Companies with zero debt and excess reserves can continue to grow and gain market share through mergers and acquisitions. I searched for profitable companies with zero debt and an above average growth prospects that pay significant dividends.
I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research.
The screen's formula requires all stocks to comply with all following demands:
- The stock is included in the Russell 1000 index. Russell Investment explanation: "The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest securities based on a combination of their market cap and current index membership. The Russell 1000 represents approximately 92% of the U.S. market. The Russell 1000 Index is constructed to provide a comprehensive and unbiased barometer for the large-cap segment and is completely reconstituted annually to ensure new and growing equities are reflected."
- Earnings growth estimates for the next 5 years (per annum) is greater than 12%.
- Total debt to equity is zero.
- Dividend yield is greater than 2.0%.
- Annual rate of dividend growth over the past five years is greater than 5%.
After running this screen on October 18, 2012 before the market open, I obtained as results the 4 following stocks (click to enlarge images):
CH Robinson Worldwide Inc. (CHRW)
C.H. Robinson Worldwide, Inc., a third-party logistics company, provides freight transportation services and logistics solutions to companies in various industries worldwide.
CH Robinson has no debt at all and it has a forward P/E of 19.58 and a PEG ratio of 1.67. The average annual earnings growth estimates for the next 5 years is 13.58% and the forward annual dividend yield is 2.14%. On September 26, 2012, it was announced that CH Robinson Worldwide Inc. is set to buy Phoenix International, Inc. for $635 million. Phoenix International is a U.S. based privately-held global freight forwarding company that primarily deals in ocean freight along with other services like air freight and custom brokerage. The acquisition can contribute to CH Robinson's growth. All these factors make the stock quite attractive.
Gentex Corp. (GNTX)
Gentex Corporation designs, develops, manufactures, and markets electro-optical products for the automotive, commercial building, and aircraft industries primarily in the United States, Germany, and Japan.
Gentex has no debt at all and it has a quite low forward P/E of 14.27 and a very low PEG ratio of 0.98. The average annual earnings growth estimates for the next 5 years is quite high at 15.07% and the forward annual dividend yield is high at 2.99%. All these factors make the stock quite attractive.
National Instruments Corporation (NATI)
National Instruments Corporation designs, manufactures, and sells measurement and automation products to create virtual instrumentation systems for general, commercial, industrial, and scientific applications worldwide.
National Instruments has no debt at all and it has a forward P/E of 23.19. The average annual earnings growth estimates for the next 5 years is 12% and the forward annual dividend yield is 2.28%.
T. Rowe Price Group, Inc. (TROW)
T. Rowe Price Group, Inc. is a publicly owned asset management holding company. The firm primarily provides its services to individual and institutional investors, retirement plans, and financial intermediaries.
T. Rowe has no debt at all and it has a forward P/E of 14.27 and a PEG ratio of 1.69. The average annual earnings growth estimates for the next 5 years is 13.17 and the forward annual dividend yield is 2.07%. During the second quarter of 2012, the firm expended $129.2 million to repurchase 2.2 million shares of its common stock. All these factors make the stock quite attractive.