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Portfolio123 has a powerful ranking system which allows the user to create complex formulas according to many different criteria. They also have highly useful groups of pre-built ranking systems. I used one of them, the "O'Neil," in this article. The ranking system is based on investing principles of the well-known investor William O'Neil.

A Ranking system sorts stocks from best to worst based on a set of weighted factors.

The "O'Neil" ranking system is quite complex, and it is taking into account many factors like EPS growth, sales growth, industry EPS growth, market conditions, company quality and stock stability, as shown in the Portfolio123's chart below.

In order to find out how such a ranking formula would have performed during the last 15 years, I ran a back-test, which is available by the Portfolio123's screener. For the back-test, I took all the 7,014 stocks in the Portfolio123's database.

The back-test results are shown in the chart below. For the back-test, I divided the 7,014 companies into fifty groups according to their ranking. The chart clearly shows that the average annual return has a very significant positive correlation to the "O'Neil" rank. This brings me to the conclusion that the ranking system is useful.

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After running the "O'Neil" ranking system on the companies which are included in the S&P 500 index and pay a dividend with a higher than 1% yield, on November 23, I discovered the twenty best dividend stocks, which are shown in the chart below. In this article, I describe the four best stocks. In my opinion, these stocks can reward an investor a significant capital gain along with a 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 Yahoo Finance, Portfolio123 and Finviz.com.

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Ameriprise Financial, Inc. (AMP)

Ameriprise Financial, Inc., through its subsidiaries, provides a range of financial products and services in the United States and internationally.

Ameriprise Financial has a trailing P/E of 15.73 and a very low forward P/E of 13.82. The PEG ratio is very low at 0.79, and the average annual earnings growth estimates for the next five years is very high at 19.80%. The forward annual dividend yield is at 2.08%, and the payout ratio is only 22.6%. The annual rate of dividend growth over the past three years was very high at 40.58% and over the past five years was also very high at 25.71%.

The AMP stock price is 5.05% above its 20-day simple moving average, 11.00% above its 50-day simple moving average and 29.42% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Ameriprise Financial 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

Ameriprise Financial returns value to its shareholders by stock buyback and by increasing dividend payments, as shown in the charts below.

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Source: company presentation

On October 29, Ameriprise Financial reported its third-quarter financial results, which beat EPS expectations by $0.18. The company reported record third quarter 2013 results. Net income in the quarter was $381 million, or $1.86 per diluted share, up from $174 million, or $0.79 per diluted share, a year ago. Operating earnings increased 36 percent to a record $392 million compared to $289 million a year ago, and operating earnings per diluted share increased 45 percent to $1.91.

Ameriprise Financial has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics, its strong earnings growth prospects, and the fact that the stock is in an uptrend, AMP stock can move higher. Furthermore, the rich growing dividend represents a nice income.

AMP Dividend Chart

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Chart: finviz.com

ACE Limited (ACE)

ACE Limited, through its subsidiaries, provides a range of insurance and reinsurance products to insured worldwide. The company was founded in 1985 and is headquartered in Zurich, Switzerland.

See my article from November 20, 2013.

ACE Dividend Chart

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Chart: finviz.com

Invesco Ltd. (IVZ)

Invesco Ltd. is a publicly owned investment manager. It primarily provides its services to institutional clients including major public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, and financial institutions.

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Source: company presentation

Invesco has a trailing P/E of 20.30 and a low forward P/E of 13.88. The PEG ratio is very low at 0.96, and the average annual earnings growth estimates for the next five years is very high at 16.76%. The forward annual dividend yield is at 2.65%, and the payout ratio is only 44.2%. The annual rate of dividend growth over the past three years was very high at 23.11% and over the past five years was also high at 17.60%.

The IVZ stock price is 2.15% above its 20-day simple moving average, 4.00% above its 50-day simple moving average and 9.26% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Invesco has recorded strong revenue, EPS and dividend growth during the last year, and the last three years, as shown in the table below.

Source: Portfolio123

On October 31, Invesco reported its third-quarter financial results, which beat EPS expectations by $0.03.

Third-Quarter Highlights

  • Maintained strong, long-term investment performance - 82% of actively managed assets ahead of peers on a 3- and 5-year basis
  • Strong investment performance, broad diversity of flows and continued focus on clients contributed to net flows of $9.1 billion
  • Adjusted operating income up 34% over same quarter a year ago
  • Adjusted operating margin improved to 40.2% from 34.5% in same quarter a year ago - an increase of 5.7 percentage points
  • Invesco Ltd. Board authorized additional $1.5 billion in share repurchases

In the report, Martin L. Flanagan, president and CEO of Invesco said:

By delivering consistent, long-term investment performance to our clients, we saw strong, total net inflows of $9.1 billion across a broad range of capabilities during the third quarter. The broad diversity of flows and strong investment performance during the quarter further contributed to the firm's operating margin of 40.2% - an increase of 5.7 percentage points from a year ago.

Invesco has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics, its strong earnings growth prospects, and the fact that the stock is in an uptrend, IVZ stock can move higher. Furthermore, the rich growing dividend represents a nice income.

IVZ Dividend Chart

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Chart: finviz.com

McGraw Hill Financial, Inc. (MHFI)

McGraw Hill Financial, Inc., a financial intelligence company, provides credit ratings, benchmarks and analytics to capital and commodity markets worldwide.

McGraw Hill Financial has a trailing P/E of 31.34 and a forward P/E of 19.93. The price to free cash flow is very low at 11.23, and the average annual earnings growth estimates for the next five years is very high at 18.10%. The forward annual dividend yield is at 1.51%, and the payout ratio is only 18.5%. The annual rate of dividend growth over the past three years was at 5.60% and over the past five years was at 4.83%.

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

The MHFI stock price is 3.81% above its 20-day simple moving average, 8.15% above its 50-day simple moving average and 28.96% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

McGraw Hill has recorded revenue, EPS and dividend growth during the last year, and the last three years, as shown in the table below.

On October 22, McGraw Hill reported its third-quarter financial results, which beat EPS expectations by $0.03. The company reported third quarter 2013 results with revenue of $1.19 billion, an increase of 7% compared to the same period last year and 8% excluding the impact of the sale of Aviation Week. Net income and diluted earnings per share from continuing operations were $235 million and $0.84, respectively. The company increased its 2013 adjusted earnings per share outlook to a range of $3.25 to $3.30 from $3.15 to $3.25 despite likely market volatility due in part to the federal debt debate as well as evolving expectations for interest rates.

McGraw Hill has recorded revenue, EPS and dividend growth, and considering its strong earnings growth prospects, and the fact that the stock is in an uptrend, MHFI stock can move higher. Furthermore, the solid growing dividend represents a nice income.

MHFI Dividend Chart

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Chart: finviz.com

Source: S&P 500 Best Dividend Stocks According To O'Neil Principles