Are you a dividend investor searching out companies that pay their fair share in dividend income? Do you prefer high yields, like over 5%, matched with sustainable payout ratios? If so, we ran a screen keeping this idea in mind. The companies we focused on today not only have those traits, yet also are holding low valuations from a price-multiple perspective. We think you'll like the list of companies that we came up with.
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.
The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.
The Price/Earnings ratio is one of the most commonly used price-multiple metrics. Often, EPS from the last four quarters is used to derive this number. A firm that has a high P/E ratio generally indicates that investors have high expectations of the firm relative to future earnings growth. By the opposite token, investors generally have lower expectations of a firm with a low P/E ratio. A firm that holds a P/E below 10 could be viewed as having "value investment" potential. One thing to remember is that EPS is an accounting measure that could be potentially manipulated. Thus the P/E is only as good as the quality of the earnings.
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.
We first looked for dividend stocks. From here, we then looked for companies with strong profitability (ROA > 10%)(1-year operating margin>15%). We then looked for businesses that are trading at a discount (P/E<10)(forward P/E<10). We did not screen out any market caps or sectors.
Do you think these stocks have more value to price in? Use our list to help with your own analysis.
1) PDL BioPharma, Inc. (PDLI)
PDL BioPharma, Inc. has a Dividend Yield of 9.19%, a Payout Ratio of 43.07%, a Return on Assets of 80.65%, a Operating Profit Margin of 94.31%, a Price/Earnings Ratio of 5.49, and a Forward Price/Earnings Ratio of 3.71. The short interest was 11.95% as of 06/26/2012. PDL BioPharma, Inc. engages in intellectual property asset management and royalty bearing assets investment activities. The company is involved in the humanization of monoclonal antibodies and the discovery of a new generation of targeted treatments for cancer and immunologic diseases. It offers Queen et al.
2) Prospect Capital Corporation (PSEC)
Prospect Capital Corporation has a Dividend Yield of 10.78%, a Payout Ratio of 73.28%, a Return on Assets of 11.51%, a Operating Profit Margin of 55.59%, a Price/Earnings Ratio of 6.77, and a Forward Price/Earnings Ratio of 9.58. The short interest was 9.47% as of 06/26/2012. Prospect Capital Corporation is a business development company. It is a private equity firm specializing in late venture, middle market, mature, mezzanine finance, buyouts, recapitalizations, growth capital, development, and bridge transactions. The firm makes secured debt and equity investments in private and microcap public businesses.
3) Crexus Investment Corp. (CXS)
|Industry:||REIT - Diversified|
Crexus Investment Corp. has a Dividend Yield of 10.50%, a Payout Ratio of 75.70%, a Return on Assets of 10.54%, a Operating Profit Margin of 97.06%, a Price/Earnings Ratio of 6.64, and a Forward Price/Earnings Ratio of 9.27. The short interest was 3.77% as of 06/26/2012. CreXus Investment Corp., through its subsidiaries, operates as a commercial real estate company. It acquires, manages, and finances commercial mortgage loans and commercial real estate debts, commercial real properties, commercial mortgage-backed securities, other commercial real estate-related assets, and agency residential mortgage-backed securities. The company qualifies as a real estate investment trust for federal income tax purposes.
4) ECA Marcellus Trust 1 (ECT)
|Industry:||Oil & Gas Drilling & Exploration|
ECA Marcellus Trust 1 has a Dividend Yield of 13.90%, a Return on Assets of 12.81%, a Operating Profit Margin of 97.51%, a Price/Earnings Ratio of 7.34, and a Forward Price/Earnings Ratio of 6.13. The short interest was 0.32% as of 06/26/2012. ECA Marcellus Trust I holds royalty interests in producing and development horizontal natural gas wells for Energy Corporation of America (ECA). It owns royalty interests in 14 producing horizontal natural gas wells producing from the Marcellus Shale formation, located in Greene County, Pennsylvania; and royalty interests in 52 horizontal natural gas development wells to be drilled to the Marcellus Shale formation comprising approximately 9,300 acres held by ECA in Greene County, Pennsylvania. The royalty interest in the producing wells allows the company to receive 90% of the proceeds from the sale of production of natural gas attributable to ECA's interest in the producing wells.
*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.