Do you prefer stocks that pay reliable dividend income? For ideas on how to start your own dividend stock search, we ran a screen.
We began by screening the S&P 500 for stocks paying dividend yields above 2% and sustainable payout ratios below 50% that also appear undervalued relative to earnings growth, with PEG below 1.
Then to analyze these companies' profitability, we ran DuPont analysis on the names. 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.
(click to enlarge)
Tool provided by Kapitall.
Do you think these stocks pay reliable dividends? Use this list as a starting point for your own analysis.
List sorted by PEG.
1. AFLAC Inc. (NYSE:AFL): Provides supplemental health and life insurance. Market cap at $18.55B, most recent closing price at $39.49. Dividend yield at 3.33%, payout ratio at 24.97%. PEG at 0.71. 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. 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. Market cap at $3.5B, most recent closing price at $59.64. Dividend yield at 2.26%, payout ratio at 26.76%. PEG at 0.93. MRQ net profit margin at 9.66% vs. 8.1% y/y. MRQ sales/assets at 0.198 vs. 0.181 y/y. MRQ assets/equity at 2.314 vs. 2.578 y/y.
3. Invesco Ltd. (NYSE:IVZ): Provides its services to individuals, typically high net worth individuals. Market cap at $9.66B, most recent closing price at $21.50. Dividend yield at 3.20%, payout ratio at 30.16%. PEG at 0.98. MRQ net profit margin at 18.76% vs. 17.28% y/y. MRQ sales/assets at 0.053 vs. 0.049 y/y. MRQ assets/equity at 2.359 vs. 2.537 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.