For dividend investors, high yields are nice, but they're even better when they come from companies with solid fundamentals. Today we focused on dividend stocks that are building up strong cash reserves as a byproduct of their ability to return profits. Our list is diverse, but we think you'll find it interesting.
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).
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 Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
We first looked for dividend stocks. We next screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have been able to maintain a sound level of profitability for shareholders (ROE [TTM]>30%)(Net Margin [TTM]>10%). We did not screen out any market caps or sectors.
Do you think these stocks will continue to see such strong profitability? Please use our list to assist with your own analysis.
1) Linear Technology Corp. (LLTC)
|Industry:||Semiconductor - Specialized|
Linear Technology Corp. has a Dividend Yield of 3.38%, a Payout Ratio of 48.85%, a Current Ratio of 9.18, a Quick Ratio of 8.66, a Return on Equity of 84.33%, and a Net Margin of 34.98%. The short interest was 3.24% as of 06/14/2012. Linear Technology Corporation, together with its subsidiaries, designs, manufactures, and markets various analog integrated circuits worldwide. The company produces power management, data conversion, signal conditioning, RF and interface ICs, and Module subsystems. Its products comprise amplifiers, high speed amplifiers, voltage regulators, voltage references, interface, data converters, radio frequency circuits, power over Ethernet controllers, Module power products, and single chain Module products, as well as other liner circuits. The company's product applications include telecommunications, cellular telephones, networking products, tablet, notebook, and desktop computers; computer peripherals, video/multimedia, industrial instrumentation, and security monitoring devices; consumer products, such as digital cameras and global positioning systems; complex medical devices, automotive electronics, factory automation, and process control; and military, space, and other harsh environment systems.
2) CVR Partners, LP (UAN)
CVR Partners, LP has a Dividend Yield of 10.27%, a Payout Ratio of 78.40%, a Current Ratio of 4.95, a Quick Ratio of 4.52, a Return on Equity of 60.52%, and a Net Margin of 45.08%. The short interest was 3.32% as of 06/14/2012. CVR Partners, LP engages in the production, distribution, and marketing of nitrogen fertilizers in North America. Its nitrogen fertilizer products include ammonia and urea ammonium nitrate. The company was founded in 2007 and is based in Sugar Land, Texas.
3) Computer Programs & Systems Inc. (CPSI)
|Industry:||Healthcare Information Services|
Computer Programs & Systems Inc. has a Dividend Yield of 3.37%, a Payout Ratio of 65.25%, a Current Ratio of 2.84, a Quick Ratio of 2.74, a Return on Equity of 49.14%, and a Net Margin of 14.70%. The short interest was 7.25% as of 06/14/2012. 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.
4) The Female Health Company (FHCO)
The Female Health Company has a Dividend Yield of 4.57%, a Payout Ratio of 58.47%, a Current Ratio of 2.60, a Quick Ratio of 2.37, a Return on Equity of 60.08%, and a Net Margin of 35.05%. The short interest was 5.19% as of 06/14/2012. The Female Health Company manufactures, markets, and sells consumer health care products in the United States and internationally. It offers the FC2 female condom, which provides dual protection against unintended pregnancy and sexually transmitted diseases, including HIV/AIDS. The Female Health Company sells its products to public health clinics, as well as to not-for-profit organizations.
5) RPC Inc. (RES)
|Industry:||Oil & Gas Equipment & Services|
RPC Inc. has a Dividend Yield of 3.17%, a Payout Ratio of 17.50%, a Current Ratio of 2.86, a Quick Ratio of 2.32, a Return on Equity of 45.09%, and a Net Margin of 16.14%. The short interest was 22.49% as of 06/14/2012. RPC, Inc. provides a range of oilfield services and equipment primarily to independent oil and gas companies engaged in the exploration, production, and development of oil and gas properties in the United States, Africa, Canada, China, eastern Europe, Latin America, the Middle East, and New Zealand. It operates in two segments, Technical Services and Support Services. The Technical Services segment offers pressure pumping, coiled tubing, snubbing, nitrogen pumping, well control consulting and firefighting, downhole tools, wireline, and fluid pumping services.
6) Southern Copper Corp. (SCCO)
Southern Copper Corp. has a Dividend Yield of 6.80%, a Payout Ratio of 82.37%, a Current Ratio of 3.56, a Quick Ratio of 2.92, a Return on Equity of 58.93%, and a Net Margin of 35.39%. The short interest was 5.63% as of 06/14/2012. Southern Copper Corporation engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile. It 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.
*Company profiles were sourced from Finviz. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.