8 Dividend Stocks With Particularly Strong Balance Sheets

by: Dividend Monk

One of my primary ways for seeking out investments is finding companies with balance sheets stronger than their competitors. Financially healthy companies have the option to take advantage of all types of economies, and have resources available for all opportunities that come their way.

The most useful financial health metrics depend on the type of company. Financial companies should be treated differently from consumer products companies. Utilities and infrastructure companies that generate steady cash flows, but typically require considerable leverage due to their large asset necessities, should be given a bit of leeway due to the nature of the industry. For small caps, metrics focusing on available capital, like the quick ratio and current ratio, are helpful. Whereas in larger companies, these metrics tend to be less focused upon.

There are four key metrics that I consider most important for the majority of investments outside the financial industry when it comes to screening for good balance sheets. Together, these metrics can provide a fairly deep assessment of a company's financial position. And for an even more thorough analysis of the total financial situation, the metrics can be coupled with cash flow analysis, and research of the company's debt maturities and credit facilities.

A brief overview of these four metrics and why I use them follows, and then 8 companies with strong balance sheets are listed and discussed.

Total Debt/Equity

Total debt/equity is among the most important of assessments for financial health. It is calculated by taking the sum of short term debt and long term debt and dividing by the total amount of shareholder equity. The lower the number, the less leverage the company is using.

Current Ratio

The current ratio shows how much shorter-term cash availability the company has. It is calculated by dividing current assets by current liabilities. Larger companies can often dip below a current ratio of 1 without there being any problem, but liquidity is more of an issue to look at when investing in smaller companies.

Interest Coverage Ratio

The interest coverage ratio is a useful tool for showing the quality of the debt of the company. It's especially useful for companies with high levels of debt, to see if they can adequately support their leverage. It is calculated by dividing operating income by total interest payments over the same time period. The higher the number, the stronger the financial situation, all else being equal.


Goodwill is an accounting asset that is acquired when a company pays more for an acquisition than the underlying equity value of the target company. Sometimes, the goodwill that is listed is reasonable, while other times, goodwill can distort the debt/equity ratio considerably. When goodwill makes up a fairly small percentage of equity, investors may have more certainty in the financial health of the company.

Novartis (NYSE:NVS)

Novartis is a large international health care company. This Swiss business has a pharmaceutical segment, a vaccine and diagnostics segment, a generics segment, and a consumer health segment. The company has increased its dividend for 14 consecutive years (since its inception after a merger), and has a strong balance sheet. The revenue growth for this company is quite consistent, and the company has streamlined itself towards purely health care while at the same time growing at a remarkable pace.

  • Total Debt/Equity: 0.48
  • Current Ratio: 0.90
  • Interest Coverage Ratio: 15
  • Goodwill/Equity: 0.46
  • Dividend Yield: 3.80%

Becton, Dickinson and Co. (NYSE:BDX)

Becton Dickinson is oddly consistent at boosting revenue, having managed to consecutively raise company revenue every single year since at least the mid 1990's. BDX is a provider of durable medical goods, including diagnostic tools, needles, and various medical instruments. Like many on this list, BDX also has a great history of dividend growth. Although the company doesn't offer much in terms of dividend yield, it may have a lot to offer in terms of total return. BDX stock has performed quite well recently, resulting in an increased valuation and a decreased dividend yield. So, waiting to buy on dips might be prudent.

  • Total Debt/Equity: 0.53
  • Current Ratio: 3.07
  • Interest Coverage Ratio: 26
  • Goodwill/Equity: 0.17
  • Dividend Yield: 1.84%

Exxon Mobil Corporation (NYSE:XOM)

XOM is a consistent outperformer in the oil industry, and maintains a pristine balance sheet. The company has considerable investments in both oil and natural gas, and has enormous upstream, downstream, and chemical segments.

The company has a fairly low dividend yield, but puts considerable cash towards buying back shares and reducing its number of outstanding shares. This results in considerable EPS growth and dividend growth, but is not without its conflict of interest. Recently, I published a quantitative analysis article titled "Exxon Mobil Returning Cash to Shareholders", on Exxon Mobil's dividends and share repurchases over the last 10 years.

  • Total Debt/Equity: 0.10
  • Current Ratio: 0.98
  • Interest Coverage Ratio: over 100
  • Goodwill/Equity: negligible
  • Dividend Yield: 2.28%

Chevron Corporation (NYSE:CVX)

Chevron, like XOM, is an oil company with a particularly strong balance sheet. Out of the two, Chevron offers a larger dividend. While revenues and earnings were volatile over this decade due to the volatility of oil prices, Chevron increased assets and shareholder equity like clockwork. Chevron more than doubled total company equity between 2004 and 2010, and has continued this trend into 2011.

  • Total Debt/Equity: 0.10
  • Current Ratio: 1.53
  • Interest Coverage Ratio: over 100
  • Goodwill/Equity: 0.04
  • Dividend Yield: 2.95%

3M Company (NYSE:MMM)

3M Company sells thousands of rather mundane products in a variety of industries, and yet manages to have a rather high net profit margin (>15%). The company has been among those with the longest of consecutive dividend increases around, with a strong balance sheet, extremely diversified operations (in terms of both geography and industry), and good management.

  • Total Debt/Equity: 0.34
  • Current Ratio: 2.14
  • Interest Coverage Ratio: 31
  • Goodwill/Equity: 0.43
  • Dividend Yield: 2.25%

Intel Corporation (NASDAQ:INTC)

Intel offers a rather high dividend yield for a tech company, and may offer dividend investors an opportunity to acquire tech exposure without sacrificing dividend yield. Dividend growth isn't too shabby either. Intel has lagged behind competitors in the mobile computing market, although it may catch up in the future. But, the company has significant exposure to the stagnant PC market, and the tech industry requires companies to consistently reinvent themselves to remain competitive and profitable for investors.

  • Total Debt/Equity: 0.05
  • Current Ratio: 1.97
  • Interest Coverage Ratio: over 100
  • Goodwill/Equity: 0.19
  • Dividend Yield: 3.64%

Legget & Platt, Inc (NYSE:LEG)

Leggett & Platt offers above average cash flow compared to income, a solid dividend yield, and a balance sheet that is more impressive than one might expect from a manufacturing company. LEG puts its cash flow to good use in paying large dividends and buying back shares to fuel dividend growth. Over the last few years, the company has restructured itself under new management, divested business segments that were underperforming, and focused on growing key segments while returning the rest of the cash to investors. In addition, the company has an impressive history of decades of consecutive dividend increases.

I offered a fairly bullish and thorough analysis of LEG a few months back in an article titled "Leggett & Platt: High Dividend Yield and Strong Cash Flow".

  • Total Debt/Equity: 0.57
  • Current Ratio: 2.20
  • Interest Coverage Ratio: 8
  • Goodwill/Equity: 0.65
  • Dividend Yield: 4.46%

Johnson and Johnson (NYSE:JNJ)

Johnson & Johnson is a huge and diversified health care company with a superb balance sheet. Company stock hasn't performed so well in recent years due to quality control issues and recalls, but the company managed to preserve its extremely strong financial condition and managed to continue pumping out very large amounts of free cash flow. With nearly 50 years of consecutive dividend growth, and such a strong balance sheet, it's no wonder that JNJ is found in so many dividend portfolios. With a P/E of only 15 however, JNJ has remained surprisingly affordable in recent years.

  • Total Debt/Equity: 0.30
  • Current Ratio: 2.05
  • Interest Coverage Ratio: 35
  • Goodwill/Equity: 0.27
  • Dividend Yield: 3.37%

Disclosure: I am long BDX, XOM, CVX, JNJ.

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