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I have searched for the best dividend stocks among the stocks that are included in the S&P 500 index according to Graham principles. The following screen, which draws inspiration from the work of the well-known investor Ben Graham, shows such a promise. This screen is available on Portfolio123's All-Stars list.

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. Current ratio is at least 1.50.
  3. Long-term debt is less than 110% of working capital.
  4. Last 4 quarters of EPS above breakeven.
  5. Last 5 years of EPS above breakeven.
  6. Annual EPS grew over past year and past 5 years.
  7. Company has paid dividends within past year.
  8. The twenty stocks with the best ranking according to Graham principles among all the stocks that complied with the first seven demands (the ranking system is available on Portfolio123's All-Stars list).

As a result, twenty stocks came out, as shown in the chart below. In this article, I describe the three stocks with the best Graham principles ranking among the twenty stocks. In my opinion, these stocks can reward an investor a significant capital gain along with a nice income. I recommend readers to 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 14, before the market open.


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Joy Global, Inc. (JOY)

Joy Global Inc. engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals.


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Source: company presentation

Joy Global has a low debt (total debt to equity is only 0.44), and it has a very low trailing P/E of 8.48 and a forward P/E of 15.42. The price to free cash flow for the trailing 12 months is low at 15.83, and the average annual earnings growth estimates for the next five years is quite high at 10.33%. The forward annual dividend yield is at 1.23%, and the payout ratio is only 10.3%.

The JOY stock price is 1.20% above its 20-day simple moving average, 5.76% above its 50-day simple moving average and 3.91% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Joy Global has recorded strong revenue and EPS growth during the last three years and the last five years, as shown in the charts below.


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Source: company presentation

Joy Global's margins and return on capital have been much better than those of the industry median, and the sector median, as shown in the tables below.


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Most of Joy Global's stock valuation parameters have been much better than those of the industry median, the sector median and the S&P 500 median, as shown in the tables below.


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Source: Portfolio123

Joy Global will report its latest quarterly financial results on December 10. JOY is expected to post a profit of $1.11 a share.

Joy Global has recorded strong revenue and EPS growth, and considering its good valuation metrics and its good earnings growth prospects, JOY stock can move higher. Furthermore, the solid dividend represents a nice income.


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Chart: finviz.com

National Oilwell Varco, Inc. (NOV)

National Oilwell Varco, Inc. provides equipment and components for oil and gas drilling and production; oilfield services; and supply chain integration services to the upstream oil and gas industry worldwide.


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National Oilwell Varco has a very low debt (total debt to equity is only 0.17), and it has a low trailing P/E of 15.10 and a very low forward P/E of 13.11. The PEG ratio is at 1.42, and the average annual earnings growth estimates for the next five years is quite high at 10.67%. The forward annual dividend yield is at 1.04%, and the payout ratio is only 14.2%.

The NOV stock price is 1.28% above its 20-day simple moving average, 3.37% above its 50-day simple moving average and 14.67% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Most analysts recommend the stock. Among the 32 analysts covering the stock, nine rate it as a strong buy, fifteen rate it as a buy, seven rate it as a hold, and only one rates it as a underperform.

National Oilwell Varco has recorded strong revenue, EPS and dividend growth, during the last three years and the last five years, as shown in the table below.

Most of National Oilwell Varco's stock valuation parameters have been much better than those of the industry median, the sector median and the S&P 500 median, as shown in the tables below.


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Source: Portfolio123

On October 25, National Oilwell Varco reported its third-quarter financial results, which beat EPS expectations by $0.02, and was in-line on revenues. The company reported that for the third quarter ended September 30, 2013 it earned net income of $636 million, or $1.49 per fully diluted share, compared to second quarter ended June 30, 2013 net income of $531 million, or $1.24 per fully diluted share. Excluding $10 million in pre-tax transaction charges and $102 million in pre-tax gains resulting from the settlement of an outstanding legal claim, third quarter 2013 net income was $573 million, or $1.34 per fully diluted share.

National Oilwell Varco has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics and its good earnings growth prospects, NOV stock can move higher. Furthermore, the solid growing dividend represents an income.

Risks to the expected capital gain and to the solid dividend payment include; a downturn in the U.S. economy, and a decline in the price of oil and natural gas.


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Chart: finviz.com

Helmerich & Payne Inc. (HP)

Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells.


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Source: company presentation

Helmerich & Payne has a very low debt (total debt to equity is only 0.05), and it has a very low trailing P/E of 11.71 and a low forward P/E of 13.93. The price-to-book value is at 1.91, and the average annual earnings growth estimates for the next five years is at 1.5%. The forward annual dividend yield is at 2.60%, and the payout ratio is only 30%.

The HP stock price is 0.01% above its 20-day simple moving average, 5.98% above its 50-day simple moving average and 17.88% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Helmerich & Payne 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.

The tables below emphasize the Helmerich & Payne's superior margins and return on capital over the industry median, the sector median and the S&P 500 median.


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Helmerich & Payne has increased its market share by an impressive rate, as shown in the chart below.


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Source: company presentation

On November 14, Helmerich & Payne reported its fourth-quarter fiscal 2013 financial results, which beat EPS expectations by $0.06 and was in-line on revenues. The company reported record income from continuing operations of $721.5 million ($6.65 per diluted share) and record operating revenues of $3.4 billion for its fiscal year ended September 30, 2013, compared to income from continuing operations of $573.6 million ($5.27 per diluted share) from operating revenues of $3.2 billion during the prior fiscal year ended September 30, 2012.

Helmerich & Payne has recorded strong revenue, EPS and dividend growth, and it continues to capture market share. Considering its good valuation metrics, HP stock can move higher. Furthermore, the rich dividend represents a nice income.

Risks to the expected capital gain and to the dividend payment include a downturn in the U.S. economy, and lower oil and natural gas prices.


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Chart: finviz.com

Source: S&P 500 Best Dividend Stocks According To Graham Principles