Do you prefer stocks that pay reliable dividend income? For a closer look at interesting dividend stocks, we ran a screen.
We began by screening "dividend champions," companies listed by DRiP Investing as those that have consistently raised their dividend over the last 25 years. We screened these stocks for those paying dividend yields above 2% and sustainable payout ratios below 50%.
Then to analyze these companies' profitability, we ran 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.
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 dividends that can be relied on? Use this list as a starting point for your own analysis.
List sorted by dividend yield.
1. AFLAC Inc. (AFL): Provides supplemental health and life insurance. Market cap at $20.38B, most recent closing price at $42.72. Dividend yield at 3.03%, payout ratio at 24.98%. MRQ net profit margin at 12.58% vs. 7.6% y/y. MRQ sales/assets at 0.054 vs. 0.051 y/y. MRQ assets/equity at 8.47 vs. 9.548 y/y.
2. ABM Industries Inc. (ABM): Provides facility services for commercial, industrial, institutional, and retail facilities primarily in the United States. Market cap at $1.21B, most recent closing price at $22.32. Dividend yield at 2.57%, payout ratio at 42.50%. MRQ net profit margin at 0.99% vs. 0.82% y/y. MRQ sales/assets at 0.569 vs. 0.526 y/y. MRQ assets/equity at 2.343 vs. 2.612 y/y.
3. Mine Safety Appliances Co. (MSA): Develops, manufactures, and supplies health and safety products used by workers in the fire service, homeland security, construction, and other industries, as well as the military. Market cap at $1.56B, most recent closing price at $42.45. Dividend yield at 2.46%, payout ratio at 48.02%. MRQ net profit margin at 8.15% vs. 4.8% y/y. MRQ sales/assets at 0.258 vs. 0.225 y/y. MRQ assets/equity at 2.472 vs. 2.641 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.