For many dividend investors, it's not just about one time payouts. In fact, many investors seek consistent yields over time. For those who haven't found the right batch of dividend stocks to meet this goal, today we focused on companies that offer moderate yields while holding strong cash reserves. Liquid assets are an important resource for a company to continually provide a nice dividend, and as long as those cash reserves are strong, it's hard for a company to do away with its dividend.
With this idea in mind, we searched for dividend stocks whose metrics suggest that not only is there plenty of cash to support the dividends, but that the current stock price is below what it should be. Screening for these traits, we came up with a short, diverse, and interesting list of companies worthy of further research and analysis.
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).
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, the more the firm is relying on debt to finance its assets.
The Price/Sales ratio is a price-multiple valuation metric used to help identify if a firm is cheap by its twelve month trailing sales numbers. In the most basic terms, it lets an investor know how much the investment community is willing to pay for every dollar's worth of sales. A firm with a P/S ratio of one or lower would be viewed as cheap, because investors are paying $1 or less for every dollar's worth of a firm's sales. On the other hand, a firm is generally considered to be expensive when the P/S ratio is above three. To be clear, these are general guidelines used by the investment community, not hard rules.
Price/Sales Ratio = Current Stock Price/Revenue (sales) per Share
We first looked for dividend stocks. We then looked for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for businesses with a low price-multiple premium (forward P/E<10)(P/S<1). We did not screen out any market caps or sectors.
Do you think these stocks should be priced higher? Use our list along with your own analysis.
1) Miller Industries Inc. (MLR)
Miller Industries Inc. has a Dividend Yield of 3.46%, a Payout Ratio of 38.88%, a Current Ratio of 3.15, a Quick Ratio of 2.23, a Forward Price/Earnings Ratio of 8.75, and a Price/Sales Ratio of 0.43. The short interest was 7.31% as of 08/14/2012. Miller Industries, Inc. engages in the manufacture and sale of vehicle towing and recovery equipment. It offers wreckers, such as conventional tow trucks and recovery vehicles used to recover and tow disabled vehicles and other equipment; car carriers, which are specialized flat-bed vehicles with hydraulic tilt mechanisms used for transporting new or disabled vehicles and other equipment; and transport trailers for moving multiple vehicles, auto auctions, car dealerships, leasing companies, and other similar applications. The company sells its products under the brand names of Century, Vulcan, Challenger, Holmes, Champion, Chevron, Eagle, Titan, Jige, and Boniface.
2) Houston Wire & Cable Company (HWCC)
|Industry:||Industrial Equipment Wholesale|
Houston Wire & Cable Company has a Dividend Yield of 3.19%, a Payout Ratio of 38.97%, a Current Ratio of 5.59, a Quick Ratio of 2.50, a Forward Price/Earnings Ratio of 9.41, and a Price/Sales Ratio of 0.52. The short interest was 8.83% as of 08/14/2012. Houston Wire & Cable Company, through its subsidiaries, provides wire and cable products, and related services in the United States. It offers continuous and interlocked armor cable; control and power cables; electronic wire and cables; flexible and portable cords; instrumentation and thermocouple cables; lead and high temperature cables; medium voltage cables; and premise and category wire and cable, wire rope, and wire rope slings, as well as nylon slings, chain, shackles, and other related hardware. The company also offers private branded products, including low-smoke zero-halogen cables under its proprietary brand, LifeGuard.
3) Tronox Incorporated (TROX)
Tronox Incorporated has a Dividend Yield of 4.42%, a Current Ratio of 3.38, a Quick Ratio of 2.01, a Forward Price/Earnings Ratio of 6.79, and a Price/Sales Ratio of 0.20. The short interest was 20.07% as of 08/14/2012. Tronox Incorporated produces and markets titanium products in the Americas, Europe, and the Asia-Pacific. The company offers titanium dioxide pigment, which is used in consumer products, such as paint, plastic, and certain specialty products. In addition, it manufactures and markets electrolytic and specialty chemical products, such as electrolytic manganese dioxide, sodium chlorate for pulp and paper manufacture, and boron-based and other specialty chemicals serving the semi-conductor, pharmaceutical and igniter industries.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.