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, Portfolio123 (1,962 clicks)
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I have searched for highly profitable companies that pay solid 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 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 2.00%.
  2. The payout ratio is less than 60%.
  3. The annual rate of dividend growth over the past three years is greater than 16%.
  4. The annual rate of dividend growth over the past five years is greater than 9%.
  5. The PEG ratio is less than 1.25.
  6. Trailing P/E is less than 17.
  7. Forward P/E is less than 14.
  8. Average annual earnings growth estimates for the next five years is greater or equal 8%.

After running this screen on September 12, 2013, before the market open, I discovered the following three stocks:


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Meredith Corporation (NYSE:MDP)

Meredith Corporation, a media and marketing company, engages in magazine publishing and related brand licensing, television broadcasting, digital and customer relationship marketing, digital and mobile media, and video creation operations in the United States.


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Source: company presentation

Meredith Corporation has a low debt (total debt to equity is only 0.41) and it has a trailing P/E of 16.28 and a low forward P/E of 13.63. The price to free cash flow for the trailing 12 months is at 21.44, and the average annual earnings growth estimates for the next five years is high at 15%. The forward annual dividend yield is quite high at 3.65%, and the payout ratio is at 59%. The annual rate of dividend growth over the past three years was very high at 20.19% and over the past five years was also high at 14.58%.

Meredith Corporation has recorded revenue, EPS and dividend growth during the last year and the last three years, as shown in the table below.

Source: Portfolio123

On July 25, Meredith Corporation reported its fourth-quarter fiscal 2013 financial results, which beat EPS expectations by $0.03 and was in-line on revenues. Fiscal 2013 fourth quarter earnings per share grew 12 percent to $0.75, and revenues rose 3 percent to $387 million. Results were driven by stronger performance from both Meredith's National and Local media groups.

In the report, the company explained:

Executing its successful Total Shareholder Return strategy - Meredith's stock price increased 49 percent in fiscal 2013, and its dividend yielded approximately 4 percent. That equates to a total return of 53 percent. Key elements of the strategy are (1) An annual dividend of $1.63 per share; (2) A $100 million share repurchase program; and (3) Ongoing investments to scale the business and increase shareholder value over time.

Meredith Corporation is returning capital to shareholders by increasing dividend payment and by stock buybacks, as shown in the two following charts which were taken from the company presentation.


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Meredith Corporation has recorded revenue, EPS and dividend growth, and considering its cheap valuation metrics and its strong earnings growth prospects, MDP 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 decrease in the company advertising market share.


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Chart: finviz.com

Neenah Paper, Inc. (NYSE:NP)

Neenah Paper, Inc. produces technical products and fine papers worldwide.

Neenah Paper has a low trailing P/E of 14.75 and a very low forward P/E of 12.48. The price-to-sales ratio is very low at 0.75, and the average annual earnings growth estimates for the next five years are quite high at 12.5%. The forward annual dividend yield is at 2.08%, and the payout ratio is only 31%. 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 high at 9.51%.

The NP stock price is 2.86% above its 20-day simple moving average, 3.29% above its 50-day simple moving average and 22.55% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

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

Source: Portfolio123

On August 07, Neenah Paper reported its second-quarter results, which beat EPS expectations by $0.01. The company reported adjusted earnings from continuing operations of $0.80 per diluted common share in the second quarter of 2013 compared with $0.85 per share in the second quarter of 2012. For the second quarter, net sales of $212.3 million in 2013 were up slightly compared to 2012 as increased Fine Paper sales offset lower sales of other products.

Neenah Paper has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics and its strong earnings growth prospects, NP stock still has room to go up. Furthermore, the solid dividend represents a nice income.


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Chart: finviz.com

Deere & Company (NYSE:DE)

Deere & Company manufactures and distributes agriculture and turf equipment, and construction and forestry equipment worldwide.

Deere & Company has a very low trailing P/E of 9.68 and a very low forward P/E of 10.53. The price-to-sales ratio is very low at 0.85, and the average annual earnings growth estimates for the next five years are at 8%. The forward annual dividend yield is at 2.42%, and the payout ratio is only 23%. The annual rate of dividend growth over the past three years was very high at 16.92% and over the past five years was also high at 14.49%.

On August 14, Deere & Company reported its third-quarter fiscal 2013 financial results. EPS came in at $2.56 a $0.39 better than expectations.

Third-quarter highlights

  • Income jumps 26% on 4% gain in net sales and revenues.
  • Performance driven by strong profits in farm machinery and financial services.
  • Extensive growth investments remain on track, helping expand company's global footprint.
  • Full-year income forecast raised to $3.45 billion.

Deere & Company 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


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Source: company presentation

Deere & Company is growing its global presence, as shown in the chart below.


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Source: company presentation

Deere & Company has recorded strong revenue, EPS and dividend growth and it has compelling valuation metrics and good earnings growth prospects. In my opinion, DE stock still has room to go up. 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, decline in the price of agriculture products and the company's huge debt of $33.9 billion.


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Chart: finviz.com

Source: 3 Good-Yielding Stocks That Have Raised Payouts By At Least 9% A Year For The Last 5 Years