Are you a dividend investor searching out companies that pay their fair share in dividend income? Do you prefer reliable yields, matched with sustainable payout ratios? One smart place to look is among companies that bring in steady profits to pay those dividends. The companies we focused on today not only have strong sources of profitability; they are also holding low valuations from a price-multiple perspective. We think you'll like the list of companies that we came up with.
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 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 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/Cash Flow ratio is a price-multiple valuation metric that also measures a firm's future financial health. An advantage of using cash flow is that it removes non-cash factors, which helps provide a clearer picture of how much money the firm is taking in from a valuation standpoint. Price/Cash Flow Ratio = Current Stock Price/Cash Flow Per Share
We first looked for dividend stocks. Next, we then screened for businesses that have achieved strong bottom line profitability (Net Margin [TTM]>10%)(1-year operating margin>15%). We then screened for businesses with a low price-multiple premium (forward P/E<10)(P/CFO<10). We did not screen out any market caps or sectors.
Do you think these stocks hold solid value? Use our list along with your own analysis.
1) Janus Capital Group, Inc. (JNS)
Janus Capital Group, Inc. has a Dividend Yield of 3.35%, a Payout Ratio of 22.02%, a Net Margin of 14.89%, a Operating Profit Margin of 29.51%, a Forward Price/Earnings Ratio of 9.69, and a Price/Cash Flow Ratio of 2.22. The short interest was 11.16% as of 07/11/2012. Janus Capital Group, Inc. is a publicly owned asset management holding company with approximately $167.7 billion in assets under management. It also provides retirement planning, investment planning, tax planning, investment for college, and tax planning services to its clients.
2) JPMorgan Chase & Co. (JPM)
|Industry:||Money Center Banks|
JPMorgan Chase & Co. has a Dividend Yield of 3.50%, a Payout Ratio of 23.90%, a Net Margin of 19.05%, a Operating Profit Margin of 26.67%, a Forward Price/Earnings Ratio of 6.46, and a Price/Cash Flow Ratio of 2.35. The short interest was 1.24% as of 07/11/2012. JPMorgan Chase & Co., a financial holding company, provides various financial services worldwide. Its Investment Bank segment offers various investment banking products and services, including advising on corporate strategy and structure, capital-raising in equity and debt markets, risk management, market-making in cash securities and derivative instruments, prime brokerage, and research services for corporations, financial institutions, governments, and institutional investors. The company's Commercial Banking segment provides lending, treasury, investment banking, and asset management services to corporations, municipalities, financial institutions, and not-for-profit entities.
3) Bank of Montreal (BMO)
|Industry:||Money Center Banks|
Bank of Montreal has a Dividend Yield of 4.89%, a Payout Ratio of 51.67%, a Net Margin of 23.74%, a Operating Profit Margin of 30.12%, a Forward Price/Earnings Ratio of 9.15, and a Price/Cash Flow Ratio of 1.08. The short interest was 0.42% as of 07/11/2012. Bank of Montreal, together with its subsidiaries, provides various retail banking, wealth management, and investment banking products and services in North America and internationally. It offers personal banking products and services, including deposit and investment services, mortgages, consumer credit, business lending, credit cards, and other banking services to individuals, and small and mid-sized businesses; and commercial banking products and services comprising lending, deposits, treasury management, and risk management services to small business, medium-sized enterprise, and mid-market banking clients. The company also provides investment and wealth advisory services; self-directed investing services; private banking services to high net worth and ultra-high net worth clients; investment fund solutions to institutional, retail, and high net worth investors; record-keeping and administrative services to pension plan sponsors; and creditor insurance, life insurance, and annuity products and services.
4) Cliffs Natural Resources Inc. (CLF)
|Industry:||Steel & Iron|
Cliffs Natural Resources Inc. has a Dividend Yield of 5.43%, a Payout Ratio of 8.82%, a Net Margin of 26.16%, a Operating Profit Margin of 29.63%, a Forward Price/Earnings Ratio of 4.54, and a Price/Cash Flow Ratio of 53.63. The short interest was 7.74% as of 07/11/2012. 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.
*Company profiles were sourced from Finviz. Financial data was sourced from Google Finance and Yahoo Finance.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.