I have searched for profitable companies that pay rich dividends with a low payout ratio and that have strong earnings growth prospects. Those stocks would have to also show a strong record of past revenue and earnings growth.
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:
- The forward dividend yield is greater than 3.50%.
- The payout ratio is less than 90%.
- Average annual sales growth for the past 5 years is greater than 10%.
- Average annual earnings growth for the past 5 years is greater than 15%.
- Average annual earnings growth estimates for the next 5 years is greater than 12%.
- Forward P/E is less than 19.
After running this screen on September 15, 2013, I discovered the following three stocks:
Computer Programs & Systems Inc. (NASDAQ:CPSI)
Computer Programs and Systems, Inc. provides healthcare information technology solutions for rural and community hospitals in the United States.
Computer Programs and Systems has no debt at all, and it has a trailing P/E of 20.13 and a forward P/E of 18.66. The PEG ratio is at 1.58, and the average annual earnings growth estimates for the next five years is quite high at 12.75%. The forward annual dividend yield is quite high at 3.57%, and the payout ratio is at 72%. The annual rate of dividend growth over the past three years was quite high at 8.51% and over the past five years was at 5.02%.
The CPSI stock price is 1.51% above its 20-day simple moving average, 4.73% above its 50-day simple moving average and 11.08% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Most analysts recommend the stock. Among the eleven analysts covering the stock, six rate it as a strong buy, and five rate it as a hold.
Computer Programs and Systems 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.
On July 25, Computer Programs and Systems reported its second-quarter results, which beat EPS expectations by $0.02 and beat on revenues.
Second Quarter 2013 Highlights
- Revenues of $53.3 million;
- 12-month backlog of $158.4 million;
- Earnings per diluted share of $0.77;
- Cash provided by operations of $1.3 million; and
- Quarterly dividend of $0.51 per share.
Computer Programs and Systems has recorded strong revenue, EPS and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, CPSI stock can move higher. Furthermore, the rich dividend represents a nice income.
DRDGOLD Ltd. (NYSE:DRD)
DRDGOLD Limited operates as a surface gold retreatment company in South Africa.
Source: company presentation
DRDGOLD has a very low debt (total debt to equity is only 0.11), and it has a very low trailing P/E of 7.12 and a very low forward P/E of 7.22. The PEG ratio is extremely low at 0.52, and the average annual earnings growth estimates for the next five years is high at 13.80%. The price-to-sales ratio is at 1.06, and the price to free cash flow for the trailing 12 months is very low at 4.40. The forward annual dividend yield is quite high at 3.51%, and the payout ratio is only 25%.
On August 23, DRDGOLD reported its fourth-quarter fiscal 2013 results. Revenue for the fourth quarter was 11% higher than the comparable quarter of 2012 at R438.1 million, due mainly to a 10% increase in gold production.
GROUP RESULTS: KEY FEATURES
Q4 2013 V Q4 2012
- Gold production up 10% to 35 559 oz
- Operating profit down 16% to R96.2 million
- Headline earnings down 59% to 9 cps
- All-in sustaining costs down 6% to R365 665/kg
- All-in sustaining costs margin maintained at 15%
- Final dividend declared of 14 cents per ordinary share
FY2013 V FY2012
- Gold production up 8% to 146 381 oz
- Operating profit up 9% to R679.3 million
- Headline earnings up 11% to 68 cps
- All-in sustaining costs up 10% to R365 569/kg
- All-in sustaining costs margin steady at 20%
- Total dividends for the year of 28 cents per ordinary share, up 180%
DRDGOLD has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics and its strong earnings growth prospects, DRD stock can move much higher once the gold bull market resumes. Furthermore, the rich dividend represents a nice income.
Risks to the expected capital gain and to the dividend payment include; a further decline in the price of gold, and an increase in the exchange rate of the South African Rand.
Alliance Holdings GP, L.P. (NASDAQ:AHGP)
Alliance Holdings GP, L.P., through its subsidiaries, produces and markets coal primarily to utilities and industrial users in the United States.
Alliance Holdings has a trailing P/E of 17.11 and a forward P/E of 15.56. The PEG ratio is at 1.22, and the average annual earnings growth estimates for the next five years is quite high at 14%. The forward annual dividend yield is very high at 5.16%, and the payout ratio is at 88%. The annual rate of dividend growth over the past three years was very high at 17.34% and over the past five years was also very high at 21.46%.
On July 26, Alliance Holdings reported its latest quarterly financial results, and announced that it increased its quarterly distribution by 3.0% to $0.785 per unit. AHGP also reported record net income for the 2013 Quarter of $61.0 million, or $1.02 per basic and diluted limited partner unit, an increase of 12.2% compared to net income for the 2012 Quarter of $54.4 million, or $0.91 per basic and diluted limited partner unit.
Alliance Holdings 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.
The charts below, which were taken from the company presentation, show the importance of coal as prime source of fuel for electricity generation.
Alliance Holdings has recorded strong revenue, EPS and dividend growth, and considering its strong earnings growth prospects, AHGP stock still has room to go up. 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, competition from lower natural gas price, and the company's huge debt of $797 million.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.