Interested in earning dividend income? Looking for ways to dig deeper into a company's profitability? Company liquidity is an important consideration in any stock analysis. Liquidity gives a company the ability to make big acquisitions if it sees investment opportunities, a cushion for future lulls in demand, and most importantly, it keeps a company's doors open. Are these the types of stocks that you're looking for? For ideas on where to look, we ran a screen you might find interesting.
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue very few can make very large profits with little investment.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.
The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).
We first looked for dividend stocks. We then looked for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(1-year fiscal EPS growth rate>10%). We then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps or sectors.
Do you think these stocks will perform well? Use our list along with your own analysis.
1) Terra Nitrogen Company, L.P. (TNH)
Terra Nitrogen Company, L.P. has a Dividend Yield of 8.07% and Payout Ratio of 110.15% and Return on Assets of 160.31% and Earnings Per Share Growth Rate of 91.36% and Current Ratio of 4.63 and Quick Ratio of 4.18. The short interest was 26.51% as of 05/24/2012. Terra Nitrogen Company, L.P. engages in the production and sale of nitrogen fertilizer products. It primarily offers anhydrous ammonia and urea ammonium nitrate solutions.
2) Maxim Integrated Products Inc. (MXIM)
|Industry:||Semiconductor - Broad Line|
Maxim Integrated Products Inc. has a Dividend Yield of 3.49% and Payout Ratio of 68.88% and Return on Assets of 10.39% and Earnings Per Share Growth Rate of 299.33% and Current Ratio of 3.74 and Quick Ratio of 3.24. The short interest was 0.72% as of 05/24/2012.
Maxim Integrated Products, Inc. engages in designing, developing, manufacturing, and marketing various linear and mixed-signal integrated circuits worldwide. The company also provides various high-frequency process technologies and capabilities for use in custom designs. It primarily serves industrial, communications, consumer, and computing markets.
3) Southern Copper Corp. (SCCO)
Southern Copper Corp. has a Dividend Yield of 6.98% and Payout Ratio of 82.37% and Return on Assets of 29.91% and Earnings Per Share Growth Rate of 51.07% and Current Ratio of 3.56 and Quick Ratio of 2.92. The short interest was 5.29% as of 05/24/2012. Southern Copper Corporation engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile.
Southern Copper is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver. The company operates Toquepala and Cuajone mines in the Andes Mountains located to the southeast of the city of Lima, Peru, as well as a smelter and refinery in the coastal city of Ilo, Peru. It also operates La Caridad and Buenavista copper mines, and smelting and refining plants in Mexico.
4) Computer Programs & Systems Inc. (CPSI)
|Industry:||Healthcare Information Services|
Computer Programs & Systems Inc. has a Dividend Yield of 3.31% and Payout Ratio of 69.49% and Return on Assets of 34.81% and Earnings Per Share Growth Rate of 36.98% and Current Ratio of 2.84 and Quick Ratio of 2.74. The short interest was 5.75% as of 05/24/2012.
Computer Programs and Systems, Inc., a healthcare information technology company, designs, develops, markets, installs, and supports computerized information technology systems to small and midsize hospitals in the United States. Its enterprise-wide system automates the management of clinical and financial data across the primary functional areas of a hospital.
The company offers services that enable customers to outsource certain data-related business processes in the areas of clinical care, revenue cycle management, cost control, and regulatory compliance.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz and Google Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.