I have searched for profitable companies that pay very rich dividends with a low payout ratio and that have strong growth prospects. Those stocks would have to also show a low debt.
I used the Portfolio123's powerful screener to perform the search. The screen's formula requires all stocks to comply with all following demands:
- The stock does not trade over-the-counter (OTC).
- Price is greater than 1.00.
- Market cap is greater than $100 million.
- Dividend yield is greater than 4.0%.
- The payout ratio is less than 100%.
- Total debt to equity is less than 1.0.
- Long term EPS growth rate is greater than 10%.
As shown in the chart below, 13 stocks came out, as a result, (the number of stocks left after each demand can be seen in the chart). In this article, I describe three of these stocks which in my opinion can reward an investor a capital gain along a very rich dividend. I recommend readers use this list of stocks as a basis for further research. All the data for this article were taken from Portfolio123 and finviz.com, on September 23, 2013, before the market open.
Calamos Asset Management Inc. (CLMS)
Calamos Asset Management Inc. is a publicly owned investment manager.
Calamos Asset Management has a low debt (total debt to equity is only 0.47), and it has a low trailing P/E of 14.54 and a forward P/E of 18.27. The price-to-sales ratio is very low at 0.68, and the price-to-book value is also low at 1.03. The current ratio is very high at 15.30, and the-price-to-cash ratio is extremely low at 0.40. The price to free cash flow for the trailing 12 months is extremely low at 1.99, and the average annual earnings growth estimates for the next five years is quite high at 12.5%. The forward annual dividend yield is very high at 4.99%, and the payout ratio is at 66%. The annual rate of dividend growth over the past three years was very high at 23.06%, and over the past five years was negative at -1.40%.
Calamos Asset Management has recorded strong EPS and dividend growth and moderate revenue growth, during the last three years, as shown in the table below.
On August 6, Calamos Asset Management reported its second-quarter financial results, which beat EPS expectations by $0.07 and was in-line on revenues.
Second-Quarter 2013 Highlights
- Non-GAAP diluted earnings per share was $0.22 for the second quarter compared to $0.24 in the previous quarter. Non-GAAP net income attributable to Calamos Asset Management, Inc. (CAM) was $4.5 million for the quarter compared to $5.1 million last quarter.
- GAAP diluted earnings per share was $0.09 for the second quarter compared to $0.16 per share in the previous quarter. Net income attributable to CAM was $1.8 million for the quarter compared to $3.2 million last quarter.
- Revenues for the current quarter were $66.7 million compared to $71.0 million in the previous quarter.
- Operating margin was 27.6% for the second quarter and 31.2% in the previous quarter.
- Total Assets were $26.6 billion at June 30, 2013 compared to $29.3 billion at the end of last quarter.
- Net flows were negative $2.3 billion for the quarter.
- Calamos Investments LLC (Calamos Investments) repurchased 750,503 shares of CAM's common stock since the share repurchase program was announced in the first quarter of 2013.
- The Board of Directors of CAM declared a regular quarterly dividend of 12.5 cents per share payable on September 3, 2013 to shareholders of record on August 19, 2013.
Calamos Asset Management has compelling valuation metrics and good earnings growth prospects, and considering its latest quarter strong results, CLMS stock can move higher. Furthermore, the very rich dividend represents a gratifying income.
Since the company is very rich in cash ($25.26 a share) and has low debt, there is hardly a risk that the company will reduce its dividend payment.
KCAP Financial, Inc. (KCAP)
Kohlberg Capital Corporation is a private equity and venture capital firm specializing in mid market, buyouts, and mezzanine investments.
Source: company presentation
Kohlberg Capital Corporation has a very low trailing P/E of 6.84 and a very low forward P/E of 8.32. The PEG ratio is extremely low at 0.46, and the average annual earnings growth estimates for the next five years is very high at 15%. The forward annual dividend yield is very high at 11.34%, and the payout ratio is at 72%. The annual rate of dividend growth over the last year was very high at 34.29, over the past three years was at 0.72%, and over the past five years was negative at -7.66%.
Kohlberg Capital has recorded strong revenue, EPS and dividend growth, during the last year, as shown in the table below.
On August 6, Kohlberg Capital reported its second-quarter financial results, which missed EPS expectations by $0.06.
Second-Quarter 2013 Highlights
- Net investment income for the three months ended June 30, 2013 was approximately $6.6 million, or $0.20 per share (basic) and $0.20 per share (diluted).
- KCAP declared a quarterly dividend of $0.28 per share.
- On June 18, 2013, KCAP completed the sale of notes in a $140 million debt securitization financing transaction, resulting in the addition of $105.25 million of attractively priced debt on the balance sheet.
- At June 30, 2013, the fair value of KCAP's investments totaled approximately $436.5 million.
- Net asset value per share of $8.24 as of June 30, 2013.
Kohlberg Capital has compelling valuation metrics and strong earnings growth prospects. In my opinion, KCAP stock can move much higher. Furthermore, the very rich dividend represents a gratifying income.
Risks to the expected capital gain include a downturn in the U.S. economy, and credit failure.
Orchids Paper Products Company (TIS)
Orchids Paper Products Company engages in the manufacture and sale of tissue products for the at-home market in the United States.
Orchids Paper Products has a very low debt (total debt to equity is only 0.19), and it has a trailing P/E of 20.66 and a forward P/E of 15.49. The current ratio is very high at 3.70, and the average annual earnings growth estimates for the next five years is quite high at 11%. The forward annual dividend yield is very high at 5.02%, and the payout ratio is at 79%.
The TIS stock price is 0.64% above its 20-day simple moving average, 1.94% above its 50-day simple moving average and 18.09% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
Analysts recommend the stock. Among the 3 analysts covering the stock, two rate it as a strong buy, and one rates it as a buy.
On July 24, Orchids Paper Products reported its second-quarter results, which beat EPS expectations by $0.03.
Second Quarter Highlights
- Established a new quarterly record for both total net sales and converted product net sales of $29.2 million and $27.8 million, respectively.
- Converted product shipments were 2,080,000 cases, exceeding the prior record of 1,864,000.
- EBITDA in the second quarter of 2013 was $6.4 million, an increase of $1.4 million, or 27%, over the prior year quarter.
- Second quarter 2013 net income was $3.1 million, an increase of $906,000, or 41%, compared with $2.2 million of net income in the same period of 2012.
- Diluted net income per share for the second quarter 2013 was $0.39 per diluted share compared with $0.29 per diluted share in the same period in 2012.
- Orchids Paper Products recorded strong EPS growth, and good revenue growth during the last five years; the annual rate of revenue growth over the past five years was at 6.20%, and the EPS growth was very high at 24.16%.
Since, Orchids Paper Products has recorded continuous growth, and the latest quarter financial results were good, a capital gain can be expected along the very rich dividend.
Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy, and a decline in the demand for the company's products.