I have searched for highly profitable stocks that pay rich dividends with a low payout ratio that have raised their payouts at a high rate and 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:
- The stock does not trade over-the-counter (OTC).
- Dividend yield is greater than 2%.
- The annual rate of dividend growth over the past five years is greater 5%.
- The payout ratio is less than 75%.
- The forward P/E is less than 15.
- The PEG ratio is less than 1.50.
- Total debt to equity is less than 0.50.
- The stock price is above the 20-day simple moving average (short-term uptrend).
- The stock price is above the 50-day simple moving average (mid-term uptrend).
- The stock price is above the 200-day simple moving average (long-term uptrend).
After running this screen on December 05, 2013, only six stocks came out, as shown in the charts below. In my opinion, these stocks can reward an investor a significant capital gain along with an 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.
Canadian Natural Resources Limited (NYSE:CNQ)
Canadian Natural Resources Limited engages in the exploration, development, production and marketing of crude oil, natural gas liquids, and natural gas.
See my article from November 20, 2013.
Exxon Mobil Corporation (NYSE:XOM)
Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products.
See my article from November 26, 2013.
Coach, Inc. (NYSE:COH)
Coach, Inc. designs and markets bags, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches, and fragrances for women and men in the United States and internationally.
Coach, Inc. has no debt at all, and it has a low trailing P/E of 15.64 and a low forward P/E of 14.69. The PEG ratio is at 1.59, and the average annual earnings growth estimates for the next five years is quite high at 9.85%. The forward annual dividend yield is at 2.39%, and the payout ratio is only 34.9%. The annual rate of dividend growth over the past three years was very high at 30.99% and over the past five years was also very high at 42.45%.
The COH stock price is 3.94% above its 20-day simple moving average, 5.75% above its 50-day simple moving average and 4.79% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.
Coach, Inc. 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.
Coach's margins 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.
On October 22, Coach, Inc. reported its first-quarter fiscal 2014 financial results, which beat EPS expectations by $0.01. The company reported sales of $1.15 billion for its first fiscal quarter ended September 28, 2013, compared with $1.16 billion reported in the same period of the prior year, a decrease of 1%. On a constant currency basis sales rose 2% for the quarter. Net income for the quarter totaled $218 million, with earnings per diluted share of $0.77. This compared to net income of $221 million and earnings per share of $0.77 in the prior year's first quarter. In the report, Lew Frankfort, Chairman and Chief Executive Officer of Coach, Inc., said:
During the first quarter we achieved slight overall sales gains in constant currency, benefiting from our geographic diversity. We continued to drive excellent growth in emerging markets and Europe as well as in the Men's business and developing lifestyle categories, such as footwear. Importantly, we moved forward with our transformation initiatives across all consumer touch points - product, store environments and marketing - focused on addressing the competitive handbag and accessories category in North America.
Coach, Inc. has recorded strong revenue, EPS and dividend growth, and considering its cheap valuation metrics and its good earnings growth prospects, and the fact that the stock is in an uptrend, COH stock can move higher. Furthermore, the rich dividend represents a nice income.
Since a significant portion of Coach, Inc. business is in Japan, where the functional currency is the yen, the impact from translating yen into dollars might reduce its operating earnings, in case of decrease in the exchange rate of the yen.
CA Inc. (NASDAQ:CA)
CA, together with its subsidiaries, provides enterprise information technology management software and solutions that help customers manage and secure IT environments in the United States and internationally.
See my article from November 09, 2013.
Janus Capital Group, Inc. (NYSE:JNS)
Janus Capital Group, Inc. is a publicly owned asset management holding company with approximately $167.7 billion in assets under management.
See my article from November 07, 2013.
Maiden Holdings, Ltd. (NASDAQ:MHLD)
Maiden Holdings, Ltd., through its subsidiaries, provides reinsurance solutions to regional and specialty insurers primarily in the United States and Europe.
Maiden Holdings has a low debt (total debt to equity is 0.41) and it has a trailing P/E of 16.08 and an extremely low forward P/E of 8.51. The PEG ratio is at 1.34, and the average annual earnings growth estimates for the next five years is quite high at 12%. The price-to sales ratio is very low at 0.42, and the price to free cash flow is exceptionally low at 2.30. The price to book value is also low at 1.08. The forward annual dividend yield is quite high at 3.60%, and the payout ratio is only 31.90%. The annual rate of dividend growth over the past three years was high at 11.48% and over the past five years was also high at 12.50%.
The MHLD stock price is 0.91% above its 20-day simple moving average, 3.67% above its 50-day simple moving average and 8.65% 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 seven analysts covering the stock, two rate it as a strong buy, three rate it as a buy, and two rate it as a hold.
Most of Maiden Holdings' stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.
On November 06, Maiden Holdings reported its third-quarter financial results, which beat EPS expectations by $0.01.
Third-Quarter 2013 Highlights
- Annualized operating return on common equity(1) of 11.1% compared with 9.1% in the third quarter of 2012;
- Net operating earnings (1) of $22.7 million, or $0.31 per diluted common share compared with $19.5 million, or $0.27 per diluted common share in the third quarter of 2012;
- Net premiums written increased 1.7% to $463.4 million versus the same period last year; excluding the National General Quota Share, which terminated August 1, the underlying growth rate was 17.1%;
- Combined ratio(6) of 97.6% compared to 98.2% in the third quarter of 2012;
- Net investment income rose to $23.3 million or an increase of 7.9% compared to the third quarter of 2012;
- Book value per common share(4) of $11.34, up 2.0% versus June 30, 2013; and
- At the beginning of October 2013, Maiden issued $165 million of mandatory convertible preference shares to support the continuing growth of its reinsurance business.
Maiden Holdings has compelling valuation metrics and strong earnings growth prospects, and considering the fact that the stock is in an uptrend, MHLD stock can move higher. Furthermore, the rich growing dividend represents a nice income.
Disclosure: I am long CA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.