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, Portfolio123 (1,587 clicks)
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I have searched for highly profitable companies that pay very rich dividends and have raised their payouts at a high rate for the last five years. Companies that regularly increase dividends are generally more stable. Increasing dividends is the assurance that dividend income retains its purchasing power over time. Those stocks would also have to show a very low debt and good earnings growth prospects.

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 4.40%.
  2. The payout ratio is less than 90%.
  3. The annual rate of dividend growth over the past three years is greater than 10%.
  4. The annual rate of dividend growth over the past five years is greater than 7%.
  5. Total debt to equity is less than 0.35.
  6. Trailing P/E is less than 19.
  7. Forward P/E is less than 17.
  8. Average annual earnings growth estimates for the next five years is greater than 4%.

After running this screen on September 08, 2013, I discovered the following three stocks:


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Electro Rent Corporation (NASDAQ:ELRC)

Electro Rent Corporation engages in the rental, lease, and sale of new and used electronic test and measurement equipment primarily for use in the aerospace, defense, telecommunications, electronics, industrial, and semiconductor markets in the United States and internationally.

Electro Rent Corporation has a very low debt (total debt to equity is only 0.04), and it has a trailing P/E of 18.44 and a low forward P/E of 14.17. The average annual earnings growth estimates for the next five years are quite high at 15%. The forward annual dividend yield is high at 4.66%, and the payout ratio is at 86%. The annual rate of dividend growth over the past three years was quite high at 10.06% and over the past five years was also high at 7.46%.

Electro Rent Corporation has recorded strong revenue, EPS and dividend growth during the last three years and the last five years, as shown in the table below.

Source: Portfolio123

On August 14, Electro Rent Corporation reported its fourth-quarter fiscal 2013 financial results, which beat EPS expectations by $0.02. Total revenues for the fourth quarter of fiscal 2013 were $60.4 million, compared with $68.2 million last year. Rental and lease revenues increased 5.0% to $35.5 million for the fourth quarter of fiscal 2013, up from $33.8 million a year ago. Sales of equipment and other revenues amounted to $24.9 million for the most recent fourth fiscal quarter, compared with $34.4 million last year. Net income was $6.4 million, or $0.26 per diluted share, for fourth quarter of fiscal 2013, versus $6.3 million, or $0.26 per diluted share, for the same quarter last year.

Electro Rent Corporation has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics and its good earnings growth prospects, ELRC stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and weakness in the electronic market.


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Chart: finviz.com

Potash Corp. of Saskatchewan, Inc. (NYSE:POT)

Potash Corporation of Saskatchewan Inc., together with its subsidiaries, produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada.

Potash has a low debt (total debt to equity is only 0.34), and it has a very low trailing P/E of 11.69 and a very low forward P/E of 12.84. The forward annual dividend yield is high at 4.64%, and the payout ratio is only 54%. The annual rate of dividend growth over the past three years was very high at 73.80% and over the past five years was also very high at 43.10%.

Potash has recorded strong revenue, EPS and dividend growth during the last three years and the last five years, as shown in the table below.

Source: Portfolio123

On July 30, the POT stock lost 16.54% of its value and the day after another 8.31%, after the announcement of Uralkali, the world's biggest potash producer that it would no longer abide by limits on its output. This move will probably cause potash prices to fall to as low as $300 a ton by the end of the year from the about $400 a ton level it is selling now. Since then POT stock is trading at around $30.

Although the Uralkali move will negatively affect Potash's earnings growth, the demand for potash will continue to rise as shown in the chart below.


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Source: company presentation

Potash Corporation has recorded strong revenue, EPS and dividend growth, and it has compelling valuation metrics. Potash has also continuous record of increasing dividend payout, and repurchasing company' shares, as shown in the chart below.


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Source: company presentation

In my opinion, the POT stock is now oversold, and at this level the stock is quite attractive.


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Chart: finviz.com

Oritani Financial Corp. (NASDAQ:ORIT)

Oritani Financial Corp. operates as the holding company for Oritani Bank that provides retail and commercial banking services to individual and business customers in New Jersey.

Oritani Financial Corp. has no debt at all, and it has a trailing P/E of 16.90 and a forward P/E of 16.46. The PEG ratio is at 1.41, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is high at 4.50%, and the payout ratio is at 76%. The annual rate of dividend growth over the past three years was very high at 50.50% and over the past five years was also very high at 108.09%.

Oritani Financial Corp. has recorded strong revenue, EPS and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

Source: Portfolio123

On July 24, Oritani Financial Corp. reported its latest quarter financial results, which beat EPS expectations by $0.05. The company reported net income of $11.7 million, or $0.28 per basic (and $0.27 diluted) common share, for the three months ended June 30, 2013, and $39.5 million, or $0.94 per basic (and $0.92 diluted) common share, for the twelve months ended June 30, 2013. This compares to net income of $8.3 million, or $0.20 per basic (and $0.19 diluted) common share, for the three months ended June 30, 2012, and $31.7 million, or $0.72 per basic (and $0.71 diluted) common share, for the twelve months ended June 30, 2012.

Oritani Financial Corp. has recorded strong revenue, EPS and dividend growth, and considering its good valuation and its strong earnings growth prospects, ORIT stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy and a decline in the bank's interest margin of 3.58%.


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Chart: finviz.com

Source: 3 High-Yielding Stocks That Have Raised Payouts By At Least 7% A Year For The Last 5 Years