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Many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure.

I have searched for profitable companies that pay rich dividends with a low payout ratio and that have a very low price to free cash flow. Those stocks would have to also show a 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:

  1. The stock does not trade over-the-counter [OTC].
  2. Price is greater than 1.00.
  3. Market cap is greater than $100 million.
  4. Dividend yield is greater than 2%.
  5. The payout ratio is less than 100%.
  6. Total debt to equity is less than 0.50.
  7. Trailing price to free cash flow is less than 5.00.

After running this screen on December 14, 2013, only seven stocks came out, as shown in the table below. In my opinion, these stocks can reward an investor with significant capital gain along with a nice income. 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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Provident Financial Holdings, Inc. (PROV)

Provident Financial Holdings, Inc. operates as the holding company for Provident Savings Bank, F.S.B. that provides community banking and mortgage banking services to consumers and small to mid-sized businesses in the Inland Empire region of Southern California.

Provident Financial Holdings has no debt at all, and it has a very low trailing P/E of 8.59 and a forward P/E of 19.71. The price-to-cash ratio is very low at 0.89, and the price to book value is also very low at 0.97. The price to free cash flow for the trailing 12 months is very low at 1.16. The forward annual dividend yield is at 2.71%, and the payout ratio is only 16.40%.

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

On October 29, Provident Financial Holdings reported its first-quarter fiscal 2014 financial results. For the quarter ended September 30, 2013, the Company reported net income of $1.51 million, or $0.14 per diluted share (on 10.53 million average shares outstanding), compared to net income of $8.73 million, or $0.80 per diluted share (on 10.97 million average shares outstanding), in the comparable period a year ago. The decrease in net income for the first quarter of fiscal 2014 was primarily attributable to a $13.85 million decrease in the gain on sale of loans, partly offset by a $2.74 million decrease in salaries and employee benefits expense, a $1.48 million improvement in the provision for loan losses, and a decrease of $3.47 million in the provision for income taxes, compared to the same period one year ago.

In the report, Craig G. Blunden, Chairman and Chief Executive Officer of the Company said:

I am encouraged by our preferred loan origination volume this quarter which is the highest quarterly volume since December 2007. I am increasingly confident that general economic conditions have improved by such a degree that we can take advantage of expanded lending opportunities that meet our investment and credit criteria and increase our preferred loan portfolio. Therefore, we will be allocating more capital to our community banking business and increase our focus on growing net interest income as non-interest income returns to more normalized levels. Of course, this will take some time so we will continue to prudently manage capital levels while maintaining our share repurchases and cash dividends to shareholders.

Provident Financial Holdings has recorded strong revenue, EPS and dividend growth, and it is trading below book value. Although the company's last report disappointed investors and the PROV stock fell 15% since reporting, in my opinion, PROV stock can move higher. Furthermore, the rich dividend represents a nice income.

PROV Dividend Chart

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Chart: finviz.com

Calamos Asset Management Inc. (CLMS)

Calamos Asset Management Inc. is a publicly owned investment manager.

Calamos Asset Management has a low debt (total debt to equity is only 0.46), and it has a trailing P/E of 18.22 and a forward P/E of 19.98. The price-to-sales ratio is very low at 0.77, and the price to book value is low at 1.08. The current ratio is very high at 6.60, and the-price-to-cash ratio is extremely low at 0.40. The price to free cash flow for the trailing 12 months is very low at 2.44, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is very high at 4.57%, and the payout ratio is at 79%.

The CLMS stock price is 2.14% above its 20-day simple moving average, 7.77% above its 50-day simple moving average and 4.88% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Calamos Asset Management has recorded strong EPS and dividend growth and moderate revenue growth, during the last three years, as shown in the table below.

On October 22, Calamos Asset Management reported its third-quarter financial results, which beat EPS expectations by $0.07 and was in-line on revenues.

Third-Quarter 2013 Highlights

  • Non-GAAP diluted earnings per share was $0.20 for the third quarter compared to $0.22 in the previous quarter. Non-GAAP net income attributable to Calamos Asset Management, Inc. was $4.1 million for the quarter compared to $4.5 million last quarter. GAAP diluted earnings per share was $0.13 for the third quarter compared to $0.09 per share in the previous quarter. Net income attributable to CAM was $2.7 million for the quarter compared to $1.8 million last quarter.
  • Our revenues for the current quarter were $65.0 million compared to $66.7 million in the previous quarter. Operating margin was 23.7% for the third quarter and 27.6% in the previous quarter.
  • Total Assets were $27.5 billion at September 30, 2013 compared to $26.6 billion at the end of last quarter. Net outflows were $1.0 billion for the quarter compared to net outflows of $2.3 billion in the previous quarter.
  • The Board of Directors of CAM declared a regular quarterly dividend of 12.5 cents per share payable on November 19, 2013 to shareholders of record on November 4, 2013.
  • Calamos Investments LLC repurchased 904,350 shares of CAM's common stock since the share repurchase program was announced in the first quarter of 2013, for a total cost of $9.7 million.

Calamos Asset Management has compelling valuation metrics and good earnings growth prospects, and considering its latest quarter strong results, CLMS stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

CLMS Dividend Chart

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Chart: finviz.com

Universal Insurance Holdings Inc. (UVE)

Universal Insurance Holdings, Inc. operates as a property and casualty insurance company performing various aspects of insurance underwriting, distribution and claims.

Universal Insurance Holdings has a low debt (total debt to equity is only 0.36), and it has a very low trailing P/E of 9.61. The price to free cash flow for the trailing 12 months is very low at 2.49, and the price-to-cash ratio is also very low at 2.94. The forward annual dividend yield is at 2.66%, and the payout ratio is only 33.6%.

The UVE stock price is 10.62% above its 20-day simple moving average, 36.48% above its 50-day simple moving average and 67.73% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

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

On November 04, Universal Insurance reported its third-quarter financial results. The company reported net income of $14.4 million, or $0.40 per diluted share, for the third quarter of 2013, compared to net income of $8.3 million, or $0.20 per diluted share, for the same period in 2012.

Third-Quarter 2013 Highlights

  • Best third-quarter net income and earnings per share [EPS] in Company history.
  • Net income and EPS grew 75 percent and 100 percent, respectively, compared to Q3 2012.
  • Net earned premiums grew nearly 16 percent versus Q3 2012.
  • Losses and loss adjustment expenses declined by nearly 22 percent versus Q3 2012.
  • Repurchased 591,333 shares of common stock during Q3 2013 at a discount to then-current market price.

Universal Insurance Holdings has recorded good revenue growth, and considering its compelling valuation metrics, the fact that the stock is in an uptrend, and the fact that the company is repurchasing its own shares, UVE stock can move higher. Furthermore, the rich dividend represents a nice income.

UVE Dividend Chart

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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.

Aflac Incorporated has a low debt (total debt to equity is only 0.34), and it has a very low trailing P/E of 10.09 and a very low forward P/E of 10.34. The price to free cash flow for the trailing 12 months is very low at 3.05, and the average annual earnings growth estimates for the next five years is at 1.25%. The forward annual dividend yield is at 2.24%, and the payout ratio is only 21.3%. The annual rate of dividend growth over the past three years was at 7.70% and over the past five years was at 7.83%.

The AFL stock price is 1.05% above its 50-day simple moving average and 13.40% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

Aflac 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.

Aflac's return on capital has been much better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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Most of Aflac's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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On October 29, Aflac reported its third-quarter financial results, which was in-line on EPS and in-line on revenues. Reflecting the weaker yen/dollar exchange rate, total revenues fell 14.0% to $5.9 billion during the third quarter of 2013, compared with $6.8 billion in the third quarter of 2012. Net earnings were $702 million, or $1.50 per diluted share, compared with $1.0 billion, or $2.16 per share, a year ago.

Aflac has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics and its solid earnings growth prospects, AFL's stock can move higher. Furthermore, the rich growing dividend represents a nice income.

Since a significant portion of Aflac's business is in Japan, where the functional currency is the yen, the impact from translating yen into dollars might reduce Aflac's operating earnings, in case of decrease in the exchange rate of the yen.

AFL Dividend Chart

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Chart: finviz.com

Manulife Financial Corporation (MFC)

Manulife Financial Corporation, together with its subsidiaries, provides financial protection and wealth management products and services to individual, corporate, and business customers primarily in Asia, Canada, and the United States.

Manulife Financial has a very low trailing P/E of 13.23 and a very low forward P/E of 12.31. The price to free cash flow for the trailing 12 months is very low at 3.43, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is at 2.70%, and the payout ratio is only 34.4%.

The MFC stock price is 2.65% above its 50-day simple moving average and 13.56% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

Analysts recommend the stock. Among the five analysts covering the stock, one rates it as a strong buy and four rate it as a buy.

On November 07, Manulife Financial reported its third-quarter financial results. EPS came in at $0.36, a $0.02 better than analyst expectations.

Highlights for the quarter ended September 30, 2013:

  • Reported net income attributed to shareholders of $1,034 million.
  • Generated core earnings1 of $704 million, up $95 million from 2Q13.
  • Achieved strong wealth sales of $11.3 billion, up 34 per cent4 from 3Q12.
  • Reported a four per cent increase in insurance sales over 3Q12.
  • Generated strong investment-related experience of $543 million.
  • Increased MLI's MCCSR ratio by seven points over 2Q13 to 229 per cent.
  • Generated new business embedded value1 of $278 million, up 56 per cent from 3Q12.
  • Achieved record funds under management of $575 billion.
  • Reported a $252 million net charge related to our annual actuarial review.
  • Reported net income attributed to shareholders in accordance with U.S. GAAP1 of $148 million.

Manulife Financial has compelling valuation metrics and good earnings growth prospects. In my opinion, MFC stock can move higher. Furthermore, the rich dividend represents a nice income.

MFC Dividend Chart

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Chart: finviz.com

Northrim Bancorp Inc. (NRIM)

Northrim BanCorp, Inc. operates as the bank holding company for Northrim Bank that provides commercial banking products and services to businesses, professionals, and individuals primarily in Alaska.

Northrim BanCorp has a low debt (total debt to equity is only 0.13), and it has a very low trailing P/E of 13.04 and a very low forward P/E of 13.10. The price to free cash flow is very low at 4.63, and the price-to-cash ratio is also very low at 1.88. The forward annual dividend yield is at 2.69%, and the payout ratio is only 31.5%. The annual rate of dividend growth over the past three years was at 13.78%.

The NRIM stock price is 0.25% above its 20-day simple moving average, 2.47% above its 50-day simple moving average and 8.48% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

Northrim BanCorp has recorded EPS and dividend growth, during the last three years, as shown in the table below.

Most of Northrim BanCorp'S margin, return on capital and stock valuation parameters have been better than its industry median and its sector median, as shown in the tables below.

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On October 22, Northrim BanCorp reported its third-quarter financial results, which beat EPS expectations by $0.10. The company reported net profits of $3.5 million, or $0.53 per diluted share in the third quarter of 2013, unchanged from the preceding quarter and down from $4.1 million, or $0.62 per diluted share in the third quarter of 2012. An increase in portfolio loans led to an increase in net interest income which partially offset lower contributions from Northrim's mortgage affiliate in the third quarter and first nine months of 2013. In the first nine months of 2013, Northrim earned $9.6 million, or $1.46 per diluted share, compared to $9.8 million, or $1.49 per diluted share in the first nine months of 2012.

Northrim BanCorp has recorded EPS and dividend growth, and considering its cheap valuation metrics and the fact that the stock is in an uptrend, NRIM stock can move higher. Furthermore, the rich growing dividend represents a nice income.

NRIM Dividend Chart

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Chart: finviz.com

United Fire Group, Inc (UFCS)

United Fire Group, Inc., together with its subsidiaries, engages in writing property, casualty, and life insurance products; and selling fixed annuities in the United States.

United Fire Group has no debt at all, and it has a low trailing P/E of 14.89 and a very low forward P/E of 11.57. The price-to-cash ratio is very low at 0.89, and the price to book value is also very low at 0.94. The price to free cash flow for the trailing 12 months is very low at 4.97, and the average annual earnings growth estimates for the next five years is quite high at 10%. The price-to-sales ratio is very low at 0.82. The forward annual dividend yield is at 2.60%, and the payout ratio is only 35.5%.

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

Most of United Fire Group's stock valuation parameters have been better than its industry median, sector median and the S&P 500 median, as shown in the table below.

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On November 05, United Fire Group reported its third-quarter financial results. The company reported consolidated operating income of $0.42 per diluted share for the three-month period ended September 30, 2013 and $1.76 per diluted share for the nine-month period ended September 30, 2013 compared to operating income of $0.31 and $1.55 per diluted share for the same periods in 2012. In the report, Randy Ramlo, President and Chief Executive Officer stated:

I'm pleased to report yet another positive quarter. For the quarter, net written premium increased 13.6 percent due mostly to rate increases in our commercial lines of business; net premiums earned increased 10.0 percent due to "rate over rate" increases; total revenues are up 8.0 percent and our return on equity is up 15.4 percent compared to the same quarter in 2012. We continue to be on track to meet or exceed our 2013 expectations.

United Fire Group has recorded strong revenue, EPS and dividend growth, and considering its compelling valuation metrics, its good earnings growth prospects, and the fact that the stock is trading below book value, UFCS stock can move higher. Furthermore, the rich growing dividend represents a nice income.

UFCS Dividend Chart

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Chart: finviz.com

Source: 7 Good-Yielding Stocks With A Very Low Price To Free Cash Flow