Investing in dividends, especially those that offer moderate to high yields, is a path that many savvy investors take when it comes to building wealth. To find companies with reliable long-term yields, today we focused on large cap stocks with strong track records of generating profits. We further narrowed the list of dividend stocks to include those that have a recent 'Buy' or better rating from analysts, which can signal that a company has many good characteristics, such as effective management, in place. These two traits, impressive profits and analyst backing, point to a well run company. The list below provides you with a place to start your research process.
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.
Return on equity (ROE) is one way to identify great potential names relative to profitability. This ratio illustrates the percentage return on shareholder equity. As well, this metric segments the company into operational efficiency, asset use efficiency, and financial leverage. Why does this matter? Simply put, it allows investors to get a real picture of how the company is generating these returns and helps identify parts of the company that may be underperforming.
We first looked for large cap dividend stocks. From here, we looked for companies with strong profit margins (1-year operating margin>15%)(ROE [TTM]>30%). Next, we screened for businesses that analysts rate as "Buy" (2 < mean recommendation < 3). We did not screen out any sectors.
Do you think these large-cap stocks can offer attractive returns? Use our list along with your own analysis.
1) BHP Billiton Ltd. (BHP)
|Industry||Industrial Metals & Minerals|
|Operating Profit Margin||43.96%|
|Return on Equity||38.59%|
BHP Billiton Ltd., together with its subsidiaries, operates as a diversified natural resources company worldwide. The company engages in the exploration, development, and production of oil and gas; mining and refining of bauxite into alumina, and smelting of alumina into aluminum metal; and mining of copper, silver, lead, zinc, molybdenum, uranium, gold, diamonds, and titanium minerals, as well as development of potash deposits. It also involves in the mining and production of nickel products, manganese ore, and manganese metal and alloys, as well as in the mining of iron ore, metallurgical coal, and thermal coal.
BHP Billiton Limited sells its copper, lead, and zinc concentrates, and alumina to smelters; copper cathodes to wire rod mills, brass mills, and casting plants; uranium oxide to electricity generating utilities; rough diamonds to diamond buyers and diamond manufacturers; nickel products to stainless steel, specialty alloy, foundry, chemicals, and refractory material industries; metallurgical coal to steel producers; and energy coal to power stations, power generators, and industrial users. The company, formerly known as BHP Ltd. and changed its name to BHP Billiton Ltd. in July, 2001. It was founded in 1885 and is headquartered in Melbourne, Australia. BHP Billiton Ltd. operates as a subsidiary of BHP Billiton Group.
2) Altria Group Inc. (MO)
|Operating Profit Margin||27.71%|
|Return on Equity||99.10%|
Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally. It offers cigarettes under the Marlboro, Virginia Slims, Parliament, Benson & Hedges, Basic, and L&M brands; smokeless tobacco products under the Copenhagen, Skoal, Red Seal, Husky brands, and Marlboro snus brands; and machine-made large cigars and pipe tobacco.
The company also produces and sells blended table wines under the Chateau Ste. Michelle and Columbia Crest names; and distributes Antinori and Villa Maria Estate wines and Champagne Nicolas Feuillatte in the United States. In addition, it maintains a portfolio of leveraged and direct finance leases in rail and surface transport, aircraft, electric power, real estate, and manufacturing. The company sells its tobacco products to wholesalers, including distributors; large retail organizations, such as chain stores; and the armed services. Altria Group, Inc. markets its wine products to restaurants, wholesale clubs, supermarkets, wine shops, and mass merchandisers. The company was founded in 1919 and is headquartered in Richmond, Virginia.
3) McDonald's Corp. (MCD)
|Operating Profit Margin||31.45%|
|Return on Equity||37.93%|
McDonald's Corporation, together with its subsidiaries, franchises and operates McDonald's restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. The company's restaurants offer hamburgers and cheeseburgers, Big Mac, Quarter Pounder with cheese, Filet-O-Fish, chicken sandwiches, chicken McNuggets, chicken selects, snack wraps, french fries, salads, shakes, desserts, sundaes, soft serve cones, pies, cookies, soft drinks, coffee, and other beverages, as well as full or limited breakfast menu. As of December 31, 2011, it operated 33,510 restaurants in 119 countries, including 27,075 franchised restaurants and 6,435 company operated restaurants. The company was founded in 1940 and is based in Oak Brook, Illinois.
4) British American Tobacco plc (BTI)
|Operating Profit Margin||30.77%|
|Return on Equity||39.60%|
British American Tobacco p.l.c., through its subsidiaries, engages in the manufacture, distribution, and sale of tobacco and nicotine products. It offers cigarettes, cigars, smokeless snus, roll-your-own, and pipe tobacco products. The company sells its products under the Dunhill, Kent, Lucky Strike, Pall Mall, Vogue, Viceroy, Kool, Rothmans, Peter Stuyvesant, Benson & Hedges, State Express 555, and John Player Gold Leaf, as well as Granit, Mocca, and Captain Black brands. British American Tobacco p.l.c. sells its products in the Asia-Pacific, the Americas, eastern and western Europe, Africa, and the Middle East. The company was founded in 1902 and is headquartered in London, the United Kingdom.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on August 23, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.