Do you prefer stocks paying part of their return in dividend income? For a closer look at interesting dividend stocks, we ran a screen.
We began by screening for stocks paying dividend yields above 2% and sustainable payout ratios below 50%. We then screened these names for those with high liquidity, with current ratios above 3. The current ratio is current assets/current liabilities, so ratios above 3 indicate the company has at least 3 times the liquid assets to cover their short-term liabilities.
We then screened for strong profitability as well, by running DuPont analysis. DuPont analyzes profitability by breaking up return on equity (net income/equity) into three components:
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)
Because increases in net margin and asset turnover are considered good things, DuPont focuses on companies with these 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)
Those companies that pass DuPont are seeing positive trends in the sources of their increasing profitability, which adds further weight to the idea that the names are profitable.
Interactive Chart: Press Play to compare changes in market cap over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.
Do you think these stocks pay strong dividends? Use this list as a starting point for your own analysis.
List sorted by current ratio.
1. Superior Industries International, Inc. (SUP): Designs, develops, manufactures, sells, and supplies cast aluminum road wheels to automobile and light truck manufacturers primarily in North America. Market cap at $503.83M, most recent closing price at $18.53. Dividend yield at 3.45%, payout ratio at 25.84%. Current ratio at 5.9. MRQ net profit margin at 18.53% vs. 11.65% y/y. MRQ sales/assets at 0.366 vs. 0.334 y/y. MRQ assets/equity at 1.288 vs. 1.384 y/y.
2. Advance America, Cash Advance Centers Inc. (AEA): Provides cash advance services in the United States, the United Kingdom, and Canada. Market cap at $657.93M, most recent closing price at $10.50. Dividend yield at 2.38%, payout ratio at 23.06%. Current ratio at 4.67. MRQ net profit margin at 14.54% vs. 9.83% y/y. MRQ sales/assets at 0.375 vs. 0.371 y/y. MRQ assets/equity at 1.684 vs. 1.836 y/y.
3. Oil-Dri Corp. of America (ODC): Engages in the development, manufacture, and marketing of sorbent products in the United States and internationally. Market cap at $148.63M, most recent closing price at $20.70. Dividend yield at 3.29%, payout ratio at 33.76%. Current ratio at 3.58. MRQ net profit margin at 5.38% vs. 3.11% y/y. MRQ sales/assets at 0.346 vs. 0.332 y/y. MRQ assets/equity at 1.782 vs. 1.873 y/y.
4. Hillenbrand, Inc. (HI): Manufactures, distributes, and sells funeral service products to licensed funeral directors operating licensed funeral homes. Market cap at $1.32B, most recent closing price at $21.12. Dividend yield at 3.65%, payout ratio at 42.70%. Current ratio at 3.18. MRQ net profit margin at 13.51% vs. 12.84% y/y. MRQ sales/assets at 0.199 vs. 0.193 y/y. MRQ assets/equity at 2.543 vs. 2.733 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.