Are you a dividend investor searching out profitable companies that pay their fair share in dividend income? Do you prefer mid to high yields at sustainable payout ratios? If so, we ran a screen keeping these ideas in mind. The mid-cap companies we focused on today not only have those traits, but also look to be undervalued from a price-multiple standpoint. We think you'll like the short and diverse list of companies that we came up with.
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 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
The forward P/E is a price multiple valuation metric, which is similar to the current P/E ratio, except that it uses the forecast earnings instead. While this number might not be as accurate because it uses the "forecast" 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/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.
We first looked for mid cap dividend stocks. We then screened for businesses with strong profit margins (1-year operating margin>15%)(Net Margin [TTM]>10%). We next screened for businesses with a low price-multiple premium (forward P/E<10)(P/E<10). We did not screen out any sectors.
Do you think these mid-cap stocks deserve to trade higher? Use our list to help with your own analysis.
1) Gold Fields Ltd. (NYSE:GFI)
Gold Fields Ltd. has a Dividend Yield of 3.46%, a Payout Ratio of 17.64%, an Operating Profit Margin of 26.28%, a Net Margin of 17.18%, a Forward Price/Earnings Ratio of 7.69, and a Price/Earnings Ratio of 9.39. The short interest was 0.48% as of 07/03/2012. Gold Fields Limited engages in the acquisition, exploration, development, and production of gold properties. It holds interests in eight operating mines in South Africa, Peru, Ghana, and Australia. As of February 27, 2012, the company had total attributable precious metal and gold equivalent mineral resources of 217.0 million ounces.
2) Hatteras Financial Corp (NYSE:HTS)
|Industry:||REIT - Residential|
Hatteras Financial Corp has a Dividend Yield of 12.41%, a Payout Ratio of 98.05%, an Operating Profit Margin of 65.60%, a Net Margin of 65.60%, a Forward Price/Earnings Ratio of 7.67, and a Price/Earnings Ratio of 7.46. The short interest was 4.75% as of 07/03/2012. Hatteras Financial Corp. operates as an externally-managed mortgage real estate investment trust. It invests in fixed-rate and adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by the United States Government agency or by the United States Government-sponsored entity, and the Federal Home Loan Mortgage Corporation.
3) Yanzhou Coal Mining Co. Ltd. (NYSE:YZC)
|Industry:||Industrial Metals & Minerals|
Yanzhou Coal Mining Co. Ltd. has a Dividend Yield of 5.57%, a Payout Ratio of 31.40%, an Operating Profit Margin of 26.60%, a Net Margin of 19.07%, a Forward Price/Earnings Ratio of 8.83, and a Price/Earnings Ratio of 5.62. The short interest was 0.27% as of 07/03/2012. Yanzhou Coal Mining Company Limited, together with its subsidiaries, engages in the mining, preparation, and sale of coal in China, Japan, South Korea and Australia. The company mines, washes, processes, and sells thermal coal for the electricity power sector; and processed metallurgical coal and PCI for the metallurgical sector. It operates six coal mines, including the Xinglongzhuang, Baodian, Nantun, Dongtan, Jining II, and Jining III. The company also engages in the production and sale of methanol, electricity, and related heat supply services, as well as provides railway transportation services. In addition, it is involved in the production and sale of acetic acid; thermoelectricity investment; sale of mining machinery and equipment, and electronic products; development of coal technology; production and sale of other mining products; thermal power generation by coal slurry and gangue; provision of cargo transportation services along the Yangtze river; and industrial gas production and supply.
*Company profiles were sourced from Finviz. Financial data was sourced from Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.