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If you are looking for sources of dividend income, keep in mind that dividends are not a guarantee of future payments. Therefore, company analysis is important to determine whether the current dividend yield will stick around.

One way to analyze company profitability is by using DuPont analysis of return on equity (ROE). ROE can be broken up into three components such that changes in ROE can be attributed to those components.

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with,

• Decreasing leverage, i.e. decreasing Asset/Equity ratio
• Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage.

We ran a DuPont analysis on companies with dividend yields above 3% and sustainable payout ratios below 35%. The final screen produced 6 stocks, listed below.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.


We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.



Do you think these dividend stocks will maintain their payouts to shareholders? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.

1. STMicroelectronics NV (NYSE:STM): Semiconductor Industry. Market cap of $9.39B. Current dividend yield at 3.88%. Payout ratio at 23.36%. MRQ Net Profit Margin increased from 2.45% to 6.71%, MRQ Sales/Assets increased from 0.18 to 0.19, while MRQ Assets/Equity decreased from 1.9 to 1.71. Might be undervalued at current levels, with a PEG ratio at 0.71, and P/FCF ratio at 11.02. The stock appears to have good liquidity to back it up its dividend-- current ratio at 2.12, and quick ratio at 1.58. The stock has had a couple of great days, gaining 5.74% over the last week.

2. Braskem S.A. (NYSE:BAK): Specialty Chemicals Industry. Market cap of $11.16B. Current dividend yield at 3.69%. Payout ratio at 30.53%. MRQ Net Profit Margin increased from 0.49% to 4.17%, MRQ Sales/Assets increased from 0.21 to 0.21, while MRQ Assets/Equity decreased from 4.93 to 3.23. After a solid performance over the last year, BAK has pulled back during recent sessions. The stock is 6.79% below its SMA20 and 7.47% below its SMA50, but remains 10.27% above its SMA200. The stock has performed poorly over the last month, losing 13.44%.

3. Vicor Corp. (NASDAQ:VICR):
Diversified Electronics Industry. Market cap of $692.29M. Current dividend yield at 3.62%. Payout ratio at 34.58%. MRQ Net Profit Margin increased from 3.77% to 5.71%, MRQ Sales/Assets increased from 0.28 to 0.33, while MRQ Assets/Equity decreased from 1.19 to 1.18. The stock is a short squeeze candidate, with a short float at 7.64% (equivalent to 17.14 days of average volume). The stock has gained 25.82% over the last year.

4. Einstein Noah Restaurant Group, Inc. (NASDAQ:BAGL):
Restaurants Industry. Market cap of $246.18M. Current dividend yield at 3.39%. Payout ratio at 34.98%. MRQ Net Profit Margin increased from 0.62% to 1.16%, MRQ Sales/Assets increased from 0.48 to 0.5, while MRQ Assets/Equity decreased from 2.85 to 2.58. This is a risky stock that is significantly more volatile than the overall market (beta = 2.29). The stock has gained 38.11% over the last year.

5. Selective Insurance Group Inc. (NASDAQ:SIGI):
Property & Casualty Insurance Industry. Market cap of $910.24M. Current dividend yield at 3.09%. Payout ratio at 33.77%. MRQ Net Profit Margin increased from 1.48% to 5.34%, MRQ Sales/Assets increased from 0.07 to 0.08, while MRQ Assets/Equity decreased from 5.24 to 4.87. The stock has gained 18.33% over the last year.

6. Marathon Oil Corporation (NYSE:MRO):
Oil & Gas Refining & Marketing Industry. Market cap of $23.57B. Current dividend yield at 3.02%. Payout ratio at 22.86%. MRQ Net Profit Margin increased from 2.74% to 4.73%, MRQ Sales/Assets increased from 0.35 to 0.41, while MRQ Assets/Equity decreased from 2.15 to 2.1. Might be undervalued at current levels, with a PEG ratio at 0.81, and P/FCF ratio at 9.7. The stock has had a couple of great days, gaining 5.62% over the last week.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 6 High Dividend Yield Stocks With Strong Sources of Profitability