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, Portfolio123 (1,213 clicks)
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I have searched for very profitable small-cap stocks that pay very rich dividends with a low payout ratio, and that are in a short-term uptrend, in a mid-term uptrend and in a long-term uptrend. Those stocks would also have to show a very low P/E ratio and strong record of past 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:

  1. The forward dividend yield is greater than 5.00%.
  2. The payout ratio is less than 50%.
  3. Average annual earnings growth for the past 5 years is greater than 15%.
  4. Trailing P/E is less than 10.
  5. The stock price is above the 20-day simple moving average (short-term uptrend).
  6. The stock price is above the 50-day simple moving average (mid-term uptrend).
  7. The stock price is above the 200-day simple moving average (long-term uptrend).

After running this screen on September 16, 2013, before the market open, I discovered the following three stocks:

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Arlington Asset Investment Corp. (AI)

Arlington Asset Investment Corp., an investment firm, acquires mortgage-related and other assets.

Arlington Asset Investment has an extremely low trailing P/E of 1.77 and a very low forward P/E of 6.47. The price-to-cash ratio is at 10.72, and the price to book value is very low at 0.76. The forward annual dividend yield is very high at 14.20%, and the payout ratio is only 20%. The annual rate of dividend growth over the past five years was at 3.13%.

The AI stock price is 4.14% above its 20-day simple moving average, 0.01% above its 50-day simple moving average and 2.53% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

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

Arlington Asset Investment has recorded strong EPS growth during the last year, and the last five years, as shown in the table below.

Source: Portfolio123

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Source: company presentation

On July 29, Arlington Asset Investment reported its second-quarter results, which beat EPS expectations by $0.04. The company reported non-GAAP core operating income of $18.9 million for the quarter ended June 30, 2013, or $1.12 per share. On a GAAP basis, the Company reported net income of $3.2 million for the quarter ended June 30, 2013, or $0.19 per share, compared to net income of $3.2 million for the quarter ended March 31, 2013, or $0.23 per share, and net income of $2.1 million, or $0.22 per share, for the quarter ended June 30, 2012.

Arlington Asset Investment has recorded strong EPS growth, and considering its compelling valuation metrics, the fact that the stock is in an uptrend, and the fact that the stock is trading way below book value, AI 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 volatility in interest rates and interest rate sensitive securities.

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Chart: finviz.com

Seaspan Corporation (SSW)

Seaspan Corporation owns and operates the containerships primarily in Hong Kong. The company was incorporated in 2005 and is based in Majuro, Marshall Islands.

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Seaspan Corporation has a low trailing P/E of 9.05 and a forward P/E of 20.30. The price to free cash flow for the trailing 12 months is very low at 12.60, and the average annual earnings growth estimates for the next five years is at 3.75%. The forward annual dividend yield is high at 5.50%, and the payout ratio is only 42%.

The SSW stock price is 4.70% above its 20-day simple moving average, 7.41% above its 50-day simple moving average and 14.81% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

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

Source: Portfolio123

On July 29, Seaspan Corporation reported its latest quarter financial results. EPS came in at $0.18, $0.06 below expectations.

The two charts below, which were taken from the company presentation, show the container industry trend, and the company's vision including its dividend policy.

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Seaspan Corporation has recorded strong revenue and EPS growth, and considering its cheap valuation metrics and the fact that the stock is in an uptrend, SSW 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 world economy, a decline in freight rates, and the company's huge debt of $4.21 billion.

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Chart: finviz.com

Redwood Trust, Inc. (RWT)

Redwood Trust, Inc. engages in investing, financing, and managing real estate-related assets.

Redwood Trust has a very low trailing P/E of 7.99 and a very low forward P/E of 10.60. The price-to-cash ratio is at 7.52, and the average annual earnings growth estimates for the next five years is at 3.50%. The forward annual dividend yield is high at 5.89%, and the payout ratio is only 45%.

The RWT stock price is 6.37% above its 20-day simple moving average, 9.30% above its 50-day simple moving average and 0.70% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Analysts recommend the stock. Among the eight analysts covering the stock, three rate it as a strong buy, three rate it as a buy, and only two rate it as a hold.

Redwood Trust has recorded strong EPS growth, during the last year, the last three years and the last five years, as shown in the table below.

Source: Portfolio123

On August 07, Redwood Trust reported its second-quarter financial results, which beat EPS expectations by $0.43.

Second Quarter 2013 Highlights

  • The company earned $0.71 per share for the second quarter of 2013. This amount does not reflect our estimate, as of August 1, 2013, of approximately $0.22 per share of net negative market valuation adjustments the company expect will be realized for GAAP purposes in the third quarter of 2013 related to loans the company owned and loans the company had identified but not purchased at June 30, 2013.
  • The company's GAAP book value at June 30, 2013 was $14.69 per share, up $0.15 per share from March 31, 2013.
  • At June 30, 2013, the company owned $1.2 billion of residential loans and had identified an additional $1.4 billion for purchase. The company currently expect our overall risk management and hedging activities to offset market value declines on these loans as they are securitized or sold in whole loan form.
  • The company completed four residential securitizations totaling $1.8 billion, and created a net $124 million of securities for our investment portfolio and $16 million of investments in mortgage servicing rights.
  • The company added 24 residential loan sellers to our platform, increasing the total to 104 at June 30, 2013, as compared to 37 sellers a year ago.
  • The company originated and funded 10 senior commercial loans totaling $150 million and sold six senior commercial loans totaling $75 million. The company also originated six mezzanine commercial loans totaling $19 million.
  • The company declared and distributed a $0.28 per share dividend to shareholders for the second quarter of 2013.

Redwood Trust has recorded strong EPS growth, and considering its cheap valuation metrics and the fact that the stock is in an uptrend, RWT 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 downturns in the residential mortgage business.

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Chart: finviz.com

Source: 3 High-Yielding, High Growth Small Caps Currently In Uptrends