When it comes to managing finances, most of us experience a sense of possibility when we have money in the bank and have not maxed out our lines of credit. It gives us more freedom and allows us to make future plans or wait for the right opportunity for an investment. Along those lines, companies that have built up a cash reserve while not over borrowing against their assets appeal to many investors. With that in mind, we focused on the niche of small cap dividend stocks. All of the companies that made our cut today have moderate to high yields, a high level of liquidity, and minimal debt. We think you will find our list worthy of further investigation.
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 Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.
The Long-Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.
We first looked for small cap dividend stocks. Next, we screened for businesses with a large amount of cash on hand (Current Ratio>2)(Quick Ratio>2). From here, we looked for companies that operate with little to no debt (D/E Ratio<.1). We then looked for companies that operate with little to no long term debt (Long Term D/E Ratio<.1). We did not screen out any sectors.
Do you think these small-cap stocks will offer healthy returns? Please use our list to assist with your own analysis.
1) True Religion Apparel Inc. (TRLG)
|Industry||Textile - Apparel Clothing|
|Long Term Debt/Equity Ratio||0.00|
True Religion Apparel, Inc. designs, develops, manufactures, markets, distributes, and sells apparel in North America, Europe, Asia, Australia, Africa, and South America. It offers fashion jeans and related sportswear apparel. The company provides various products for men, women, and children, including denim jeans; corduroy pants and jackets; cotton, twill, linen, and velvet pants and jackets; fleece sweat suits and hooded sweatshirts; sweaters; skirts; knit shirts; T-shirts; shorts; and sportswear. It sells apparel under the True Religion Brand Jeans brand name.
The company sells its products through retail stores, wholesale sales teams, distributors, sales agents, boutiques, department stores, and specialty retailers, as well as through its Web site, truereligionbrandjeans.com. It also licenses its trademarks to third parties for manufacturing, marketing, and distributing various products. As of March 31, 2012, the company operated 109 branded retail stores in the United States; 4 retail stores in Canada; 4 retail stores in Japan; 5 retail stores in the United Kingdom; 4 retail stores in Germany; and 1 retail store in the Netherlands. True Religion Apparel, Inc. was founded in 2002 and is headquartered in Vernon, California.
2) Quality Systems Inc. (QSII)
|Industry||Healthcare Information Services|
|Long Term Debt/Equity Ratio||0.00|
Quality Systems, Inc., together with its subsidiaries, engages in the development and marketing of healthcare information systems in the United States. The company operates in four divisions: QSI Dental, NextGen, Hospital Solutions, and Revenue Cycle Management (RCM) Services. The QSI Dental division develops, markets, and supports software suites for dental organizations. It also supports various dental organizations utilizing its Software as a Service model-based financial and clinical software, as well as certain medical clients that utilize its UNIX-based medical practice management software. The NextGen division offers integrated clinical, financial, and connectivity solutions for ambulatory and dental provider organizations, including NextGen Ambulatory product suite comprising electronic health records, practice management, dashboard, mobile solutions, and NextPen; and NextGen Community Connectivity products, such as health information exchange, patient portal, and health quality measures solutions.
This division also provides electronic data interchange, hosting, data protection, and consulting services. The Hospital Solutions division offers integrated clinical, financial, and connectivity solutions for rural and community hospitals; and practice management software products for the small hospital market that performs the various administrative functions required for operating a small hospital. The RCM Services division provides technology solutions and consulting services to cover healthcare providers' RCM needs that include billing and collections, electronic claims submission, electronic remittance and payment posting, accounts receivable follow-up, and expertise and support services. The company markets its products through its direct sales force and various reseller relationships. Quality Systems, Inc. was founded in 1974 and is headquartered in Irvine, California.
3) FutureFuel Corp. (FF)
|Industry||Chemicals - Major Diversified|
|Long Term Debt/Equity Ratio||0.00|
FutureFuel Corp. engages in the manufacture and sale of diversified chemicals and biobased products in the United States. The company operates in two segments, Chemicals and Biofuels. The Chemicals segment offers custom manufacturing products, including nonanoyloxybenzene-sulfonate, a bleach activator for detergent and consumer products manufacturers; a proprietary herbicide for life sciences companies; and chlorinated polyolefin adhesion promoters and antioxidant precursors for chemical companies, as well as a biocide intermediates for other diversified chemical companies. Its custom manufacturing products also include agrochemicals, as well as industrial and consumer products, which comprise cosmetics and personal care products, ink colorants, polymer additives, polymer and specialty dyes, specialty polymers, photographic and imaging chemicals, and food additives.
In addition, this segment offers performance chemicals, such as a family of polymer (nylon and polyester) modifiers, and various small-volume specialty chemicals and solvents for diverse applications; and a family of acetal based solvents, including diethoxymethane, dimethoxymethane, dibutoxymethane, glycerol formal, and phenol sulfonic acid. Its chemical products are used in various markets and end uses comprising detergent, agrochemical, automotive, photographic imaging, coatings, nutrition, and polymer additives. The Biofuels segment produces and sells biodiesel and petrodiesel in blends with or without biodiesel; operates a granary in central Arkansas; and is involved in the shipping of refined petroleum products on carrier pipelines, as well as buys and sells petroleum products. It markets biodiesel for transportation and home heating fuel usage by truck and rail directly to customers. The company was formerly known as Viceroy Acquisition Corporation and changed its name to FutureFuel Corp. in October 2006. FutureFuel Corp. was incorporated in 2005 and is headquartered in Clayton, Missouri.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on September 15, 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.