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, Portfolio123 (1,585 clicks)
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I have searched for highly profitable companies that pay rich dividends with low payout ratio, and have raised their payouts at a high rate for the last five years. Those stocks would also have to show a 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 2.70%.
  2. The payout ratio is less than 50%.
  3. The annual rate of dividend growth over the past five years is greater than 5%.
  4. Total debt to equity is less than 0.50.
  5. The PEG ratio is less than 1.20.
  6. Trailing P/E is less than 14.
  7. Forward P/E is less than 13.
  8. Average annual earnings growth estimates for the next five years is greater or equal 8%.

After running this screen on September 10, 2013, before the market open, I discovered the following three stocks:

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Horace Mann Educators Corp. (NYSE:HMN)

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

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Source: company presentation

Horace Mann Educators has a very low debt (total debt to equity is only 0.21), and it has a very low trailing P/E of 9.50 and a very low forward P/E of 12.02. The price to book value is very low at 0.97, and the average annual earnings growth estimates for the next five years is at 8%. The forward annual dividend yield is at 2.89%, and the payout ratio is only 24%. The annual rate of dividend growth over the past three years was very high at 32.30% and over the past five years was at 5.54%.

Analysts recommend the stock. Among the two analysts covering the stock, one rates it as a strong buy and one rates it as a buy.

Horace Mann Educators has recorded strong EPS and dividend growth and mild revenue 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, Horace Mann reported its second-quarter results, which beat EPS expectations by $0.07. In the report, Horace Mann's President and CEO Peter H. Heckman said:

Horace Mann's second quarter operating income was $0.39 per share, a solid result considering the higher than anticipated level of catastrophe losses in the quarter. Compared to the second quarter and first six months of 2012, both the reported and underlying property and casualty combined ratios improved, while written and earned premiums increased 3%. In our annuity segment, assets under management increased 10% over prior year, more than offsetting the modest impact of spread compression, with deferred policy acquisition cost unlocking also benefitting the quarterly earnings comparison to prior year. In the life segment, second quarter sales of Horace Mann products increased 31% compared to a year earlier, with the anticipated decline in earnings reflecting more normalized mortality losses and a slight decrease in investment income.

Horace Mann Educators has recorded strong EPS and dividend growth, and considering its cheap valuation metrics and its solid earnings growth prospects, HMN stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and higher than anticipated level of catastrophe losses.

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Chart: finviz.com

Houston Wire & Cable Company (NASDAQ:HWCC)

Houston Wire & Cable Company, through its subsidiaries, provides wire and cable, hardware, and related services in the United States.

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Source: company presentation

Houston Wire & Cable Company has a low debt (total debt to equity is 0.46), and it has a low trailing P/E of 13.94 and a very low forward P/E of 11.84. The PEG ratio is very low at 0.93, and the average annual earnings growth estimates for the next five years is quite high at 15%. The forward annual dividend yield is quite high at 3.40%, and the payout ratio is only 40%. The annual rate of dividend growth over the past three years was at 1.92% and over the past five years was also very high at 19.14%.

Houston Wire & Cable Company has recorded strong revenue and EPS growth during the last three years, as shown in the table below.

Source: Portfolio123

The company is penetrating to target markets, as shown in the chart below.

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Source: company presentation

On August 06, Houston Wire & Cable reported its second-quarter results, which missed EPS expectations by $0.04 and missed on revenues.

Second Quarter 2013 Highlights

  • Sales of $99.3 million up 1.3% over Q2 2012
  • Operating cash flow of $3.3 million
  • Net income of $4.1 million
  • Diluted EPS of $0.23 per share
  • Debt decreased to $46.6 million, lowest level since Q1 2010
  • Declared a dividend of $0.11 per share

Although Houston Wire & Cable missed, in its latest quarter report, wall street's expectations, the company has recorded revenue, EPS and dividend growth, and considering its compelling valuation metrics and its strong earnings growth prospects, HWCC stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and shortage of new large capital projects.

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Chart: finviz.com

Corning Inc. (NYSE:GLW)

Corning Incorporated produces and sells specialty glasses, ceramics, and related materials worldwide.

Corning has a very low debt (total debt to equity is only 0.14), and it has a very low trailing P/E of 11.25 and a very low forward P/E of 10.33. The PEG ratio is very low at 0.94, and the average annual earnings growth estimates for the next five years is quite high at 12%. The forward annual dividend yield is at 2.73%, and the payout ratio is only 27%. The annual rate of dividend growth over the past three years was very high at 16.35% and over the past five years was also very high at 25.79%.

On July 30, Corning reported its second-quarter results, which beat EPS expectations by $0.01 and beat on revenues.

Second-quarter performance highlights

  • Core sales were $2.0 billion, an increase of 11% over the same period of 2012. Net sales (GAAP) for the quarter were $2.0 billion.
  • Core earnings per share were $0.32, representing a 23% improvement over the second quarter of 2012 and the third consecutive quarter of year-over-year double-digit growth. GAAP earnings per share were $0.43, compared with $0.31 a year ago, a 39% increase.
  • In the Display Technologies segment, second-quarter LCD glass price declines were moderate and less than the previous quarter.
  • Sales and net income in Corning`s Telecommunications segment improved significantly on both a year-over-year and sequential basis.

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

Source: Portfolio123

Corning has innovating products and it has compelling valuation metrics and good earnings growth prospects, In my opinion, GLW stock still has room to go up. Furthermore, the rich dividend represents a nice income.

Since the company is rich in cash ($3.72 a share) and has very low 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 a significant decline in LCD glass price.

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Chart: finviz.com

Source: 3 Good-Yielding Stocks With Robust Growth Prospects That Have Raised Payouts For The Last 5 Years