9 Low Debt, Profitable Dividend Stocks That Let Investors Sleep At Night

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Includes: ADP, COH, EGO, GES, GOLD, MRXLF, PTI-OLD, SNN, V
by: Follow My Alpha

Dividend stocks will most likely never be as sexy and exciting as tech stock like Netflix (NASDAQ:NFLX). Still, the peace of mind they often provide by compensating investors for taking on market risk is a fine substitute, in our view. Looking at recent events with Netflix reminds us that being at the center of attention in the investment world can cause “amplified” excitement, for the better or worse, and that quantifying that type of risk is always difficult.

The Net Margin is a profitability metric that tells investors how much of every dollar is left when it trickles down to the bottom line. Of course this isn’t the only profitability ratio, but it does show how well a company retains a profit when it’s all said and done. For dividend stocks this is just one key component that cannot be overlooked when evaluating whether a certain dividend yield can be sustained-- if not increased over time.

The Debt/Equity Ratio lets investors know how company management is financing growth. The higher this number is, the more the company is dependent upon debt for growth overall. The issue here is in the event that the company struggles, or fails to properly manage the additional expenses associated with debt financing, dividend distributions are often one of the first things to take a hit.

We first screened for dividend stocks that have demonstrated strong profit margins over time (Net Margin (TTM)>10). From this narrowed pool we then focused on companies that had moderate to zero debt in their capital structure (D/E Ratio<.3).

This list ranked from lowest to highest by its Debt/Equity ratio:

1. Medicis Pharmaceuticals Corportion (MRX)

Sector

Healthcare

Industry

Biotechnology

Market Cap

$2,440M

Beta

1.09

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Medicis specializes in developing and marketing dermatological, aesthetic and podiatric conditions. The company has a dividend yield of 0.78%. MRX has a Net Margin (TTM) of 13.90%. Its Debt/Equity ratio is 0.00%. The short interest was 10.70% as of 09/30/2011.

2. Patni Computer Systems, Ltd. (PTI-OLD)

Sector

Technology

Industry

Software - Application

Market Cap

$884M

Beta

1.58

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Patni offers information technology services primarily from India. The company has a dividend yield of 0.84 %. PTI has a Net Margin (TTM) of 17.56 %. Its Debt/Equity ratio is 0.00%. The short interest was N/A as of 09/30/2011.

3. Randgold Resources, Ltd. (GOLD)

Sector

Basic Materials

Industry

Gold

Market Cap

$9,509M

Beta

0.46

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The company explores for, mines and produces gold. The company has a dividend yield of 0.17%. GOLD has a Net Margin (TTM) of 26.16%. The firm’s Debt/Equity ratio is 0.00 %. The short interest was N/A as of 09/30/2011.

4. Visa, Inc. (V)

Sector

Financial Services

Industry

Credit Services

Market Cap

$76,964M

Beta

0.55

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Visa operates the largest global electronic payments network in the world. The company has a dividend yield of 0.64%. V has a Net Margin (TTM) of 39.72%. Its Debt/Equity ratio is 0.00%. The short interest was 1.70% as of 09/30/2011.

5. Automatic Data Processing. (ADP)

Sector

Industrials

Industry

Business Services

Market Cap

$25,786M

Beta

0.66

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ADP provides business outsourcing solutions. The company has a dividend yield of 2.73%. ADP has a Net Margin (TTM) of 12.70% and Debt/Equity ratio is 0.01%. The short interest was 1.40% as of 09/30/2011.

6. Coach, Inc. (COH)

Sector

Consumer Cyclical

Industry

Luxury Goods

Market Cap

$18,110M

Beta

1.57

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Coach makes and sells fine accessories and gifts for men and women. The company has a dividend yield of 1.20%. COH has a Net Margin (TTM) of 21.18% and the Debt/Equity ratio is 0.01%. The short interest was 1.70% as of 09/30/2011.

7. Eldorado Gold Corp. (EGO)

Sector

Basic Materials

Industry

Gold

Market Cap

$9,627M

Beta

0.32

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Eldorado mines and produces gold in Turkey and Brazil. The company has a dividend yield of 0.63 %. EGO has a Net Margin (TTM) of 26.03% and its Debt/Equity ratio is 0.01%. The short interest was N/A as of 09/30/2011.

8. Guess, Inc. (GES)

Sector

Consumer Cyclical

Industry

Apparel Stores

Market Cap

$3,115M

Beta

1.93

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Guess designs, sells, and licenses lifestyle collections of contemporary apparel and for men, women and children. The company has a dividend yield of 2.38%. GES has a Net Margin (TTM) of 10.44%. The firm’s Debt/Equity ratio is 0.01%. The short interest was 5.50% as of 09/30/2011.

9. Smith & Nephew PLC. (SNN)

Sector

Healthcare

Industry

Medical Devices

Market Cap

$8,359M

Beta

0.65

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The company develops and markets medical devices in a variety of medical spaces. The company has a dividend yield of 1.69%. SNN has a Net Margin (TTM) of 15.17% and the Debt/Equity ratio is 0.01%. The short interest was N/A as of 09/30/2011.

We hope this list helps as investors do their own due diligence and research on dividend stocks with strong margins and low debt.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.