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I have searched for very profitable stocks that pay solid dividends with a low payout ratio that have raised their payouts at a high rate for the last three and five years. Those stocks would also have to show strong earnings growth for the past five years, and strong earnings growth prospects.

I used the Portfolio123's powerful screener to perform the search. The screen's formula requires all stocks to comply with all following demands:

  1. The stock does not trade over-the-counter (OTC).
  2. Market cap is greater than $100 million.
  3. Price is greater than 1.00.
  4. Dividend yield is greater than the dividend yield of the industry.
  5. The payout ratio is less than 100%.
  6. The annual rate of dividend growth over the past five years is greater than the dividend growth of the industry.
  7. Average annual earnings growth estimates for the next 5 years is greater than 10%.
  8. Average annual earnings growth for the past 5 years is greater than the average annual earnings growth of the industry.
  9. The 10 stocks with the lowest payout ratio among all the stocks that complied with the first eight demands.

As a result, 10 stocks came out, as shown in the charts below (the number of stocks left after each demand can be seen in the chart). In this article, I describe the three stocks with the lowest payout ratio among the ten stocks. In my opinion, these stocks can reward an investor a capital gain along with a nice income. 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 October 17, before the market open.

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Inter Parfums Inc. (NASDAQ:IPAR)

Inter Parfums, Inc., together with its subsidiaries, manufactures, markets, and distributes a range of fragrances and fragrance related products worldwide.

Inter Parfums has no debt at all, and it has a very low trailing P/E of 6.73 and a forward P/E of 29.05. The current ratio is very high at 4.50, and the average annual earnings growth estimates for the next five years is quite high at 14%. The forward annual dividend yield is at 1.52%, and the payout ratio is only 7.60%. The annual rate of dividend growth over the past three years was very high at 34.34%%, and over the past five years was also very high at 57.20%.

The IPAR stock price is 5.78% above its 20-day simple moving average, 8.76% above its 50-day simple moving average and 15.57% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

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

Inter Parfums has recorded strong revenue, EPS and dividend growth during the last three years and the last five years, as shown in the tables below.

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Source: Portfolio123

Inter Parfums margins and return on capital have been much better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

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On August 7, Inter Parfums reported its second-quarter financial results, which beat EPS expectations by $0.04, was in line on revenue and the company reaffirmed FY13 EPS guidance.

Second-Quarter 2013 Highlights

  • Net sales of ongoing brands (excluding Burberry brand sales) increased 17% to $96.8 million from $82.7 million;
  • Net sales including Burberry brand sales were down 19.3% to $117.5 million, compared to $145.6 million; at comparable foreign currency exchange rates, net sales declined 20.6%;
  • European-based operations generated sales of ongoing brands of $72.0 million, up 15.0% from $62.8 million; including Burberry brand sales, European-based sales were down 26.2%;
  • Sales by U.S.-based operations were $24.8 million, up 24.4% from $20.0 million;
  • Gross margin was 54.1% of net sales compared to 60.8%;
  • S, G & A expense as a percentage of net sales was 47.4% compared to 52.1%;
  • Operating margin was 6.7% of net sales compared to 8.7% of net sales;
  • Net income attributable to Inter Parfums, Inc. was $3.8 million compared to $6.0 million; and,
  • Basic and diluted earnings per share attributable to Inter Parfums, Inc. were $0.12 compared to $0.20.

Inter Parfums has recorded strong revenue, EPS and dividend growth, and considering its good earnings growth prospects, IPAR stock can move higher. Furthermore, the solid growing dividend represents a nice income.

Since the company is very rich in cash ($8.51 a share) and has no debt, there is hardly a risk that the company will reduce its dividend payment.

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Chart: finviz.com

Discover Financial Services (NYSE:DFS)

Discover Financial Services, a bank holding company, provides direct banking and payment services in the United States.

Discover Financial Services has a very low trailing P/E of 10.29 and a very low forward P/E of 10.51. The PEG ratio is at 1.22, and the average annual earnings growth estimates for the next five years is at 10.50%. The forward annual dividend yield is at 1.51%, and the payout ratio is only 11.78%. The annual rate of dividend growth over the past three years was very high at 49.38%, and over the past five years was also very high at 46.14%.

The DFS stock price is 3.42% above its 20-day simple moving average, 5.30% above its 50-day simple moving average and 15.84% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.

Analysts recommend the stock. Among the 24 analysts covering the stock, ten rate it as a strong buy, eight rate it as a buy, and six rate it as a hold.

Discover Financial Services 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 tables below.

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Discover Financial Services' margins and return on capital have been better than its industry median, sector median and the S&P 500 median, as shown in the tables below.

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Discover Financial Services will report its latest quarterly financial results on October 21. DFS is expected to post a profit of $1.21 a share, the same as the company's actual earnings for the same quarter a year ago.

Discover Financial Services has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, and the fact that the stock is in an uptrend, DFS stock still has room to go up. Furthermore, the solid growing dividend represents a nice income.

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Chart: finviz.com

Herbalife Ltd. (NYSE:HLF)

Herbalife Ltd., through its subsidiaries, produces and distributes weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, and personal care products worldwide.

Herbalife has a low trailing P/E of 14.25 and a very low forward P/E of 11.44. The PEG ratio is very low at 0.94, and the average annual earnings growth estimates for the next five years is very high at 15.10%. The forward annual dividend yield is at 1.85%, and the payout ratio is only 25.44%. The annual rate of dividend growth over the past three years was very high at 44.22%, and over the past five years was also very high at 31.95%.

Analysts recommend the stock. Among the 7 analysts covering the stock, four rate it as a strong buy, two rate it as a buy, and only one rates it as a hold.

Herbalife 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 tables below.

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Herbalife will report its latest quarterly financial results on October 28. HLF is expected to post a profit of $1.14 a share, a 10% rise from the company's actual earnings for the same quarter a year ago.

Herbalife has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, and its strong earnings growth prospects, HLF stock can move higher. Furthermore, the solid growing dividend represents a nice income.

Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy, and the company's debt of $963 million.

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Chart: finviz.com

Source: 3 Dividend Stocks That Have Raised Payouts By At Least 30% A Year For The Last 5 Years