Reliability is a becoming trait in people and investments. When appointments and promises are broken, we all tend to feel let down and disappointed. When it comes to selecting investments, many people specifically choose dividend stocks that provide moderate to high yields because of their reputation for dependability. But to keep those payouts at a generous level, companies that offer dividends must have strong profits. Cash reserves provide further credibility as it demonstrates fiscal discipline and preparedness. With this in mind, we developed a short list of dividend stocks with solid yields, profitability and a healthy level of liquidity. Utilize the summaries below to begin your own investigation of these dividend stocks.
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).
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.
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.
We first looked for dividend stocks. We next screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We then looked for companies that have strong profitability (1-year fiscal EPS Growth Rate>10%)(1-year operating margin>15%). We did not screen out any market caps or sectors.
Do you think these stocks offer both value and growth? Use this list as a starting-off point for your own analysis.
1) Quality Systems Inc. (QSII)
|Industry||Healthcare Information Services|
|Earnings Per Share Growth Rate||21.12%|
|Operating Profit Margin||24.77%|
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. Quality Systems, Inc. was founded in 1974 and is headquartered in Irvine, California.
2) Computer Programs & Systems Inc. (CPSI)
|Industry||Healthcare Information Services|
|Earnings Per Share Growth Rate||36.98%|
|Operating Profit Margin||22.40%|
Computer Programs and Systems, Inc., a healthcare information technology company, designs, develops, markets, installs, and supports computerized information technology systems to small and mid-size hospitals in the United States. Its enterprise-wide system automates the management of clinical and financial data across the primary functional areas of a hospital. The company was founded in 1979 and is headquartered in Mobile, Alabama.
3) Southern Copper Corp. (SCCO)
|Earnings Per Share Growth Rate||51.07%|
|Operating Profit Margin||53.97%|
Southern Copper Corporation engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile. It is involved in the mining, milling, and flotation of copper ore to produce copper and molybdenum concentrates; smelting of copper concentrates to produce anode copper; and refining of anode copper to produce copper cathodes, as well as refined silver. The company was founded in 1952 and is based in Phoenix, Arizona. Southern Copper Corporation is a subsidiary of Americas Mining Corporation.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/15/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.