10.71. The PEG ratio is very low at 0.72, and the average annual earnings growth estimates for the next five years is very high at 26.33%. The forward annual dividend yield is quite high at 3.86%, and the payout ratio is only 19%.
The HIMX stock price is 3.31% above its 20-day simple moving average, 8.38% above its 50-day simple moving average and 42.64% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Analysts recommend the stock. Among the five analysts covering the stock, two rate it as a strong buy, and three rate it as a buy.
On August 15, Himax Technologies reported its second-quarter financial results, which beat EPS expectations by $0.01 and was in-line on revenues.
Second Quarter 2013 Highlights:
- Company Meets Q2 Revenue, Gross Margin and EPS Guidance and Provides 6.5 to 8.0 Cents in EPS Guidance for Q3 2013
- Total sales for the quarter increased 17.8% sequentially and 9.2% year-over-year to $207.0 million, the highest quarterly revenue since Q4 2008
- Small and medium-sized panel driver sales increased 32.3% year over year, representing 53.6% of total revenues in Q2 2013, achieving record-high quarterly revenues
- Non-driver sales increased 22.3% year over year, achieving record-high quarterly revenues
- Q2 2013 gross margin increased 150 bps year over year to 24.6%
- Q2 2013 GAAP net income increased by 28.1% to $19.4 million from Q2 2012. GAAP earnings per diluted ADS grew 27.0% to 11.2 cents from Q2 2012
- Q2 2013 Non-GAAP net income increased by 26.1% to $20.1 million from Q2 2012. Non-GAAP earnings per diluted ADS grew 25.6% to 11.7 cents from Q2 2012
Since Himax Technologies has cheap valuation metrics, and it has very strong earnings growth prospects, and the company gave a positive 2013 outlook, the stock still has room to go up. Furthermore, the rich dividend represents a nice income.
Since the company is very profitable, has a low debt and its payout ratio is very low, there is hardly a risk that the company will reduce its dividend payment.
Source: company presentation
Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and weakness in the electronics market.