How do you approach dividend stock opportunities that are posting burgeoning momentum and operate with high profitability?
When weighing in on where to wage your battles in a volatile market, metrics like ROE can make a world of difference. This is especially the case with dividends stocks, where ROE could unmask a company's efficiencies or inefficiencies. Today, we marked 8 dividend stocks that have illustrated superior profitability through their ROE while maintaining a low to moderate leverage.
Return on Equity (ROE) is one way to identify interesting dividend stocks that show strong potential relative to profitability. ROE itself illustrates the percentage return on shareholder equity. This metric also segments the company into operational efficiency, asset efficiency, and dependence on financial leverage.
Now what does this tell us? Why does this matter? How is this useful?
It paints a genuine picture of how the company is generating these returns. For investors it can identify parts of the company that may be underperforming or it can illuminate an overlooked internal strength.
To help provide a better picture of what information ROE specifically identifies for an investor we provided a full break down of the DuPont ROE Analysis below:
DuPont ROE analysis tells us that three things affect ROE:
- Operating efficiency, measured by profit margin
- Asset use efficiency, measured by total asset turnover
- Financial leverage, measured by the equity multiplier
ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier (Assets/Equity)
When identifying dividend paying stocks that operate with a strong profitability (Trailing 12-Month ROE>=15%) in a weak global environment we screened for companies that only used a low to moderate leverage (Leverage<3). From there we further narrowed the list to those who have recently taken on a bullish trend by outperforming the S&P 500 over the last month. A bullish move can sometimes indicate that something has fundamentally changed for the positive but has yet to show up in the financial statements.
Finally, given the markets high rate of volatility we looked for companies also paying at least a 3% dividend rate to compensate for taking on market exposure.
Here are our findings and the companies are ranked by their financial leverage ratios from highest to lowest:
1. Calumet Specialty Products Partners (CLMT)
Sector | Energy |
Industry | Oil & Gas Refining & Marketing |
Market Cap | $4,702M |
Price | 25.09 (07/29/2012) |
Calumet Specialty Products Partners offers a dividend yield of 8.31%. The company's ROE (TTM) is 17.67%. CLMT has gained by 8.76% in the last month while the S&P 500 only posted a gain of 1.86%. Calumet Specialty Products Partners' financial leverage in the last quarter was 2.89.
2. Hasbro, Inc. (HAS)
Sector | Consumer Cyclical |
Industry | Leisure |
Market Cap | $ 4,702M |
Price | $36.26 (07/29/2012) |
Hasbro offers a dividend yield of 8.31%. The company's ROE is 17.67%. HAS has gained by 8.76 % in the last month while the S&P 500 only posted a gain of 1.86%. Hasbro's financial leverage in the last quarter was 2.89.
3. Enterprise Products Partners (EPD)
Sector | Energy |
Industry | Oil & Gas Midstream |
Market Cap | $ 4,702M |
Price | $53.43 (07/29/2012) |
Enterprise Products Partners offers a dividend yield of 3.47%. The company's ROE is 24.97%. EPD has gained by 12.36% in the last month while the S&P 500 only posted a gain of 1.86%. Enterprise Products Partners' financial leverage in the last quarter was 2.79.
4. Magellan Midstream Partners (MMP)
Sector | Energy |
Industry | Oil & Gas Midstream |
Market Cap | $ 8,831M |
Price | $78.08 (07/29/2012) |
Magellan Midstream Partners offers a dividend yield of 4.15%. The company's ROE is 28.81%. MMP has gained by 13.34 % in the last month while the S&P 500 only posted a gain of 1.86%. Magellan Midstream Partners' financial leverage in the last quarter was 2.74.
5. Alliance Holdings GP, L.P. (AHGP)
Sector | Basic Materials |
Industry | Industrial Metals & Minerals |
Market Cap | $ 2,704M |
Price | $45.17 (07/29/2012) |
Alliance Holdings offers a dividend yield of 5.53%. The company's ROE is 42.82%. AHGP has gained by 10.96% in the last month while the S&P 500 only posted a gain of 1.86%. Alliance Holdings GP, L.P.'s financial leverage in the last quarter was 2.71.
6. BP PLC (BP)
Sector | Energy |
Industry | Oil & Gas Integrated |
Market Cap | $131,712M |
Price | $41.55 (07/29/2012) |
BP offers a dividend yield of 4.33%. The company's ROE is 22.11%. BP has gained by 8.66% in the last month while the S&P 500 only posted a gain of 1.86%. BP's financial leverage in the last quarter was 2.57.
7. ABB, Ltd. (ABB)
Sector | Industrials |
Industry | Diversified Industrials |
Market Cap | $ 40,179M |
Price | $17.52 (07/29/2012) |
ABB offers a dividend yield of 3.99%. The company's ROE is 19.42%. ABB has gained by 12.81% in the last month while the S&P 500 only posted a gain of 1.86%. ABB's financial leverage in the last quarter was 2.54.
8. AstraZeneca PLC (AZN)
Sector | Healthcare |
Industry | Drug Manufacturers - Major |
Market Cap | $ 59,340M |
Price | $46.58 (07/29/2012) |
AstraZeneca offers a dividend yield of 6.01%. The company's ROE is 39.71 %. AZN has gained by 6.47% in the last month while the S&P 500 only posted a gain of 1.86%. AstraZeneca's financial leverage in the last quarter was 2.36.
We hope this list helps as investors do their own due diligence and research on profitable dividend stocks that have recently outperformed the S&P 500.
Disclaimer: The thoughts, opinions, and statements here are not to be taken or construed as investment advice directed toward any individual and or entity.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
