For dividend investors, high yields are always nice, but they're even better when they come from companies with solid fundamentals. Today we focused on dividend stocks that have built up strong cash reserves from their ability to continually return profits. Our list is diverse, but we think you'll find it interesting.
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 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).
We first looked for dividend stocks. Next, we then screened for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(1-year operating margin>15%). We then looked for companies with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). We did not screen out any market caps or sectors.
Do you think these stocks are undervalued? Use our screened list as a starting point for your own analysis.
1) Chunghwa Telecom Co. Ltd. (CHT)
|Industry:||Telecom Services - Domestic|
Chunghwa Telecom Co. Ltd. has a Dividend Yield of 5.72%, a Payout Ratio of 88.89%, a Return on Assets of 10.81%, a Operating Profit Margin of 27.42%, a Current Ratio of 2.22, and a Quick Ratio of 2.11. The short interest was 0.57% as of 07/09/2012. Chunghwa Telecom Co., Ltd. provides integrated telecommunication services primarily in Taiwan. It offers domestic fixed communications services, including local and domestic long distance telephone, broadband access, local and domestic long distance leased line, multimedia-on-demand, Wi-Fi, and domestic data services; mobile communications services comprising mobile, paging, information and communication technology, corporate solution, and bill handling services; Internet, data communication, Internet data center, and other Internet services; international fixed communications services that comprise international long distance telephone, international leased line, international data, satellite, and other services, including the provision of interconnection of its fixed line network and mobile network with other operators; and ICT services, such as cloud computing. The company also sells mobile handsets and data cards; and leases real estate properties.
2) Freeport-McMoRan Copper & Gold Inc. (FCX)
Freeport-McMoRan Copper & Gold Inc. has a Dividend Yield of 3.57%, a Payout Ratio of 38.80%, a Return on Assets of 15.25%, a Operating Profit Margin of 38.98%, a Current Ratio of 3.51, and a Quick Ratio of 2.11. The short interest was 2.59% as of 07/09/2012. Freeport-McMoRan Copper & Gold Inc. engages in the exploration, mining, and production of mineral resources. The company primarily explores for copper, gold, molybdenum, cobalt hydroxide, silver, and other metals, such as rhenium and magnetite. It holds interests in various mines located in the Grasberg minerals district in Indonesia; Morenci minerals district in North America; South America; and Tenke Fungurume minerals district in the Democratic Republic of Congo.
3) Garmin Ltd. (GRMN)
|Industry:||Scientific & Technical Instruments|
Garmin Ltd. has a Dividend Yield of 4.82%, a Payout Ratio of 75.88%, a Return on Assets of 12.40%, a Operating Profit Margin of 20.28%, a Current Ratio of 3.95, and a Quick Ratio of 3.27. The short interest was 11.99% as of 07/09/2012. Garmin Ltd., together with its subsidiaries, designs, develops, manufactures, and markets global positioning system (GPS) enabled products and other navigation, communication, and information products for the automotive/mobile, outdoor, fitness, marine, and general aviation markets worldwide. The company offers a range of automotive navigation products, and various products and applications designed for the mobile GPS market; GPS enabled handheld products for hunters, hikers, geocachers, outdoors enthusiasts, cyclists, and golfers; dog tracking systems; tracker systems; and training assistants for athletes. It also provides handhelds, network products and multifunction displays, fixed-mount GPS/chartplotter products, instruments, fish finders, radars, autopilots, VHF radios, marine networking products, and sounder products.
4) Analog Devices Inc. (ADI)
|Industry:||Semiconductor - Integrated Circuits|
Analog Devices Inc. has a Dividend Yield of 3.28%, a Payout Ratio of 44.39%, a Return on Assets of 13.35%, a Operating Profit Margin of 32.55%, a Current Ratio of 8.10, and a Quick Ratio of 7.55. The short interest was 1.91% as of 07/09/2012. Analog Devices, Inc. engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits (ICs) used in industrial, automotive, consumer, and communication applications. The company's signal processing products involve in converting, conditioning, and processing real-world phenomena, such as temperature, pressure, sound, light, speed, and motion into electrical signals. Its product range includes data converters, amplifiers and linear products, radio frequency ICs, power management products, sensors based on micro-electro mechanical systems technology and other sensors, and processing products.
*Company profiles were sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.