One important consideration when choosing a source of dividend income is the company’s liquidity – if free cash flows unexpectedly dropped one year and were not sufficient to cover a company’s dividend, the company could use their liquidity reserves to continue paying the dividend. Therefore, liquid firms are more likely to have reliable dividends.
We screened dividend stocks paying yields above 2% and sustainable payout ratios below 35% for those that have seen significant liquidity growth, seeing the 10-year compound annual growth rate (CAGR) for current assets at least 5% higher than the 10-year CAGR for current liabilities.
We then screened for those trading at a deep discount to the mean analyst target price. Although target price is known to suffer from an upward bias, when a stock is trading at a significant discount, it may indicate that it is undervalued.
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 stocks pay reliable dividends? Use this list as a starting-off point for your own analysis.
List sorted by dividend yield.
1. KT Corp. (NYSE:KT): Telecom Services Industry. Market cap of $9.85B. Dividend yield at 4.97%, payout ratio at 31.01%. Current assets 10-year CAGR at 7.31% vs. current liabilities 10-year CAGR at 0.26%. Target price at $24.10 vs. current price at $18.87 (implies a potential upside of 27.72%). The stock has gained 5.66% over the last year.
2. Cooper Industries plc (CBE): Conglomerates Industry. Market cap of $9.56B. Dividend yield at 2.00%, payout ratio at 30.72%. Current assets 10-year CAGR at 3.68% vs. current liabilities 10-year CAGR at -1.33%. Target price at $72.07 vs. current price at $58.10 (implies a potential upside of 24.05%). It's been a rough couple of days for the stock, losing 6.19% over the last week.
*Dividend and target price data sourced from Screener.co, 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.