10 Mega-Cap Dividend Stocks With Strong Sources Of Profitability

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 |  Includes: AXP, BAX, CAT, DOW, EMR, FCX, HON, MON, QCOM, UTX
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 stocks among the largest 200 by market cap that also pay dividend yields above 1.5%.

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.

Click to enlarge


Do you think these stocks pay reliable dividend yields? Use this list as a starting point for your own analysis.

List sorted by dividend yield.

1. The Dow Chemical Company (NYSE:DOW): Manufactures and supplies products used as raw materials in the production of customer products and services worldwide. Market cap of $30.44B. Dividend yield at 3.88%, payout ratio at 31.29%. MRQ Net Profit Margin increased to 6.65% from 4.78% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.83 from 3.15. This is a risky stock that is significantly more volatile than the overall market (beta = 2.28). It has been a rough couple of days for the stock, losing 6.63% over the last week.

2. Emerson Electric Co. (NYSE:EMR):
Operates as a diversified manufacturing and technology company. Market cap of $32.32B. Dividend yield at 3.18%, payout ratio at 43.47%. MRQ Net Profit Margin increased to 10.86% from 10.80% year-over-year, Sales/Assets increased to 0.26 from 0.24, while Assets/Equity decreased to 2.22 from 2.57. The stock has lost 10.61% over the last year.

3. Honeywell International Inc. (NYSE:HON)
: Operates as a diversified technology and manufacturing company worldwide. Market cap of $34.99B. Dividend yield at 2.97%, payout ratio at 40.34%. 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 7.11% over the last year.

4. United Technologies Corp. (NYSE:UTX):
Provides technology products and services to the building systems and aerospace industries worldwide. Market cap of $64.09B. Dividend yield at 2.72%, payout ratio at 34.14%. 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 4.75% over the last year.

5. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX):
Engages in the exploration, mining and production of mineral resources. Market cap of $39.80B. Dividend yield at 2.38%, payout ratio at 32.18%. MRQ Net Profit Margin increased to 23.53% from 17.18% year-over-year, Sales/Assets increased to 0.19 from 0.15, while Assets/Equity decreased to 2.11 from 2.47. It has been a rough couple of days for the stock, losing 9.62% over the last week.

6. Baxter International Inc. (NYSE:BAX):
Develops, manufactures and markets products for people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma and other chronic and acute medical conditions. Market cap of $30.21B. Dividend yield at 2.33%, payout ratio at 32.89%. MRQ Net Profit Margin increased to 17.39% from 16.75% year-over-year, Sales/Assets increased to 0.20 from 0.19, while Assets/Equity decreased to 2.54 from 2.80. The stock has gained 26.33% over the last year.

7. Caterpillar Inc. (NYSE:CAT): Manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. Market cap of $54.24B. Dividend yield at 2.19%, payout ratio at 27.95%. MRQ Net Profit Margin increased to 7.13% from 6.79% year-over-year, Sales/Assets increased to 0.19 from 0.18, while Assets/Equity decreased to 5.50 from 6.40. It has been a rough couple of days for the stock, losing 5.18% over the last week.

8. Monsanto Co. (NYSE:MON):
Provides agricultural products for farmers in the United States and internationally. Market cap of $34.76B. Dividend yield at 1.85%, payout ratio at 38.17%. MRQ Net Profit Margin increased to 18.94% from 12.96% year-over-year, Sales/Assets increased to 0.18 from 0.16, while Assets/Equity decreased to 1.69 from 1.73. It has been a rough couple of days for the stock, losing 5.69% over the last week.

9. QUALCOMM Incorporated (NASDAQ:QCOM):
Engages in the development, design, manufacture and marketing of digital wireless telecommunications products and services. Market cap of $84.66B. Dividend yield at 1.71%, payout ratio at 29.66%. MRQ Net Profit Margin increased to 28.57% from 28.41% year-over-year, Sales/Assets increased to 0.10 from 0.09, while Assets/Equity decreased to 1.34 from 1.48. The stock has gained 26.63% over the last year.

10. American Express Company (NYSE:AXP): Provides charge and credit payment card products and travel-related services worldwide. Market cap of $56.44B. Dividend yield at 1.52%, payout ratio at 18.88%. MRQ Net Profit Margin increased to 16.24% from 13.72% year-over-year, Sales/Assets increased to 0.06 from 0.05, while Assets/Equity decreased to 8.12 from 9.91. The stock has had a good month, gaining 10.47%.

*Accounting data sourced from Yahoo! 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.