14 S&P 500 High Dividend Yield Stocks With Strong Sources of Profitability

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Includes: DOW, EMR, ETN, FCX, HON, IPG, JNS, KLAC, NEE, PEG, PPG, ROK, WEC, WRK
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 of the S&P 500 that pay dividend yields above 3% and sustainable payout ratios below 50%.

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 stocks Use this list as a starting-off 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 $28.07B. Dividend yield at 4.21%, 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 = 2.3). It's been a rough couple of days for the stock, losing 6.97% over the last week.

2. NextEra Energy, Inc. (NYSE:NEE): Engages in the generation, transmission, distribution, and sale of electric energy in the United States and Canada. Market cap of $22.72B. Dividend yield at 4.10%, payout ratio at 48.28%. MRQ Net Profit Margin increased to 14.64% from 11.61% year-over-year, Sales/Assets increased to 0.0726 from 0.0701, while Assets/Equity decreased to 3.66 from 3.79. The stock has gained 2.44% over the last year.

3. Public Service Enterprise Group Inc. (NYSE:PEG): Operates in the energy industry primarily in the northeastern and mid Atlantic United States. Market cap of $16.97B. Dividend yield at 4.09%, payout ratio at 42.80%. MRQ Net Profit Margin increased to 13.08% from 9.49% year-over-year, Sales/Assets increased to 0.09 from 0.08, while Assets/Equity decreased to 2.85 from 3.15. The stock has gained 6.21% over the last year.

4. MeadWestvaco Corporation (MWV): Provides packaging solutions to the healthcare, personal care and beauty, food, beverage, home and garden, tobacco, and commercial print industries worldwide. Market cap of $4.32B. Dividend yield at 3.95%, payout ratio at 49.05%. MRQ Net Profit Margin increased to 5.72% from 3.50% year-over-year, Sales/Assets increased to 0.1731 from 0.1659, while Assets/Equity decreased to 2.58 from 2.75. The stock has gained 7.15% over the last year.

5. Eaton Corporation (NYSE:ETN): Operates as a power management company worldwide. Market cap of $12.41B. Dividend yield at 3.74%, payout ratio at 36.55%. MRQ Net Profit Margin increased to 8.22% from 6.69% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.22 from 2.42. The stock has performed poorly over the last month, losing 13.56%.

6. KLA-Tencor Corporation (NASDAQ:KLAC): Engages in the design, manufacture, and marketing of process control and yield management solutions for the semiconductor and related nanoelectronics industries. Market cap of $6.49B. Dividend yield at 3.60%, payout ratio at 21.07%. MRQ Net Profit Margin increased to 27.46% from 20.21% year-over-year, Sales/Assets increased to 0.19 from 0.14, while Assets/Equity decreased to 1.63 from 1.74. Might be undervalued at current levels, with a PEG ratio at 0.88, and P/FCF ratio at 10.73. The stock has gained 13.73% over the last year.

7. Wisconsin Energy Corp. (NYSE:WEC): Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.23B. Dividend yield at 3.36%, payout ratio at 42.43%. MRQ Net Profit Margin increased to 11.04% from 9.96% year-over-year, Sales/Assets increased to 0.08 from 0.07, while Assets/Equity decreased to 3.29 from 3.42. The stock has gained 10.42% over the last year.

8. The Interpublic Group of Companies, Inc. (NYSE:IPG): Provides advertising and marketing services worldwide. Market cap of $3.48B. Dividend yield at 3.30%, payout ratio at 30.03%. 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 -6.72% below its SMA20, -16.9% below its SMA50, and -33.06% below its SMA200. It's been a rough couple of days for the stock, losing 5.22% over the last week.

9. Janus Capital Group, Inc. (NYSE:JNS): A publicly owned asset management holding company. Market cap of $1.14B. Dividend yield at 3.28%, payout ratio at 5.22%. MRQ Net Profit Margin increased to 15.87% from 12.11% year-over-year, Sales/Assets increased to 0.0989 from 0.0980, while Assets/Equity decreased to 2.15 from 2.42. This is a risky stock that is significantly more volatile than the overall market (beta = 2.66). Might be undervalued at current levels, with a PEG ratio at 0.81, and P/FCF ratio at 4.39. The stock has performed poorly over the last month, losing 17.37%.

10. Emerson Electric Co. (NYSE:EMR): Operates as a diversified manufacturing and technology company. Market cap of $32.19B. Dividend yield at 3.19%, 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 16.14% over the last year.

11. PPG Industries Inc. (NYSE:PPG): Manufactures and supplies protective and decorative coatings. Market cap of $11.26B. Dividend yield at 3.18%, payout ratio at 34.59%. MRQ Net Profit Margin increased to 8.53% from 7.87% year-over-year, Sales/Assets increased to 0.2611 from 0.2587, while Assets/Equity decreased to 3.77 from 3.87. The stock has gained 0.75% over the last year.

12. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX): Engages in the exploration, mining, and production of mineral resources. Market cap of $30.62B. Dividend yield at 3.10%, 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. Might be undervalued at current levels, with a PEG ratio at 0.68, and P/FCF ratio at 8.04. It's been a rough couple of days for the stock, losing 9.24% over the last week.

13. Rockwell Automation Inc. (NYSE:ROK): Provides industrial automation power, control, and information solutions. Market cap of $8.10B. Dividend yield at 3.01%, payout ratio at 33.79%. MRQ Net Profit Margin increased to 11.84% from 9.42% year-over-year, Sales/Assets increased to 0.28 from 0.27, while Assets/Equity decreased to 2.81 from 3.35. The stock has lost 7.47% over the last year.

14. Honeywell International Inc. (NYSE:HON): Operates as a diversified technology and manufacturing company worldwide. Market cap of $34.64B. Dividend yield at 3.0%, 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 3.07% over the last year.

*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.