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Arie Goren, Portfolio123 (470 clicks)
Long only, value, research analyst, dividend investing
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I have searched for highly profitable stocks that pay rich dividends with a low payout ratio among the stocks that are included in the S&P MidCap 400 index that are currently in an uptrend. Those stocks would also have to show a low forward P/E and a very 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:

  1. The stock does not trade over-the-counter [OTC].
  2. Dividend yield is greater than 2%.
  3. The annual rate of dividend growth over the past five years is greater than 5%.
  4. The payout ratio is less than 75%.
  5. Forward P/E is less than 15.
  6. The PEG ratio is less than 1.50.
  7. Total debt to equity is less than 0.40.
  8. The stock price is above the 20-day simple moving average (short-term uptrend).
  9. The stock price is above the 50-day simple moving average (mid-term uptrend).
  10. The stock price is above the 200-day simple moving average (long-term uptrend).

As a result, only three stocks came out, as shown in the chart below (the number of stocks left after each demand can be seen in the chart). In this article, I describe these three stocks. In my opinion, these stocks can reward an investor a significant 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 Yahoo Finance, Portfolio123 and finviz.com, on November 07, before the market open.

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Foot Locker, Inc. (FL)

Foot Locker, Inc., together with its subsidiaries, operates as a retailer of athletic footwear and apparel.

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Source: company presentation

Foot Locker has a very low debt (total debt to equity is only 0.06), a very low trailing P/E of 13.12 and a very low forward P/E of 11.53. The price-to-sales ratio is very low at 0.84, and the average annual earnings growth estimates for the next five years is quite high at 9.40%. The forward annual dividend yield is at 2.25%, and the payout ratio is only 28.4%. The annual rate of dividend growth over the past three years was high at 10.03%, and over the past five years, was also quite high at 5.92%.

The FL stock price is 5.07% above its 20-day simple moving average, 6.98% above its 50-day simple moving average and 4.76% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Analysts recommend the stock. Among the sixteen analysts covering the stock, six rate it as a strong buy, seven rate it as a buy, and only three rate it as a hold.

Foot Locker 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

Foot Locker will report its latest quarterly financial results on November 22. FL is expected to post a profit of $0.66 a share, a 5% rise from the company's actual earnings for the same quarter a year ago.

On August 23, Foot Locker reported its second-quarter results, which missed EPS expectations by $0.01, were in-line on revenues, and reaffirmed FY14 guidance. Net income for the Company's second quarter ended August 3, 2013 was $66 million, or $0.44 per share, compared with net income of $59 million, or $0.39 per share last year, an increase in earnings per share of 13 percent.

Second quarter comparable store sales increased 1.8 percent. Total second quarter sales increased 6.4 percent to $1,454 million this year, compared with sales of $1,367 million for the corresponding prior-year period. Excluding the effect of foreign currency fluctuations, total sales for the second quarter increased 5.9 percent.

Foot Locker has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics and its good earnings growth prospects, FL stock can move higher. Furthermore, the rich growing dividend represents a nice income.

Since Foot Locker is rich in cash ($5.59 a share) and has almost no debt and its payout ratio is very low, there is hardly a risk that the company will reduce its dividend payment.

Risks to the expected capital gain and to the solid dividend payment include; a downturn in the U.S. economy, decline in the acceptance of its products, and the negative effect of foreign currency fluctuations.

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Chart: finviz.com

Janus Capital Group, Inc. (JNS)

Janus Capital Group, Inc. is a publicly owned asset management holding company with approximately $167.7 billion in assets under management.

Janus Capital has a low debt (total debt to equity is only 0.38), and it has a trailing P/E of 17.38 and a low forward P/E of 14.04. The price to free cash flow for the trailing 12 months is very low at 13.06, and the average annual earnings growth estimates for the next five years is quite high at 13.30%. The price to book value is quite low at 1.26, and the price-to-cash ratio is very low at 2.35. The forward annual dividend yield is at 2.78%, and the payout ratio is only 33.9%. The annual rate of dividend growth over the past three years was very high at 82.34% and over the past five years was also very high at 45.04%.

The JNS stock price is 6.17% above its 20-day simple moving average, 12.22% above its 50-day simple moving average and 12.23% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Janus Capital has recorded strong EPS and dividend growth, during the last three years, as shown in the table below.

On October 24, Janus Capital reported its third-quarter results, which beat EPS expectations by $0.04 and was in-line on revenues. The company reported third quarter net income of $32.6 million, or $0.17 per diluted share, compared with second quarter 2013 net income of $15.8 million, or $0.08 per diluted share, and net income of $25.1 million, or $0.14 per diluted share, in the third quarter 2012. Second quarter 2013 included a charge of $0.04 per share from the early extinguishment of debt associated with the exchange of $110.0 million of JCG's 3.25% convertible senior notes due 2014 for $116.6 million of newly issued 0.75% convertible senior notes due 2018. Third quarter 2012 included an intangible asset impairment charge of $0.01 per share related to the redemption of a sub-advised account.

Janus Capital Group has compelling valuation metrics and good earnings growth prospects. In my opinion, JNS stock can move higher. Furthermore, the JNS rich growing dividend represents a nice income.

Since the company is rich in cash ($4.29 a share) and has a low debt and its payout ratio is low, there is hardly risk that the company will reduce its dividend payment.

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Chart: finviz.com

The Hanover Insurance Group Inc. (THG)

The Hanover Insurance Group, Inc., through its subsidiaries, underwrites commercial and personal property and casualty insurance coverage in the United States.

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Source: company presentation

The Hanover Insurance Group has a low debt (total debt to equity is only 0.38), and it has a trailing P/E of 25.87 and a very low forward P/E of 12.88. The price to free cash flow for the trailing 12 months is very low at 8.77, and the earnings growth estimates for the next year is at 6.65%. The price-to-sales ratio is very low at 0.56, and the price-to-book-value is also low at 1.05. The forward annual dividend yield is at 2.21%, and the payout ratio is at 54.7%. The annual rate of dividend growth over the past three years was high at 9.66%, and over the past five years, was very high at 25.15%.

The THG stock price is 2.67% above its 20-day simple moving average, 8.23% above its 50-day simple moving average and 20.15% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

The Hanover Insurance Group has recorded revenue and dividend growth, during the last year, the last three years and the last five years, as shown in the table below.

The chart below emphasizes the Hanover Insurance's book value growth and the capital returned to shareholders.

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Source: company presentation

On October 30, The Hanover Insurance Group reported its third-quarter results, which beat EPS expectations by $0.32, and was in-line on revenues. The company reported net income of $61.3 million, or $1.37 per diluted share, for the third quarter of 2013, compared to $40.4 million, or $0.89 per diluted share, in the third quarter of 2012. Operating income was $60.9 million, or $1.36 per diluted share, in the third quarter of 2013, compared to $32.5 million, or $0.72 per diluted share, in the third quarter last year.

The Hanover Insurance Group has compelling valuation metrics, and considering the fact that the stock is trading near book value and it is in an uptrend, THG stock still has room to go up. Furthermore, the rich growing dividend represents a nice income.

Since the company is rich in cash ($15.69 a share) and has a low debt and its payout ratio is low, there is a hardly risk that the company will reduce its dividend payment.

Risks to the expected capital gain and to the dividend payment include; a downturn in the U.S. economy, and above average loss activity.

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Chart: finviz.com

Source: 3 Good-Yielding Mid-Cap Stocks With A Very Low Forward P/E Ratio Currently In An Uptrend