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There is always more to a company’s story than the bottom line. Although the bottom line, or net income, is the headline number that analysts watch and journalists report, companies can earn these profits in different ways – some more preferred than others. This is why it is always a good idea to study the source of profits for a company.

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 low debt, with most recent quarter total debt to assets below 0.2.

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 (SPY) index over the last month.

(Click chart for more detail)


Do you think these companies have strong profitability? Use this list as a starting-off point for your own analysis.

List sorted by dividend yield.

1. Superior Industries International, Inc. (SUP): Designs, develops, manufactures, sells, and supplies cast aluminum road wheels to automobile and light truck manufacturers primarily in North America. Market cap of $438.63M. Dividend yield at 3.97%, payout ratio at 29.56%. MRQ total debt to assets at 0.00%. MRQ Net Profit Margin increased to 7.04% from 5.19% year-over-year, Sales/Assets increased to 0.3545 from 0.3468, while Assets/Equity decreased to 1.35 from 1.48. The stock has performed poorly over the last month, losing 13.5%.

2. Protective Life Corp. (PL): Engages in the production, distribution, and administration of insurance and investment products in the United States. Market cap of $1.61B. Dividend yield at 3.70%, payout ratio at 14.74%. MRQ total debt to assets at 3.96%. MRQ Net Profit Margin increased to 10.31% from 5.81% year-over-year, Sales/Assets increased to 0.0177 from 0.0160, while Assets/Equity decreased to 14.14 from 14.45. This is a risky stock that is significantly more volatile than the overall market (beta = 2.99). Might be undervalued at current levels, with a PEG ratio at 0.61, and P/FCF ratio at 2.87.

3. Genuine Parts Company (GPC): Distributes automotive replacement parts, industrial replacement parts, office products, and electrical/electronic materials in the United States, Puerto Rico, Canada, and Mexico. Market cap of $8.38B. Dividend yield at 3.38%, payout ratio at 46.47%. MRQ total debt to assets at 8.75%. MRQ Net Profit Margin increased to 4.77% from 4.37% year-over-year, Sales/Assets increased to 0.56 from 0.55, while Assets/Equity decreased to 1.9565 from 1.9589. The stock has gained 25.95% over the last year.

4. The Interpublic Group of Companies, Inc. (IPG): Provides advertising and marketing services worldwide. Market cap of $3.76B. Dividend yield at 3.07%, payout ratio at 28.23%. MRQ total debt to assets at 14.36%. MRQ Net Profit Margin increased to 6.01% from 5.12% year-over-year, Sales/Assets increased to 0.1415 from 0.1377, while Assets/Equity decreased to 4.99 from 5.39. The stock is currently stuck in a downtrend, trading 8.83% below its SMA20, 26.76% below its SMA50, and 32.74% below its SMA200.

5. Marsh & McLennan Companies, Inc. (MMC): Provides advice and solutions in the areas of risk, strategy, and human capital. Market cap of $15.70B. Dividend yield at 3.04%, payout ratio at 42.96%. MRQ total debt to assets at 19.63%. MRQ Net Profit Margin increased to 9.63% from 9.06% year-over-year, Sales/Assets increased to 0.19 from 0.17, while Assets/Equity decreased to 2.30 from 2.60. The stock has gained 21.6% over the last year.

6. Honeywell International Inc. (HON): Operates as a diversified technology and manufacturing company worldwide. Market cap of $35.56B. Dividend yield at 2.93%, payout ratio at 32.68%. MRQ total debt to assets at 19.48%. MRQ Net Profit Margin increased to 8.91% from 7.14% year-over-year, Sales/Assets increased to 0.23 from 0.22, while Assets/Equity decreased to 3.28 from 4.01. The stock has gained 8.84% over the last year.

7. Computer Sciences Corporation (CSC): Provides information technology (IT) and professional services to governments and commercial enterprises. Market cap of $4.43B. Dividend yield at 2.81%, payout ratio at 16.85%. MRQ total debt to assets at 17.34%. MRQ Net Profit Margin increased to 4.54% from 3.66% year-over-year, Sales/Assets increased to 0.25 from 0.24, while Assets/Equity decreased to 2.13 from 2.47. Might be undervalued at current levels, with a PEG ratio at 0.66, and P/FCF ratio at 9.74. The stock has performed poorly over the last month, losing 12.52%.

8. Waddell & Reed Financial Inc. (WDR): Provides investment management, investment product underwriting and distribution, and shareholder services administration to mutual funds, and institutional and separately managed accounts in the United States. Market cap of $2.51B. Dividend yield at 2.75%, payout ratio at 34.87%. MRQ total debt to assets at 18.18%. MRQ Net Profit Margin increased to 16.12% from 13.28% year-over-year, Sales/Assets increased to 0.2966 from 0.2960, while Assets/Equity decreased to 2.03 from 2.31. The stock has performed poorly over the last month, losing 13.24%.

9. United Technologies Corp. (UTX): Provides technology products and services to the building systems and aerospace industries worldwide. Market cap of $64.55B. Dividend yield at 2.71%, payout ratio at 31.34%. MRQ total debt to assets at 18.34%. MRQ Net Profit Margin increased to 8.74% from 8.04% year-over-year, Sales/Assets increased to 0.2426 from 0.2366, while Assets/Equity decreased to 2.73 from 2.93. The stock has gained 6.47% over the last year.

10. Crane Co. (CR): Manufactures and sells engineered industrial products in the United States and internationally. Market cap of $2.30B. Dividend yield at 2.33%, payout ratio at 26.44%. MRQ total debt to assets at 14.41%. MRQ Net Profit Margin increased to 7.84% from 7.24% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.56 from 3.0. The stock has gained 9.27% over the last year.

11. Timken Co. (TKR): Develops, manufactures, markets, and sells anti-friction bearings and related products and steel products primarily in the United States and Europe. Market cap of $3.52B. Dividend yield at 2.24%, payout ratio at 16.10%. MRQ total debt to assets at 12.48%. MRQ Net Profit Margin increased to 9.14% from 8.46% year-over-year, Sales/Assets increased to 0.32 from 0.25, while Assets/Equity decreased to 1.91 from 2.44. This is a risky stock that is significantly more volatile than the overall market (beta = 2.02). The stock has gained 2.28% over the last year.

12. Williams-Sonoma Inc. (WSM): Operates as a specialty retailer of home products. Market cap of $3.27B. Dividend yield at 2.18%, payout ratio at 45.20%. MRQ total debt to assets at 0.43%. MRQ Net Profit Margin increased to 4.82% from 3.97% year-over-year, Sales/Assets increased to 0.41 from 0.39, while Assets/Equity decreased to 1.61 from 1.65. The stock has gained 10.41% over the last year.

*Total debt to assets data 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.

Source: 12 Low Debt Dividend Stocks With Strong Sources Of Profitability