This year has been favorable for American stocks; the return of the S&P 500 index year-to-date (including dividends) is at 29.13%, while the return of the European EURO STOXX 50 Price EUR index is at 17.80%, and the return of the Asian S&P Asia 50 CME is only 4.11%.
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: Lynch" in this article. The ranking system is based on investing principles of the well-known investor Peter Lynch.
The "All-Stars: Lynch" ranking system is quite complex, and it is taking into account many factors like; trailing P/E, relative P/E, PEG ratio, institutional ownership, liabilities, sales growth and EPS growth, 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: Lynch" rank. This brings me to the conclusion that the ranking system is useful.
After running the "All-Stars: Lynch" 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 09, before the market open, I discovered the twenty-best dividend stocks, which are shown in the chart below. In this article, I describe the ten-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.
Murphy Oil Corporation (MUR)
Murphy Oil Corporation engages in the exploration and production of oil and gas properties worldwide.
See my article from November 03, 2013.
Exxon Mobil Corporation (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.
Leggett & Platt, Incorporated (LEG)
Leggett & Platt, Incorporated designs and produces various engineered components and products worldwide.
See my article from December 01, 2013.
CA Inc. (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.
Halliburton Company (HAL)
Halliburton Company provides a range of services and products for the exploration, development, and production of oil and natural gas to oil and gas companies worldwide.
Halliburton has a trailing P/E of 24.08 and a very low forward P/E of 11.93. The PEG ratio is low at 1.10, and the average annual earnings growth estimates for the next five years is very high at 21.97%. The forward annual dividend yield is at 1.19%, and the payout ratio is only 21.2%.
Analysts recommend the stock. Among the 31 analysts covering the stock, eleven rate it as a strong buy, sixteen rate it as a buy, three rate it as a hold and only one rates it as an underperform.
Halliburton has recorded strong revenue and EPS growth, during the last three years, as shown in the table below.
On October 21, Halliburton reported its third-quarter financial results, which beat EPS expectations by $0.01. The company reported that income from continuing operations for the third quarter of 2013 was $745 million, or $0.83 per diluted share, excluding restructuring charges of $38 million, after-tax, or $0.04 per diluted share. This compares to income from continuing operations for the second quarter of 2013 of $677 million, or $0.73 per diluted share, excluding a $35 million charge, after-tax, or $0.04 per diluted share, related to a charitable contribution to the National Fish and Wildlife Foundation. Halliburton's total revenue in the third quarter of 2013 was $7.5 billion, compared to $7.3 billion in the second quarter of 2013. Operating income was $1.1 billion in the third quarter of 2013, compared to operating income of $1.0 billion in the second quarter of 2013. The Latin America and Europe/Africa/CIS regions were the primary drivers of this sequential improvement.
Halliburton has recorded strong revenue and EPS growth, and considering its cheap valuation metrics, its strong earnings growth prospects, HAL stock can move higher. Furthermore, the solid 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.
Chevron Corporation (CVX)
Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide.
See my article from December 04, 2013.
Newmont Mining Corporation (NEM)
Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties.
Newmont Mining has a very low forward P/E of 13.41. The price to book value is very low at 0.99, and the price-to-sales ratio is at 1.33. The forward annual dividend yield is quite high at 3.48%.
Newmont Mining has recorded revenue and EPS and growth, during the last three years and the last five years, as shown in the table below.
On October 31, Newmont Mining reported its third-quarter financial results. EPS came in at $0.46 a $0.14 better than analyst expectations.
- Consolidated spending down $700 million year to date, or 13% compared to the first nine months of 2012;
- All-in sustaining costs of $993 per ounce, down 16% from the prior year quarter;
- Gold and copper costs applicable to sales of $649 per ounce and $2.63 per pound, down 6% and up 11%, respectively, from the prior year quarter;
- Attributable gold and copper production of 1.284 million ounces and 34 million pounds, up 4% and down 3%, respectively, from the prior year quarter; attributable gold and copper sales of 1.261 million ounces and 35 million pounds, up 4% and down 5%, respectively, from the prior year quarter;
- Revenue of $2.0 billion, a decrease of 20% from the prior year quarter;
- Cash flow from continuing operations of $443 million, a decrease of 23% from the prior year quarter;
- Average realized gold and copper prices of $1,322 per ounce and $3.10 per pound, down 20% and 13%, respectively, from the prior year quarter;
- Sold investment in Canadian Oil Sands Limited for $587 million resulting in a pretax gain of $280 million; and
- Fourth quarter gold price-linked dividend of $0.20 per share6 based upon the average London P.M. Gold fix of $1,326 per ounce for the third quarter.
Although Newmont Mining Corporation has decreased its dividend payments in the last quarters, its forward annual dividend yield is still high at 3.48%, and considering the fact that NEM stock is trading below book value, NEM stock price should recover together with the price of gold.
Helmerich & Payne Inc. (HP)
Helmerich & Payne, Inc. engages in the contract drilling of oil and gas wells.
See my article from November 15, 2013.
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.
(click to enlarge)
CF Industries Holdings, Inc. (CF)
CF Industries Holdings, Inc. manufactures and distributes nitrogen and phosphate fertilizer products worldwide. It operates in two segments, Nitrogen and Phosphate.
CF Industries has a very low trailing P/E of 8.86 and a very low forward P/E of 11.59. The PEG ratio is at 1.81, and the average annual earnings growth estimates for the next five years is at 4.90%. The price to free cash flow is at 15.56, and the current ratio is very high at 3.40. The forward annual dividend yield is at 1.72%, and the payout ratio is only 6%. The annual rate of dividend growth over the past three years was very high at 58.51% and over the past five years was also very high at 37.95%.
The CF stock price is 6.90% above its 20-day simple moving average, 9.03% above its 50-day simple moving average and 19.40% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.
CF Industries 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 CF Industries' stock valuation, 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.
CF Industries returns value to its shareholders by price appreciation and by increasing dividend payments, as shown in the charts below.
On November 04, CF Industries reported its third-quarter financial results, which beat EPS expectations by $0.05 and missed on revenues.
Third Quarter Highlights
- Net earnings attributable to common stockholders of $234.1 million, or $4.07 per diluted share, compared to earnings of $403.3 million, or $6.35 per diluted share, in the third quarter of 2012.
- Earnings before interest, taxes, depreciation and amortization (EBITDA) of $477.7 million compared to $729.1 million in the third quarter of 2012.
- Increased quarterly dividend 150% to $1.00 per share.
- Company announced a set of strategic agreements with the Mosaic Company, including an agreement to sell the phosphate business for $1.4 billion and two long-term ammonia supply agreements.
- Attractive crop economics, strong product demand and CF Industries' North American cost advantage continue to support the company's long-term earnings prospects.
CF Industries has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, its solid earnings growth prospects, and the fact that the stock is in an uptrend, CF stock can move higher. Furthermore, the solid growing 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 a decline in the price of agriculture products.