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Arie Goren, Portfolio123 (472 clicks)
Long only, value, research analyst, dividend investing
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This year has been favorable for stocks; the return of the S&P 500 index year-to-date is at 26.27 % while one year return of the index is at 27.17 %, these compared to 13.81% the average annual return for the last three years and an average annual return of 16.23% for the last five years.

A Ranking system sorts stocks from best to worst based on a set of weighted factors. Portfolio123 has a powerful ranking system which allows the user to create complex formulas according to many different criteria. They also have highly useful several groups of pre-built ranking systems, I used one of them the "All-Stars: Buffett" in this article. The ranking system is based on investing principles of the well-known investor Warren Buffett.

The "All-Stars: Buffett" ranking system is quite complex, and it is taking into account many factors like; book value growth, operational P/E, price to book value, trailing P/E, price to Tangible book value, price to cash flow and EPS 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 "All-Stars: Buffett" rank. This brings me to the conclusion that the ranking system is useful.


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After running the "All-Stars: Buffett" 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 December 03, before the market open, I discovered the twenty best dividend stocks, which are shown in the chart below. In this article, I describe the eight best stocks according to this ranking system. In my opinion, these stocks can reward an investor a significant capital gain along with a solid 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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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.

See my article from November 15, 2013.


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Chart: finviz.com

Humana Inc. (HUM)

Humana Inc., a health care company, offers a range of insurance products, and health and wellness services that incorporate an integrated approach to lifelong well-being.

Humana has a low debt (total debt to equity is only 0.30), and it has a very low trailing P/E of 11.58 and a low forward P/E of 13.42. The price-to-sales ratio is very low at 0.41, and the price to free cash flow is also very low at 12.21. The PEG ratio is at 1.61, and the average annual earnings growth estimates for the next five years is at 7.17%. The forward annual dividend yield is at 1.03%, and the payout ratio is only 11.5%.

The HUM stock price is 7.06% above its 20-day simple moving average, 10.12% above its 50-day simple moving average and 23.94% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

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

Most of Humana's stock valuation and return on capital parameters 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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Source: Portfolio123

On November 06, Humana reported its third-quarter financial results, which beat EPS expectations by $0.14 and was in-line on revenues.

Third-Quarter 2013 Highlights

  • 3Q13 EPS of $2.31, full-year 2013 EPS of $8.65 to $8.75 reiterated
  • 2014 EPS guidance of $7.25 to $7.75 includes $0.50 to $0.90 for investments in and startup expenses of the company's state-based contracts and health care exchange businesses
  • Consolidated revenues expected to exceed $43 billion in 2014
  • Medicare Advantage membership projected to grow in 2014 by 260,000 to 305,000
  • Steven McCulley elected as Interim Chief Financial Officer effective January 1, 2014

In the report, Bruce D. Broussard, President and Chief Executive Officer of Humana said:

We are pleased that our operating results continue to show the strength of our base business. Additionally, we believe our integrated care delivery model capabilities, like value-based provider contracting, chronic care management and advanced data analytics, provide a successful platform for the emerging opportunities and the challenges of the Medicare payment pressures in the coming years.

Humana has recorded strong revenue and EPS growth, and considering its cheap valuation metrics, its good earnings growth prospects, and the fact that the stock is in an uptrend, HUM stock can move higher. Furthermore, the solid dividend represents an income.


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Chart: finviz.com

AFLAC Inc (AFL)

Aflac Incorporated, through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products.

See my article from November 07, 2013.


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Chart: finviz.com

Chevron Corporation (CVX)

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide.


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Source: Latest Chevron Investor Presentation

Chevron has a very low debt (total debt to equity is only 0.13), and it has a very low trailing P/E of 10.01 and a low forward P/E of 10.16. The PEG ratio is at 1.43, and the average annual earnings growth estimates for the next five years is at 7.0%. The forward annual dividend yield is quite high at 3.27%, and the payout ratio is only 30.8%. The annual rate of dividend growth over the past three years was quite high at 10.73% and over the past five years was also high at 9.09%.

The CVX stock price is 1.44% above its 20-day simple moving average, 2.10% above its 50-day simple moving average and 2.73% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

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

Most of Chevron's stock valuation, return on capital and financial strength parameters 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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Chevron returns value to its shareholders by stock buyback and by increasing dividend payments, as shown in the chart below.


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Source: Latest Chevron Investor Presentation

On November 01, Chevron reported its third-quarter financial results. The company reported earnings of $5.0 billion ($2.57 per share - diluted) for the third quarter 2013, compared with $5.3 billion ($2.69 per share - diluted) in the 2012 third quarter. Sales and other operating revenues in the third quarter 2013 were $57 billion, compared to $56 billion in the year-ago period.

In the report, Chairman and CEO John Watson said:

Our third quarter earnings were down from a year ago, primarily reflecting lower margins for refined products in the current period. We continue to make good progress on our major capital projects. Construction continues, and important milestones are being reached, on our Gorgon and Wheatstone LNG projects in Australia. Important interim construction goals have been recently reached for our Jack/St. Malo and Big Foot deepwater projects in the Gulf of Mexico, in preparation for their project start-ups scheduled for late 2014. We are also moving forward on the development of our liquids-rich unconventional properties in the United States.

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


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Chart: finviz.com

Helmerich & Payne Inc. (HP)

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

See my article from November 15, 2013.


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Chart: finviz.com

UnitedHealth Group Incorporated (UNH)

UnitedHealth Group Incorporated operates as a diversified health and well-being company in the United States.

See my article from November 21, 2013.


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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.

See my article from November 15, 2013.


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Chart: finviz.com

The Chubb Corporation (CB)

The Chubb Corporation, through its subsidiaries, provides property and casualty insurance to businesses and individuals.

The Chubb Corporation has a low debt (total debt to equity is only 0.21) and it has a very low trailing P/E of 13.29 and a very low forward P/E of 12.67. The PEG ratio is at 1.26, and the average annual earnings growth estimates for the next five years is quite high at 10.53%. The forward annual dividend yield is at 1.84%, and the payout ratio is only 24%. The annual rate of dividend growth over the past three years was at 5.80% and over the past five years was at 6.21%.

The CB stock price is 0.73% above its 20-day simple moving average, 3.40% above its 50-day simple moving average and 9.16% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

On October 24, The Chubb Corporation reported its third-quarter financial results, which beat EPS expectations by $0.19 and beat on revenues. The company reported that net income in the third quarter of 2013 was $541 million compared to $533 million in the third quarter of 2012. Net income per share increased 6% to $2.10 from $1.98.

In the report, John D. Finnegan, Chairman, President and Chief Executive Officer said:

Chubb had an outstanding third quarter. We produced operating income per share of $2.06, the second-highest of any quarter in our history. Our combined ratio was an excellent 85.7%, reflecting the impact of higher rates and strong underwriting performance in all our business units as well as relatively low catastrophe losses. During the quarter, the market tone in the U.S. remained firm in both our standard commercial and specialty lines business units, where we achieved high-single-digit renewal rate increases and higher retention levels.

The Chubb Corporation has cheap valuation metrics and good earnings growth prospects, and considering its recent quarter good financial results, and the fact that the stock is in an uptrend, CB stock can move higher. Furthermore, the solid growing dividend represents an income.

Risks to the expected capital gain and to the high dividend payment include; a downturn in the U.S. economy and major catastrophes losses.


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Chart: finviz.com

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