Finding a list of high yielding dividend paying stocks with strong and increasing fundamentals with deep intrinsic value is hard. High yields are often not sustainable. What criteria should we scan for when considering stocks that should be able to maintain or even increase yields over time?
Scanning for a List of Moderately High Dividends
I can hardly call this "high dividend paying stocks" since the average dispersion is just below 4%, hence the "moderately high" title. We are wanting to search and find stocks with strong fundamentals with room to boost future yields, instead of picking high yields with a scary downside.
We will scan for the following:
- Payout ratio under 50%
- Dividend Yield over 3%
- Positive EPS growth over past five years
- Positive EPS growth forecast for next five years
- Sales growth past five years positive
- Price to free cash flow less than 20
In dividend paying stocks, free cash flow is king. We want free cash flow to be worth more than 5% of the share price (or a price to free cash flow less than 20), which should give us enough to happily pay our dividends. We want to see some growth over time in revenue and earnings.
Also, with a low payout ratio, the company can increase dividends to maintain yields in bad times, or simply raise the yields altogether if they so choose. This gives us a margin of safety. (You might also be interested in these 10 Buy Rated Income Stocks With Increasing Dividends.)
The Dividend Paying Stock List
Interestingly, 16 of the 19 scanned stocks come from the U.S. They are the first 16 listed below:
- Southside Bancshares (NASDAQ:SBSI)
- Johnson & Johnson (NYSE:JNJ)
- Entergy (NYSE:ETR)
- Freeport-McMoRan (NYSE:FCX)
- CMS Energy (NYSE:CMS)
- Great Southern Bancorp (NASDAQ:GSBC)
- Tompkins Financial (NYSEMKT:TMP)
- Mattel (NASDAQ:MAT)
- H&R Block (NYSE:HRB)
- VF Corp. (NYSE:VFC)
- EMC Insurance (NASDAQ:EMCI)
- Merchants Bancshares (NASDAQ:MBVT)
- Premier Financial (NASDAQ:PFBI)
- PetMed Express (NASDAQ:PETS)
- QC Holdings (NASDAQ:QCCO)
- Comtech (NASDAQ:CMTL)
- Novartis (NYSE:NVS)
- China Mobile (NYSE:CHL)
- Garmin (NASDAQ:GRMN)
Reviewing Some Financial Ratios
- The lowest price to free cash flow stocks under 10 are FCX, GSBC, HRB, MBVT, PFBI, QCCO, CMTL, CHL and GRMN.
- Price to sales under 1 are CMS, EMCI, PFBI, QCCO and CMTL.
- However, stocks expecting double-digit downside EPS growth next year are SBSI, CMTL and GRMN.
- Stocks expecting 10% average annual EPS growth or higher for the next five years are HRB, VFC, PETS, QCCO and CMTL.
- High ROE above 20% are JNJ, FCX, MAT, HRB, PETS, QCCO, CHL and GRMN. Of course, each industry has a different average ratio that needs to be compared with.
- Companies with a long-term debt to equity ratio over one (which isn’t great) are ETR, CMS and HRB.
- The only companies that earn more than 4% yields on this list are ETR (4.53%), HRB (4.68%), MBVT (4.13%), PFBI (6.93%), QCCO (4.84%) and GRMN (4.91).These numbers are what Financial Visualizations reports but you should verify these numbers.
- Stocks with a price to book value of 1.1 or less are PFBI, EMCI, GSBC, QCCO and CMTL.
As I always say, do your own due diligence. Screening for such stocks is just a beginning and some value screening falls down by giving a static snapshot instead of a dynamic pattern over time. (You might also want to read how markets favor either growth or value stocks in different cycles, and see which is set to outperform right now.)
If you own these stocks or have some insight on their future, or if the screening data is amiss, please feel free to post about it. I hope this screening for low payout ratio companies has given you a start as to finding a moderately high yielding dividend paying stocks on this list to put in your income portfolio.