Do you prefer stocks that pay part of their return in dividend income? If so, here's a list you might be interested in.
We ran a screen on the S&P 500 for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then ran DuPont analysis on return on equity (ROE) profitability to find those with strong sources of profits.
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 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.
1. Boeing Co. (NYSE:BA): Engages in the design, development, manufacture, sale, and support of commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. Dividend yield at 2.35%, payout ratio at 31.43%. MRQ net profit margin at 7.12% vs. 7.03% y/y. MRQ sales/assets at 0.244 vs. 0.241 y/y. MRQ assets/equity at 22.756 vs. 24.789 y/y.
2. CA Technologies (NASDAQ:CA): Designs, develops, markets, delivers, licenses, and supports information technology management software products that operate on a range of hardware platforms and operating systems. Dividend yield at 3.70%, payout ratio at 10.64%. MRQ net profit margin at 20.82% vs. 17.48% y/y. MRQ sales/assets at 0.107 vs. 0.096 y/y. MRQ assets/equity at 2.058 vs. 2.176 y/y.
3. Cardinal Health, Inc. (NYSE:CAH): Operates as a healthcare solutions company that provides health care products and services. Dividend yield at 2.10%, payout ratio at 29.77%.MRQ net profit margin at 0.97% vs. 0.85% y/y. MRQ sales/assets at 1.116 vs. 1.11 y/y. MRQ assets/equity at 4.093 vs. 4.215 y/y.
4. SLM Corporation (NYSE:SLM): Provides education finance in the United States. Dividend yield at 3.10%, payout ratio at 26.42%. MRQ net profit margin at 26.06% vs. 22.74% y/y. MRQ sales/assets at 0.01 vs. 0.01 y/y. MRQ assets/equity at 36.877 vs. 40.967 y/y.
5. Snap-on Inc. (NYSE:SNA): Manufactures and markets tools, diagnostics, equipment, software, and service solutions for professional users in the United States, the United Kingdom, Canada, Germany, Japan, France, Australia, Spain, the Netherlands, Italy, China, and Sweden. Dividend yield at 2.25%, payout ratio at 27.76%. MRQ net profit margin at 10.09% vs. 8.31% y/y. MRQ sales/assets at 0.201 vs. 0.187 y/y. MRQ assets/equity at 2.399 vs. 2.686 y/y.
6. Staples, Inc. (NASDAQ:SPLS): Operates as an office products company. Dividend yield at 2.60%, payout ratio at 28.23%. MRQ net profit margin at 4.97% vs. 4.42% y/y. MRQ sales/assets at 0.483 vs. 0.471 y/y. MRQ assets/equity at 1.898 vs. 2.049 y/y.
7. Molson Coors Brewing Company (NYSE:TAP): Distributes beer brands. Dividend yield at 2.94%, payout ratio at 29.23%. MRQ net profit margin at 18.48% vs. 13.15% y/y. MRQ sales/assets at 0.075 vs. 0.066 y/y. MRQ assets/equity at 1.624 vs. 1.628 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.