7 High Dividend Yield Stocks With Strong Sources Of Profitability

by: Kapitall

Company profits can come from several different sources. When analyzing a company's profitability, it's important to remember that some sources are better than others. To get a deeper look into a company's profit trends, we performed DuPont analysis on stocks paying dividend yields above 3%.

DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:

= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

We therefore focus on companies with the following positive 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 with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.

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 companies have strong profitability? Use this list as a starting point for your own analysis.

List sorted by increase in ROE.

1. Brookfield Properties Corporation (NYSE:BPO): A publicly owned real estate investment firm. Market cap of $8.85B. Dividend yield at 3.18%, payout ratio at 12.90%. MRQ Net Profit Margin increased to 84.35% from 49.23% year-over-year, Sales/Assets increased to 0.0204 from 0.0171, while Assets/Equity decreased to 2.47 from 2.54. The stock has had a couple of great days, gaining 7.58% over the last week.

2. Chevron Corporation (NYSE:CVX): Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $213.11B. Dividend yield at 3.03%, 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 gained 17.71% over the last year.

3. NYSE Euronext, Inc. (NYSE:NYX): Operates securities exchanges. Market cap of $7.19B. Dividend yield at 4.37%, 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 lost 11.8% over the last year.

4. 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 $39.12B. Dividend yield at 3.02%, 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 = 2.33). The stock has had a good month, gaining 23.83%.

5. Entergy Corporation (NYSE:ETR): Operates as an integrated energy company in the United States. Market cap of $12.45B. Dividend yield at 4.70%, 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 1.7% over the last year.

6. Northrop Grumman Corporation (NYSE:NOC): Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap of $15.80B. Dividend yield at 3.31%, 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 has lost 0.84% 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 $7.92B. Dividend yield at 3.50%, 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. The stock has gained 18.8% 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.