9 Dividend Stocks With Strong Cash-Flow Coverage and Sources of Profitability

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 |  Includes: CHS, FCX, IP, IPG, MRO, NHC, PL, PPG, STLD
by: Kapitall

A company’s profitability can come from more than one source, and some are preferred over others. This is why an analysis beyond the top and bottom-line numbers is important when choosing stocks.

One way to analyze sources of profitability is with DuPont analysis of return on equity (ROE) profitability.

ROE can be broken up into three components such that increases 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.

To illustrate this analysis, we ran DuPont on dividend stocks with strong cash-flow coverage, comparing trailing-twelve-month operating cash flow per share to TTM dividend per share.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six 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 companies pay sustainable dividend yields? Use this list as a starting-off point for your own analysis.

List sorted by market cap.

1. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Copper Industry. Market cap of $41.26B. Dividend yield at 6.91%, payout ratio at 32.18%. TTM operating cash flow per share at $7.79 vs. TTM dividend per share at $1.90. MRQ net profit margin has increased to 23.53% from 17.18% one year ago, MRQ Sales/Assets has increased to 0.19 from 0.15, and MRQ Assets/Equity has decreased to 2.11 from 2.47. It's been a rough couple of days for the stock, losing 14.02% over the last week.

2. Marathon Oil Corporation (NYSE:MRO):
Oil & Gas Refining & Marketing Industry. Market cap of $18.01B. Dividend yield at 3.97%, payout ratio at 28.57%. TTM operating cash flow per share at $11.42 vs. TTM dividend per share at $1.00. MRQ net profit margin has increased to 25.77% from 24.42% one year ago, MRQ Sales/Assets has increased to 0.13 from 0.06, and MRQ Assets/Equity has decreased to 1.82 from 2.08. It's been a rough couple of days for the stock, losing 8.47% over the last week.

3. PPG Industries Inc. (NYSE:PPG): Specialty Chemicals Industry. Market cap of $11.51B. Dividend yield at 3.13%, payout ratio at 34.59%. TTM operating cash flow per share at $7.32 vs. TTM dividend per share at $2.22. MRQ net profit margin has increased to 8.53% from 7.87% one year ago, MRQ Sales/Assets has increased to 0.2611 from 0.2587, and MRQ Assets/Equity has decreased to 3.77 from 3.87. It's been a rough couple of days for the stock, losing 10.95% over the last week.

4. International Paper Co. (NYSE:IP): Paper & Paper Products Industry. Market cap of $10.57B. Dividend yield at 4.36%, payout ratio at 24.88%. TTM operating cash flow per share at $4.60 vs. TTM dividend per share at $0.70. MRQ net profit margin has increased to 3.37% from 1.52% one year ago, MRQ Sales/Assets has increased to 0.26 from 0.24, and MRQ Assets/Equity has decreased to 3.38 from 4.40. This is a risky stock that is significantly more volatile than the overall market (beta = 2.2). It's been a rough couple of days for the stock, losing 14.83% over the last week.

5. The Interpublic Group of Companies, Inc. (NYSE:IPG): Advertising Agencies Industry. Market cap of $3.78B. Dividend yield at 3.05%, payout ratio at 30.03%. TTM operating cash flow per share at $0.79 vs. TTM dividend per share at $0.18. MRQ net profit margin has increased to 6.01% from 5.12% one year ago, MRQ Sales/Assets has increased to 0.1415 from 0.1377, and MRQ Assets/Equity has decreased to 4.99 from 5.39. It's been a rough couple of days for the stock, losing 15.88% over the last week.

6. Steel Dynamics Inc. (NASDAQ:STLD):
Steel & Iron Industry. Market cap of $2.68B. Dividend yield at 3.27%, payout ratio at 33.0%. TTM operating cash flow per share at $1.07 vs. TTM dividend per share at $0.35. MRQ net profit margin has increased to 4.75% from 3.01% one year ago, MRQ Sales/Assets has increased to 0.35 from 0.29, and MRQ Assets/Equity has decreased to 2.59 from 2.66. It's been a rough couple of days for the stock, losing 18.06% over the last week.

7. Chico's FAS Inc. (NYSE:CHS):
Apparel Stores Industry. Market cap of $2.20B. Dividend yield at 3.21%, payout ratio at 25.59%. TTM operating cash flow per share at $1.33 vs. TTM dividend per share at $0.18. MRQ net profit margin has increased to 8.55% from 7.35% one year ago, MRQ Sales/Assets has increased to 0.37 from 0.35, and MRQ Assets/Equity has decreased to 1.37 from 1.38. It's been a rough couple of days for the stock, losing 15.48% over the last week.

8. Protective Life Corp. (NYSE:PL):
Life Insurance Industry. Market cap of $1.60B. Dividend yield at 3.75%, payout ratio at 16.05%. TTM operating cash flow per share at $7.09 vs. TTM dividend per share at $0.58. MRQ net profit margin has increased to 10.31% from 5.81% one year ago, MRQ Sales/Assets has increased to 0.0177 from 0.016, and MRQ Assets/Equity has decreased to 14.14 from 14.45. This is a risky stock that is significantly more volatile than the overall market (beta = 2.96). It's been a rough couple of days for the stock, losing 16.09% over the last week.

9. National Healthcare Corp. (NYSEMKT:NHC):
Long-Term Care Facilities Industry. Market cap of $434.54M. Dividend yield at 3.83%, payout ratio at 28.90%. TTM operating cash flow per share at $4.88 vs. TTM dividend per share at $1.14. MRQ net profit margin has increased to 7.13% from 6.70% one year ago, MRQ Sales/Assets has increased to 0.23 from 0.22, and MRQ Assets/Equity has decreased to 1.41 from 1.48. It's been a rough couple of days for the stock, losing 22.99% over the last week.

*Operating cash flow per share and dividend data sourced from Screener.co, 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.