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I tried to create a good-yielding stock portfolio that can outperform the market by a big margin. The following screen shows such a promise. I have searched for profitable companies that pay rich dividends with a low payout ratio which their Last dividend declared is greater than the last dividend paid. Those stocks also would have to show a very low debt.

The screen's method that I use to build this portfolio requires all stocks to comply with all following demands:

  1. The stock does not trade over-the-counter (OTC).
  2. Market cap is greater than $50 million.
  3. Price is greater than 1.00.
  4. Average daily total amount traded for the past 10 days is greater than $300,000.
  5. Dividend yield is greater than 3.5%.
  6. The payout ratio is less than 100%.
  7. Last dividend declared is greater than the last dividend paid.
  8. Total debt to equity is less than 1.00.
  9. The twenty stocks with the lowest payout ratio among all the stocks that complied with the first eight demands.

I used the Portfolio123's powerful screener to perform the search and to run back-tests. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance, Portfolio123 and finviz.com.

After running this screen on December 17, 2013, before the market open, I discovered the following twenty stocks:


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The table below presents the dividend yield, the payout ratio, the trailing P/E and the total debt to equity for the twenty companies.


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Ensco plc (NYSE:ESV)

Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide.


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Source: company presentation

Ensco has a low debt (total debt to equity is only 0.38), and it has a very low trailing P/E of 10.53 and a very low forward P/E of 8.15. The PEG ratio is very low at 0.71, and the average annual earnings growth estimates for the next five years is quite high at 14.82%. The forward annual dividend yield is high at 4.90%, and the payout ratio is only 33.7%. The annual rate of dividend growth over the past five years was very high at 79.7%.

The ESV stock price is 1.88% above its 50-day simple moving average and 3.12% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

Ensco has recorded strong revenue and dividend growth during the last year, the last three years and the last five years, as shown in the charts below.


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Source: company presentation

The tables below emphasize the Ensco's superior margins, return on capital and stock valuation parameters over the industry median, the sector median and the S&P 500 median.


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Source: Portfolio123

On October 23, Ensco reported its third-quarter results, which beat EPS expectations by $0.06 and missed on revenues. Earnings increased $35 million to a record $379 million. Revenues grew 13% to a record $1.266 billion in third quarter 2013 from $1.124 billion a year ago. The average day rate for the fleet increased 13% to $225,000, mostly due to adding ENSCO 8506 and ENSCO DS-6 to the active fleet, as well as higher day rates for several floaters and an increase in the jackup segment average day rate.

Ensco has recorded strong revenue and dividend growth, and considering its cheap valuation metrics and its strong earnings growth prospects, ESV stock can move higher. Furthermore, the rich 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 decline in the price of oil and natural gas.

ESV Dividend Chart


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Chart: finviz.com

Universal Corporation (NYSE:UVV)

Universal Corporation operates as a leaf tobacco merchant and processor worldwide.


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Source: 2013 Investor Presentation

Universal Corporation has a very low trailing P/E of 10.24 and a very low forward P/E of 10.38. The price-to-sales ratio is very low at 0.50, and the price to book value is also low at 1.09. The forward annual dividend yield is quite high at 3.89%, and the payout ratio is only 42.1%.

The UVV stock price is 2.41% above its 20-day simple moving average and 1.57% above its 50-day simple moving average. That indicates a short-term and a mid-term uptrend.

Universal Corporation has recorded mild revenue, EPS and dividend growth during the last five years, as shown in the chart below.

On November 05, Universal Corporation reported its second-quarter fiscal 2014 financial results.

Highlights

Second Quarter

  • Diluted earnings per share of $0.90.
  • Segment operating income of $49 million.
  • Revenues decreased 4% to $651 million.

Six Months

  • Diluted earnings per share of $2.95, up 18%.
  • Segment operating income of $56 million, down 55%.
  • Dividend increase announced for the 43rd consecutive year.

Universal Corporation has compelling valuation metrics, and considering the fact that the stock is in an uptrend, and is trading near book value, UVV stock can move higher. Furthermore, the rich growing dividend represents a nice income.

UVV Dividend Chart


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Chart: finviz.com

PetroLogistics LP (NYSE:PDH)

PetroLogistics LP owns and operates propane dehydrogenation facility that processes propane into propylene in North America.

PetroLogistics LP has a very low trailing P/E of 8.43 and a very low forward P/E of 8.05. The forward annual dividend yield is very high at 16.68%, and the payout ratio is at 44.5%.

On October 23, PetroLogistics reported its third-quarter financial results. The company reported that total sales in the third quarter were $198.4 million and net income was $55.1 million. The Partnership's reported results include certain items that impact comparability of financial results between reporting periods. Excluding the impact of these items, the Partnership's Adjusted EBITDA was $73.9 million and adjusted net income was $57.3 million. Cash available for distribution was $62.3 million for the third quarter of 2013.

In the report, Nathan Ticatch, President and Chief Executive Officer explained:

In the third quarter, the Partnership's results benefited from stable operating performance and healthy propane-to-propylene spreads. The first planned triennial turnaround commenced on September 28th and is progressing well. Included in the turnaround scope are numerous capital and maintenance projects designed to improve plant reliability. Accordingly, upon completion of the turnaround we look forward to continued improvement in plant performance.

Since PetroLogistics LP has cheap valuation metrics, PDH stock can move higher. Furthermore, the very rich dividend represents a gratifying 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 propylene.

PDH Dividend Chart


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Chart: finviz.com

Sun Life Financial Inc. (NYSE:SLF)

Sun Life Financial Inc., an international financial services organization, provides a range of protection and wealth accumulation products and services to individuals and corporate customers.

Sun Life Financial has a low debt (total debt to equity is only 0.37) and it has a low trailing P/E of 14.70 and a very low forward P/E of 12.93. The PEG ratio is at 1.56, and the price-to-cash ratio is low at 6.50. The price to book value is at 1.54, and the average annual earnings growth estimates for the next five years is quite high at 10%. The forward annual dividend yield is high at 4.05%, and the payout ratio is only 49.2%.

The SLF stock price is 0.96% above its 50-day simple moving average and 12.48% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

On November 06, Sun Life Financial reported its third-quarter financial results.

Third-Quarter 2013 Financial Highlights

  • Operating net income) from Continuing Operations of $422 million, compared to $459 million in the third quarter of 2012. Reported net income from Continuing Operations of $324 million, compared to $441 million in the same period last year. Results reflect continued business growth and favourable interest rate and equity market experience
  • Operating earnings per share from Continuing Operations of $0.69, compared to $0.77 in the third quarter of 2012. Reported EPS from Continuing Operations of $0.53, compared to $0.74 in the same period last year
  • We completed the sale of our U.S. Annuity Business during the quarter
  • Operating return on equity of 12.6%, compared to 11.8% in the third quarter of 2012. Reported ROE of 14.2% (reflecting the loss on the sale of our U.S. Annuity Business), compared to 11.3% in the same period last year
  • Quarterly dividend of $0.36 per share
  • MCCSR ratio for Sun Life Assurance of 216%

Sun Life Financial has compelling valuation metrics, and good earnings growth prospects, and considering the fact that the stock is in an uptrend, SLF stock still has room to go up. Furthermore, the rich dividend represents a gratifying income.

SLF Dividend Chart


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Chart: finviz.com

Gladstone Investment Corporation (NASDAQ:GAIN)

Gladstone Investment Corporation is a business development company specializing in buyouts recapitalizations, and changes in control investments.


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Source: company presentation

Gladstone Investment has a low debt (total debt to equity is 0.42), and it has a very low trailing P/E of 13.82 and a very low forward P/E of 11.14. The price to book value is very low at 0.89, and the average annual earnings growth estimates for the next five years is at 7%. The forward annual dividend yield is very high at 9.30%, and the payout ratio is at 54.6%

The GAIN stock price is 4.05% above its 20-day simple moving average, 7.89% above its 50-day simple moving average and 11.15% above its 200-day simple moving average. That indicates a short-term, a mid-term and a long-term uptrend.

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


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Source: company presentation

Most of Gladstone's Investment's growth rates, margins and stock valuation 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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On November 06, Gladstone Investment reported its second-quarter financial results, which beat EPS expectations by $0.06. Net Investment Income for the quarters ended September 30, and June 30, 2013, was $6.2 million, or $0.24 per share, and $4.0 million, or $0.15 per share, respectively, an increase of 54.4%.

Gladstone Investment has recorded strong revenue and EPS growth, and considering its compelling valuation metrics, its good earnings growth prospects, and the fact that the stock is in an uptrend, GAIN stock can move higher. Furthermore, the very rich dividend represents a gratifying income.

GAIN Dividend Chart


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Chart: finviz.com

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 14.42 and an extremely low forward P/E of 7.73. The PEG ratio is at 1.22, 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 0.38, and the price to free cash flow is exceptionally low at 2.09. The price to book value is very low at 0.98. The forward annual dividend yield is quite high at 3.96%, and the payout ratio is at 54.9%. The annual rate of dividend growth over the past five years was very high at 12.50%.

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.

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, and is trading below book MHLD stock can move higher. Furthermore, the rich growing dividend represents a nice income.

MHLD Dividend Chart


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Chart: finviz.com

Arrow Financial Corporation (NASDAQ:AROW)

Arrow Financial Corporation operates as the holding company for Glens Falls National Bank and Trust Company, and Saratoga National Bank and Trust Company that provide various commercial and consumer banking, and financial products.

Arrow Financial has a very low debt (total debt to equity is only 0.31), and it has a low trailing P/E of 14.96 and a low forward P/E of 14.18. The price-to-cash ratio is low at 4.26, and the average annual earnings growth estimates for the next five years is at 6.90%. The forward annual dividend yield is quite high at 3.81%, and the payout ratio is 55.8%.

The AROW stock price is 0.57% above its 50-day simple moving average and 6.22% above its 200-day simple moving average. That indicates a mid-term and a long-term uptrend.

On October 21, Arrow Financial Resources reported its third-quarter results, which beat EPS expectations by $0.03. Net income for the third quarter of 2013 was $5.6 million, a decrease of $125 thousand, or 2.2%, from net income of $5.7 million for the third quarter of 2012. Historical share and per share amounts have been restated to reflect our 2% stock dividend distributed in September 2013. Diluted earnings per share (NYSEARCA:EPS) for the quarter was $0.46, a 2.1% decrease from the comparable 2012 quarter, when diluted EPS was $0.47. Return on average assets for the third quarter of 2013 was 1.06%, and return on average equity for the 2013 third quarter was 12.42%.

Arrow Financial has cheap valuation metrics, and good earnings growth prospects, and considering the fact that the stock is in an uptrend, AROW stock can move higher. Furthermore, the rich growing dividend represents a nice income.

AROW Dividend Chart
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Chart: finviz.com

Back-testing

In order to find out how such a screening formula would have performed during the last year, last 5 years and last 15 years, I ran the back-tests, which are available by the Portfolio123's screener.

The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.

Since some readers could not get the same results that I got in some of my previous posts, I am giving, in the charts below, the Portfolio123 exact codes which I used for building this screen and the back-tests. The number of stocks left after each demand can also be seen in the chart. I am also giving a table which readers can use to copy and paste codes directly into the Portfolio123's screener.


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Universe(NOOTC)=TRUE

MktCap > 50

Close(0)> 1

AvgDailyTot(10)>=300000

Yield > 3.5

Between(PayRatioTTM,1,100)

DivLQ > DivPSQ

DbtTot2EqQ < 1

One year back-test


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Five years back-test


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Fifteen years back-test


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Summary

The dividend growers' screen has given much better returns during the last year, the last five years and the last fifteen years than the S&P 500 benchmark. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in all the three tests.

One-year return of the screen was high at 36.12%, while the return of the S&P 500 index during the same period was at 25.80%.

The difference between the dividend growers' screen to the benchmark was even more noticeable in the 15 years back-test. The 15-year average annual return of the screen was at 18.08%, while the average annual return of the S&P 500 index during the same period was only 2.50%. The maximum drawdown of the screen was at 57.25%, while that of the S&P 500 was at 57%.

Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.

Source: Dividend Growers Portfolio That Has Outperformed The Market