For dividend investors, it's all about yield. But what good is yield when it is short lived? When buying dividend stocks, one way to help prevent your yields from flattening is to looking for companies with strong fundamentals fueling those high yields. Today we focus on dividend stocks with solid profitability, as one way to ensure that those yields won't dry up. We focused further by only looking at those stocks that also look undervalued from a price-multiple standpoint. We think you'll like the list we came up with.
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.
Return on Equity [ROE] is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecasted earnings instead. While this number might not be as accurate because it uses "forecasted" numbers, it does offer the benefit of illustrating analysts' expectations of a firm. If the market believes that earnings will grow moving forward, then the forward P/E should be lower than the current P/E. Financial Leverage, also known as the Equity Multiplier, illustrates how a firm is financing its assets. The lower the number the more a firm is financing its assets internally through stockholder equity. The higher this metric is the more the firm is relying on debt to finance its assets.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms it let's an investor know how much the investment community is willing to pay for every dollars worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap because investors are paying $1 or less for every dollars worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. These are general guidelines used by the investment community not hard rules to be clear. Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
We first looked for dividend stocks. We then looked for businesses that have posted strong earnings growth for shareholders over an extended period of time (1-year fiscal EPS growth rate>10%)(ROE [TTM]>30%). We next screened for businesses with a low price-multiple premium (forward P/E<10)(P/S<1). We did not screen out any market caps or sectors.
Do you think these stocks have strong operations? Use our list to help with your own analysis.
1) Kronos Worldwide Inc. (KRO)
Kronos Worldwide Inc. has a Dividend Yield of 3.80%, a Payout Ratio of 17.51%, a Earnings Per Share Growth Rate of 113.77%, a Return on Equity of 43.64%, a Forward Price/Earnings Ratio of 5.31, and a Price/Sales Ratio of 0.88. The short interest was 24.56% as of 06/12/2012. Kronos Worldwide, Inc. engages in the production and marketing of titanium dioxide pigments under the Kronos brand name primarily in North America and Europe. It produces titanium dioxide pigments in two crystalline forms, rutile and anatase to impart whiteness, brightness, opacity, and durability for products, such as coatings, plastics, papers fibers, and ceramics, as well as for various specialty products, including inks, food, and cosmetics. The company also offers ilmenite, a raw material used directly as a feedstock by sulfate-process titanium dioxide pigment plants; iron-based chemicals, which are co-products and processed co-products of the titanium dioxide pigment production process and used as treatment and conditioning agents for industrial effluents and municipal wastewater, as well as in the manufacture of iron pigments, cement, and agricultural products; and titanium oxychloride and titanyl sulfate, which are side-stream products from the production of titanium dioxide pigments.
2) BT Group plc (BT)
|Industry:||Telecom Services - Foreign|
BT Group plc has a Dividend Yield of 3.77%, a Payout Ratio of 32.67%, a Earnings Per Share Growth Rate of 31.91%, a Return on Equity of 124.27%, a Forward Price/Earnings Ratio of 8.00, and a Price/Sales Ratio of 0.85. The short interest was 0.02% as of 06/12/2012. BT Group plc provides communications solutions and services worldwide. It engages in the provision of networked IT services; and local, national, and international telecommunications services for use at home, at work, and on the move.
3) Pitney Bowes Inc. (PBI)
Pitney Bowes Inc. has a Dividend Yield of 10.67%, a Payout Ratio of 73.96%, a Earnings Per Share Growth Rate of 15.38%, a Return on Equity of 1246.82%, a Forward Price/Earnings Ratio of 7.21, and a Price/Sales Ratio of 0.54. The short interest was 26.83% as of 06/12/2012. Pitney Bowes Inc. provides software, hardware, and services to enable physical and digital communications. It also offers a suite of equipment, supplies, software, services, and solutions for managing and integrating physical and digital communication channels. The company's Small & Medium Business Solutions group engages in the sale, rental, and financing of mail finishing, mail creation, and shipping equipment and software; provision of supply, support, and other professional services; and provision of payment solutions.
4) Statoil ASA (STO)
|Industry:||Major Integrated Oil & Gas|
Statoil ASA has a Dividend Yield of 4.75%, a Payout Ratio of 25.53%, a Earnings Per Share Growth Rate of 107.38%, a Return on Equity of 30.20%, a Forward Price/Earnings Ratio of 8.00, and a Price/Sales Ratio of 0.61. The short interest was 0.34% as of 06/12/2012. Statoil ASA, an integrated energy company, engages in the exploration, production, transportation, refining, and marketing of petroleum and petroleum-derived products in Norway and internationally. The company is involved in the exploration, development, and production of crude oil and natural gas, as well as extraction of natural gas liquids. It also transports and markets natural gas and natural gas products; and engages in petroleum refining operations, as well as marketing crude oil and refined petroleum products.
5) Knoll Inc. (KNL)
Knoll Inc. has a Dividend Yield of 3.14%, a Payout Ratio of 34.13%, a Earnings Per Share Growth Rate of 103.18%, a Return on Equity of 35.95%, a Forward Price/Earnings Ratio of 9.51, and a Price/Sales Ratio of 0.68. The short interest was 3.50% as of 06/12/2012. Knoll, Inc. and its subsidiaries design, manufacture, and sell office furniture products and accessories in the United States, Canada, and Europe. The company offers systems furniture consisting of integrated panels or table desks, worksurfaces, pedestal and other storage units, power and data systems, and lighting; office seating products comprising various chairs; and files and storage products, such as lateral files, mobile pedestals, storage units, bookcases, and overhead storage cabinets. It also provides a collection of adjustable tables, as well as meeting, conference, training, dining, and caf tables for large scale projects; stand-alone desks and table desks; various lounge seating; side, caf, and dining chairs; barstools; and occasional tables.
6) Cliffs Natural Resources Inc. (CLF)
|Industry:||Steel & Iron|
Cliffs Natural Resources Inc. has a Dividend Yield of 5.38%, a Payout Ratio of 8.82%, a Earnings Per Share Growth Rate of 54.55%, a Return on Equity of 30.53%, a Forward Price/Earnings Ratio of 4.45, and a Price/Sales Ratio of 0.96. The short interest was 5.95% as of 06/12/2012. Cliffs Natural Resources Inc., a mining and natural resources company, engages in the production of iron ore pellets, fines and lump ore, and metallurgical coal. It operates five iron ore mines located in Michigan and Minnesota; five metallurgical coal mines located in West Virginia and Alabama; and one thermal coal mine located in West Virginia. The company also operates two iron ore mines in eastern Canada that primarily provide iron ore to steel producers in Asia; and two iron ore mining complexes in Western Australia.
7) Telecom Argentina S.A. (TEO)
|Industry:||Diversified Communication Services|
Telecom Argentina S.A. has a Dividend Yield of 8.03%, a Payout Ratio of 37.78%, a Earnings Per Share Growth Rate of 29.87%, a Return on Equity of 34.54%, a Forward Price/Earnings Ratio of 3.32, and a Price/Sales Ratio of 0.55. The short interest was 1.54% as of 06/12/2012. Telecom Argentina S.A., together with its subsidiaries, provides telecommunication services to residential customers, businesses, and governmental agencies in Argentina and internationally. It operates in two segments, Fixed Telephony and Mobile Services. The Fixed Telephony segment provides local fixed telephony, public telephony, domestic and international long-distance telephony, domestic and international point-to-point link, domestic and international telex, data transmission, videoconferencing, and broadcasting signal services; additional services, including call forwarding, call waiting, three-way calling, itemized billing, and voicemail; and Internet access in Argentina.
8) Lockheed Martin Corporation (LMT)
|Industry:||Aerospace/Defense Products & Services|
Lockheed Martin Corporation has a Dividend Yield of 4.85%, a Payout Ratio of 41.79%, a Earnings Per Share Growth Rate of 10.55%, a Return on Equity of 103.50%, a Forward Price/Earnings Ratio of 9.75, and a Price/Sales Ratio of 0.57. The short interest was 3.52% as of 06/12/2012. Lockheed Martin Corporation, a security and aerospace company, engages in the research, design, development, manufacture, integration, and sustainment of advanced technology systems and products in the areas of defense, space, intelligence, homeland security, information technology, and cyber security in the United States and internationally. It also provides management, engineering, technical, scientific, logistic, and information services. The company operates in four segments: Aeronautics, Electronic Systems, Information Systems & Global Solutions (IS&GS), and Space Systems.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.