Interested in stocks that pay handsome dividend income? For ideas, here's a stock screen you might find helpful.
We began by screening for dividend stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened these stocks for those with high company liquidity, with current ratios below 3. Finally, we ran DuPont analysis on return on equity (ROE) profitability to find those with strong sources of profitability.
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)
It therefore focuses 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 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 dividend yield.
1. LS Starrett Co. (SCX): Engages in the manufacture and sale of industrial, professional, and consumer products worldwide. Dividend yield at 2.78%. Payout ratio at 29.28%. Current ratio at 3.91. MRQ net profit margin at 3.55% vs. 2.21% y/y. MRQ sales/assets at 0.295 vs. 0.275 y/y. MRQ assets/equity at 1.492 vs. 1.527 y/y.
2. Foot Locker, Inc. (FL): Operates as a retailer of athletic footwear and apparel. Dividend yield at 2.52%. Payout ratio at 38.87%. Current ratio at 3.63. MRQ net profit margin at 4.73% vs. 4.06% y/y. MRQ sales/assets at 0.458 vs. 0.44 y/y. MRQ assets/equity at 1.455 vs. 1.472 y/y.
3. Houston Wire & Cable Company (HWCC): Distributes specialty wire and cable products in the U. Dividend yield at 2.52%. Payout ratio at 31.67%. Current ratio at 4.37. MRQ net profit margin at 4.69% vs. 2.46% y/y. MRQ sales/assets at 0.543 vs. 0.495 y/y. MRQ assets/equity at 2.011 vs. 2.184 y/y.
4. MOCON Inc. (MOCO): Develops, manufactures, markets, and services measurement, analytical, and monitoring products to detect, measure, and analyze gases and other chemical compounds; and provides related consulting services. Dividend yield at 2.51%. Payout ratio at 37.54%. Current ratio at 3.62. MRQ net profit margin at 16.07% vs. 13.29% y/y. MRQ sales/assets at 0.245 vs. 0.238 y/y. MRQ assets/equity at 1.188 vs. 1.189 y/y.
5. Compass Minerals International Inc. (CMP): Produces and markets inorganic mineral products primarily in North America and the United Kingdom. Dividend yield at 2.46%. Payout ratio at 35.54%. Current ratio at 3.62. MRQ net profit margin at 15.1% vs. 10.97% y/y. MRQ sales/assets at 0.204 vs. 0.176 y/y. MRQ assets/equity at 2.753 vs. 3.508 y/y.
6. Sensient Technologies Corporation (SXT): Manufactures and markets colors, flavors, and fragrances worldwide. Dividend yield at 2.12%. Payout ratio at 35.24%. Current ratio at 3.28. MRQ net profit margin at 8.8% vs. 8.57% y/y. MRQ sales/assets at 0.223 vs. 0.214 y/y. MRQ assets/equity at 1.579 vs. 1.65 y/y.
*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.