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Company profitability is not as straightforward as it often appears to be. Although net income is the popular headline number that analysts follow during earnings season, companies can earn these profits in different ways, with some preferred over others. This is why it is important to also study the sources 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 stocks paying 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 pay reliable dividends? Use this list as a starting point for your own analysis.

List sorted by increase in ROE.

1. Steel Dynamics Inc. (STLD): Engages in the manufacture and sale of steel products in the United States. Market cap of $2.88B. Dividend yield at 3.03%, payout ratio at 32.02%. MRQ Net Profit Margin increased to 2.12% from 1.18% year-over-year, Sales/Assets increased to 0.34 from 0.28, while Assets/Equity decreased to 2.61 from 2.68. The stock has had a couple of great days, gaining 8.84% over the last week.

2. Brookfield Properties Corporation (BPO): A publicly owned real estate investment firm. Market cap of $7.41B. Dividend yield at 3.80%, payout ratio at 12.93%. MRQ Net Profit Margin increased to 84.35% from 49.23% year-over-year, Sales/Assets increased to 0.0203 from 0.0171, while Assets/Equity decreased to 2.47 from 2.54. The stock has lost 8.45% over the last year.

3. Houston Wire & Cable Company (HWCC): Distributes specialty wire and cable products in the U. Market cap of $199.56M. Dividend yield at 3.21%, payout ratio at 31.83%. MRQ Net Profit Margin increased to 4.69% from 2.46% year-over-year, Sales/Assets increased to 0.54 from 0.49, while Assets/Equity decreased to 2.01 from 2.18. The stock is a short squeeze candidate, with a short float at 9.81% (equivalent to 15.24 days of average volume). The stock has performed poorly over the last month, losing 11.37%.

4. Chevron Corporation (CVX): Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $204.76B. Dividend yield at 3.15%, payout ratio at 22.20%. MRQ Net Profit Margin increased to 12.15% from 7.58% year-over-year, Sales/Assets increased to 0.32 from 0.28, while Assets/Equity decreased to 1.69 from 1.73. The stock has had a couple of great days, gaining 6.64% over the last week.

5. NYSE Euronext, Inc. (NYX): Operates securities exchanges. Market cap of $7.48B. Dividend yield at 4.34%, payout ratio at 48.77%. MRQ Net Profit Margin increased to 15.90% from 12.19% year-over-year, Sales/Assets increased to 0.10 from 0.08, while Assets/Equity decreased to 1.91 from 2.0. The stock has had a couple of great days, gaining 6.89% over the last week.

6. General Electric Company (GE): Operates as a technology, service, and finance company worldwide. Market cap of $167.97B. Dividend yield at 3.77%, payout ratio at 47.38%. MRQ Net Profit Margin increased to 9.12% from 5.81% year-over-year, Sales/Assets increased to 0.0479 from 0.0466, while Assets/Equity decreased to 5.93 from 6.57. The stock has had a couple of great days, gaining 6.14% over the last week.

7. McGrath Rentcorp (MGRC): Operates as a business-to-business rental company in the United States. Market cap of $682.12M. Dividend yield at 3.29%, payout ratio at 45.30%. MRQ Net Profit Margin increased to 14.63% from 11.66% year-over-year, Sales/Assets increased to 0.12 from 0.10, while Assets/Equity decreased to 2.79 from 2.89. The stock has gained 2.57% over the last year.

8. The Dow Chemical Company (DOW): Manufactures and supplies products used as raw materials in the production of customer products and services worldwide. Market cap of $32.75B. Dividend yield at 3.61%, payout ratio at 32.23%. MRQ Net Profit Margin increased to 5.96% from 4.64% year-over-year, Sales/Assets increased to 0.23 from 0.19, while Assets/Equity decreased to 2.77 from 3.01. This is a risky stock that is significantly more volatile than the overall market (beta = 2.3). The stock has had a couple of great days, gaining 10.18% over the last week.

9. Hillenbrand, Inc. (HI): Manufactures, distributes, and sells funeral service products to licensed funeral directors operating licensed funeral homes. Market cap of $1.43B. Dividend yield at 3.46%, payout ratio at 45.47%. MRQ Net Profit Margin increased to 10.65% from 6.46% year-over-year, Sales/Assets increased to 0.21 from 0.20, while Assets/Equity decreased to 2.18 from 2.96. The stock has had a couple of great days, gaining 11.37% over the last week.

10. Eaton Corporation (ETN): Operates as a power management company worldwide. Market cap of $15.01B. Dividend yield at 3.03%, payout ratio at 35.17%. MRQ Net Profit Margin increased to 8.85% from 7.50% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.28 from 2.36. The stock has had a couple of great days, gaining 5.52% over the last week.

11. Entergy Corporation (ETR): Operates as an integrated energy company in the United States. Market cap of $12.39B. Dividend yield at 4.72%, payout ratio at 41.72%. MRQ Net Profit Margin increased to 18.64% from 14.94% year-over-year, Sales/Assets increased to 0.0867 from 0.0862, while Assets/Equity decreased to 4.22 from 4.28. The stock has gained 2.9% over the last year.

12. Kronos Worldwide Inc. (KRO): Engages in the production and marketing of titanium dioxide pigments in North America and Europe. Market cap of $2.26B. Dividend yield at 3.08%, payout ratio at 44.81%. MRQ Net Profit Margin increased to 15.68% from 8.52% year-over-year, Sales/Assets increased to 0.31 from 0.28, while Assets/Equity decreased to 2.0 from 3.26. The stock has performed poorly over the last month, losing 12.08%.

13. Nicholas Financial Inc. (NICK): Operates as a specialized consumer finance company. Market cap of $132.63M. Dividend yield at 3.51%, payout ratio at 5.96%. MRQ Net Profit Margin increased to 32.07% from 25.30% year-over-year, Sales/Assets increased to 0.0682 from 0.0680, while Assets/Equity decreased to 2.0 from 2.19. The stock has gained 13.52% over the last year.

14. Northrop Grumman Corporation (NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap of $14.91B. Dividend yield at 3.50%, payout ratio at 30.93%. MRQ Net Profit Margin increased to 7.86% from 7.03% year-over-year, Sales/Assets increased to 0.26 from 0.23, while Assets/Equity decreased to 2.10 from 2.29. The stock is a short squeeze candidate, with a short float at 5.4% (equivalent to 5.76 days of average volume). The stock has had a couple of great days, gaining 5.88% over the last week.

15. Wisconsin Energy Corp. (WEC): Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.67B. Dividend yield at 3.13%, payout ratio at 43.57%. MRQ Net Profit Margin increased to 12.33% from 11.53% year-over-year, Sales/Assets increased to 0.0795 from 0.0765, while Assets/Equity decreased to 3.34 from 3.38.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Source: 15 High Dividend Yield Stocks With Strong Sources Of Profitability