I searched for very profitable companies with strong 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:
1. The stock is included in the Russell 3000 index. Russell Investment explanation:
The Russell 3000 Index measures the performance of the largest 3000 U.S. companies representing approximately 98% of the investable U.S. equity market. The Russell 3000 Index is constructed to provide a comprehensive, unbiased, and stable barometer of the broad market and is completely reconstituted annually to ensure new and growing equities are reflected.
2. Earnings growth estimates for the next 5 years (per annum) is greater than 15%.
3. Dividend yield is greater than 1.4%.
4. The forward P/E is less than 14.
5. The PEG ratio is less than 1.0.
6. Price to free cash flow is less than 14, (many investors prefer using free cash flow instead of net income to measure a company's financial performance, because free cash flow is more difficult to manipulate. Free cash flow is the operating cash flow minus capital expenditure).
After running this screen on November 05, 2012, before the market open, I obtained as results the 4 following stocks:
Kaiser Aluminum Corporation (KALU)
Kaiser Aluminum Corporation, together with its subsidiaries, engages in the production and sale of semi-fabricated specialty aluminum products.
Kaiser Aluminum has a low debt (total debt to equity is 0.37) and the price to free cash flow for the trailing 12 months is very low at 12.17. The trailing P/E is quite low at 13.92 and the forward P/E is also low at 13.60 and the PEG ratio is very low at 0.93. The average annual earnings growth estimates for the next 5 years is quite high at 15.0%. The forward annual dividend yield is 1.69% and the payout ratio is quite low at 23.5%. Analysts like the stock; among the six analysts covering the stock, two rate it a strong buy, three rate it a buy and only one rates it a hold. On October 24, Kaiser Aluminum reported its 3Q financial results, On this occasion Jack A. Hockema, President, CEO and Chairman said, "We are very pleased with our third-quarter results as we continued to benefit from strong aerospace and automotive demand, improved pricing and increased overall operating leverage continuing the trend experienced in the first half of 2012 ." The KALU stock looks quite attractive.
Methanex Corp. (MEOH)
Methanex Corporation, together with its subsidiaries, engages in the production, marketing, and sale of methanol.
Methanex has a very low forward P/E of 10.88 and a very low PEG ratio of 0.56. The price to free cash flow for the trailing 12 months is very low at 12.58 and the average annual earnings growth estimates for the next 5 years is extremely high at 40%. The forward annual dividend yield is 2.39% and the payout ratio is 53.6%. On October 25, Methanex reported its fiscal 3Q financial results. On this occasion Bruce Aitken, President and CEO of Methanex commented, "We reported a decline in EBITDA compared with last quarter as we realized a lower methanol price. Entering the fourth quarter, steady methanol demand and supply outages across the industry have resulted in upward pressure on spot methanol prices, and today, we announced an increase of $43 per tonne to our North-American non-discounted price. Longer term, the outlook for the industry and pricing environment looks very attractive, as demand growth is expected to significantly outpace new capacity additions over the next few years." The very low multiples and the extreme growth prospects make the stock quite attractive.
SkyWest Inc. (SKYW)
SkyWest, Inc., through its subsidiaries, operates a regional airline in the United States.
SkyWest has a very low forward P/E of 8.99 and a very low PEG ratio of 0.31. The price to free cash flow for the trailing 12 months is very low at 13.67 and the average annual earnings growth estimates for the next 5 years is extremely high at 40.9%. The forward annual dividend yield is 1.41%. The price-to-book ratio is very low at 0.43 and the price to sales is also very low at 0.16. SKYW is scheduled to report its third-quarter 2012 financial results on November 07, and the results will probably affect the short-term stock price.
Wyndham Worldwide Corporation (WYN)
Wyndham Worldwide Corporation provides various hospitality products and services to individual consumers and business customers in the United States and internationally.
Wyndham has a low forward P/E of 13.88 and a very low PEG ratio of 0.86. The price to free cash flow for the trailing 12 months is very low at 11.48 and the average annual earnings growth estimates for the next 5 years is quite high at 16.8%. The forward annual dividend yield is 1.82% and the payout ratio is quite low at 36.1%. Analysts like the stock; among the 14 analysts covering the stock, four rate it a strong buy, eight rate it a buy and only two rate it a hold. Wyndham Worldwide reported earnings on October 24. For the quarter Wyndham Worldwide met expectations on revenue and beat expectations on earnings per share. All these factors make the stock quite attractive.