Dividends with very high yields, strong profit margins, and underpriced are an appetizing combination. Today we have a list of dividend stocks that truly stand out. Their yields are greater than 10% which is worth noting, especially in the current market. On top of that they have a track record of generating profits. Further, analysts believe that they are currently being traded below market value. We think you will be excited by what we found.
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.
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.
EPS growth (earnings per share growth) illustrates the growth of earnings per share over time. EPS growth rates help investors identify stocks that are increasing or decreasing in profitability. This profitability metric is generally a key driver in the price of the stock as it directly correlates to the profitability of the company as a whole.
We first looked for stocks that have a very high dividend yield (Div. Yield > 10%). We then screened for businesses that are trading at a discount (P/E<10)(forward P/E<10). We then screened for businesses with strong profit margins (1-year operating margin>15%)(1-year fiscal EPS growth rate>10%). We did not screen out any market caps or sectors.
Do you think these stocks have strong enough fundamentals to move higher? Use our list along with your own analysis.
1) Crexus Investment Corp. (CXS)
|Industry:||REIT - Diversified|
Crexus Investment Corp. has a Dividend Yield of 10.37%, a Payout Ratio of 75.70%, a Price/Earnings Ratio of 6.72, a Forward Price/Earnings Ratio of 9.38, an Operating Profit Margin of 97.06%, and an Earnings Per Share Growth Rate of 163.94%. The short interest was 3.75% as of July 28, 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.
2) Great Northern Iron Ore Properties (GNI)
|Industry:||Steel & Iron|
Great Northern Iron Ore Properties has a Dividend Yield of 20.58%, a Payout Ratio of 91.75%, a Price/Earnings Ratio of 4.46, a Forward Price/Earnings Ratio of 4.38, an Operating Profit Margin of 86.59%, and an Earnings Per Share Growth Rate of 31.94%. The short interest was 3.03% as of July 28, 2012. Great Northern Iron Ore Properties, a conventional nonvoting trust, owns and leases mineral and non-mineral lands on the Mesabi Iron Range in northeastern Minnesota. It owns mineral interests in approximately 12,033 acres on the Mesabi Iron Range Formation, including approximately 9,895 acres of leased and 2,138 acres of unleased mineral interests. The company was founded in 1906 and is based in Saint Paul, Minnesota.
3) Prospect Capital Corporation (PSEC)
Prospect Capital Corporation has a Dividend Yield of 11.00%, a Payout Ratio of 73.28%, a Price/Earnings Ratio of 6.63, a Forward Price/Earnings Ratio of 9.39, an Operating Profit Margin of 55.59%, and an Earnings Per Share Growth Rate of 316.45%. The short interest was 7.38% as of July 28, 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.
4) PennyMac Mortgage Investment Trust (PMT)
|Industry:||REIT - Residential|
PennyMac Mortgage Investment Trust has a Dividend Yield of 10.56%, a Payout Ratio of 73.68%, a Price/Earnings Ratio of 7.66, a Forward Price/Earnings Ratio of 7.09, an Operating Profit Margin of 56.20%, and an Earnings Per Share Growth Rate of 67.86%. The short interest was 4.06% as of July 28, 2012. PennyMac Mortgage Investment Trust is based in the United States.
*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.