I searched for profitable companies with strong earnings growth prospects that pay rich dividends. Those stocks would have to show a low PEG ratio and a low debt.
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. All the data for this article were taken from Yahoo Finance and finviz.com. The screen's formula requires all stocks to comply with all following demands:
- The forward dividend yield is greater than 3.2%.
- The payout ratio is less than 65%.
- The PEG ratio is less or equal 1.00.
- Average annual earnings growth estimates for the next five years is greater than 16%.
- The trailing P/E is less than 18.
- The forward P/E is less than 18.
- Debt to equity is less than 0.75.
After running this screen on August 07, 2013, before the market open, I discovered the following four stocks:
Advanced Semiconductor Engineering Inc. (NYSE:ASX)
Advanced Semiconductor Engineering, Inc. provides semiconductor packaging and testing services in the United States, Taiwan, Asia, and Europe. The company was founded in 1984 and is based in Kaohsiung, Taiwan.
Advanced Semiconductor Engineering has a low long-term debt (total long-term debt to equity is only 0.40), and it has a very low trailing P/E of 13.86 and a very low forward P/E of 10.18. The PEG ratio is very low at 0.69, and the average annual earnings growth estimates for the next five years is very high at 20%. The forward annual dividend yield is quite high at 3.48%, and the payout ratio is only 48%.
The ASX stock price is 3.73% above its 20-day simple moving average, 5.61% above its 50-day simple moving average and 6.74% above its 200-day simple moving average. That indicates a short-term, mid-term and long-term uptrend.
On July 26, Advanced Semiconductor Engineering reported its second-quarter results. The company reported unaudited net revenue of NT$50,760 million for the second quarter of 2013 up by 11% year-over-year and up by 5% sequentially. Net income attributable to shareholders of the parent for the quarter totaled NT$3,820 million, up from a net income attributable to shareholders of the parent of NT$3,196 million in 2Q12 and up from a net income attributable to shareholders of the parent of NT$2,231 million in 1Q13. Diluted earnings per share for the quarter were NT$0.50 (or US$0.084 per ADS), compared to diluted earnings per share of NT$0.42 for 2Q12 and NT$0.29 for 1Q13.
The compelling valuation metrics, the very rich dividend, the strong earnings growth prospects, and the fact that the stock is in an uptrend are all factors that make ASX stock quite attractive.
CDI Corp. (NYSE:CDI)
CDI Corp., together with its subsidiaries, provides integrated engineering and technology solutions, and professional staffing services in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.
CDI Corp has no debt at all, and it has a trailing P/E of 17.60 and a forward P/E of 17.60. The PEG ratio is very low at 0.98, and the average annual earnings growth estimates for the next five years is very high at 18%. The forward annual dividend yield is quite high at 3.28%, and the payout ratio is at 58%.
On August 01, CDI Corp. reported its second-quarter results, which beat EPS expectations by $0.01 and was in-line on revenues.
Second Quarter Highlights
- Revenue of $263.4 million, a decline of 4.0% versus the second quarter 2012
- Gross profit margin of 19.6% versus 20.2% for the second quarter 2012
- Operating and administrative expenses as a percentage of revenue of 17.6% versus 17.4% for the second quarter 2012
- Earnings per share of $0.17 in the second quarter 2013 versus $0.25 for the second quarter 2012
In the report, CDI President and CEO Paulett Eberhart said:
While we are making good progress with the execution of our strategy to grow our focus verticals in both engineering and program staffing, our second quarter results were below last year's levels, as it is taking longer than expected to convert wins into revenues. We anticipate our new wins to convert into revenue at a progressively faster pace through the third and fourth quarters. In addition, we saw declines in non-program staffing and MRI revenue as well as lower spending by our largest client and government accounts during the second quarter.
The low PEG ratio, the rich dividend, and the strong earnings growth prospects, are all factors that make CDI stock quite attractive.
Ennis Inc. (NYSE:EBF)
Ennis, Inc., together with its subsidiaries, engages in the print and manufacture of business forms and other business products.
Ennis has a very low debt (total debt to equity is only 0.12) and it has a trailing P/E of 16.46 and a very low forward P/E of 11.07. The PEG ratio is very low at 0.97, and the price-to-sales ratio is also very low at 0.91. The price to free cash flow for the trailing 12 months is very low at 13.72, and the average annual earnings growth estimates for the next five years is very high at 17%. The forward annual dividend yield is quite high at 3.76%, and the payout ratio is at 62%.
On June 24, Ennis reported its latest quarterly financial results.
Highlights for the quarter include:
- Consolidated gross profit margin increased 610 basis points
- Print gross profit margin increased 180 basis points
- Apparel gross profit margin increased 1,330 basis points
- Diluted EPS increased 120% to $0.33 per share
In the report, Keith Walters, Chairman, Chief Executive Officer and President, commented by stating:
Overall we are pleased with our results for the quarter. Our apparel results continued to improve on both a sequential and comparative basis, as lower priced cotton, which has been flowing into our finished goods inventory, is starting to impact our operational results. We realized a 240 basis point sequential margin improvement last quarter and a 270 basis point sequential margin improvement this quarter. We would expect our apparel margin to continue to improve as the average carrying value of our finished goods inventory declines and as our operational efficiencies improve as production levels increase. While the overall apparel market continues to be challenged, both from a pricing and volume perspective, we have seen some pricing stability. Our print margin remained healthy improving 180 basis points over last year's comparable quarter, as we continue to eliminate duplicate costs associated with our recent acquisitions. Overall we feel positive about the quarter and the remainder of the year.
The compelling valuation metrics, the rich dividend, and the strong earnings growth prospects, are all factors that make EBF stock quite attractive.
Ensco plc (NYSE:ESV)
Ensco plc provides offshore contract drilling services to the oil and gas industry worldwide.
Ensco has a low debt (total debt to equity is only 0.39), and it has a very low trailing P/E of 10.47 and a very low forward P/E of 7.60. The PEG ratio is very low at 0.62, and the average annual earnings growth estimates for the next five years is very high at 16.80%. The forward annual dividend yield is quite high at 3.48%, and the payout ratio is only 36%. The annual rate of dividend growth over the past five years was very high at 71.88%.
On July 29, Ensco reported its second-quarter results, which beat EPS expectations by $0.06 and beat on revenues. In the report, Chairman, President and Chief Executive Officer Dan Rabun stated:
We continue to see strong, broad-based customer demand given the steady pace of new discoveries that must be appraised and developed. Based on our positive outlook, we recently ordered our eighth Samsung DP3 drillship, ENSCO DS-10, and our seventh Keppel FELS B Class jackup, ENSCO 110. These new assets reinforce our fleet standardization strategy that provides customers consistently high levels of operational excellence.
The compelling valuation metrics, the rich dividend, the good second quarter results, the strong earnings growth prospects, and the fact that the company consistently has raised dividend payments, are all factors that make ESV stock quite attractive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.