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Wednesday, August 26, 2009

* Seven Stingy Dividend Stocks

I currently track 100 dividend stocks in my D4L-Dashboard and have determined some of the lower rated stocks could be buys if the companies simply chose to increase their dividends. For various reasons their management has elected keep a low payout ratio and deploy the excess cash elsewhere.

To identify these stingy companies, I used the following criteria on the companies I track:
  • A Free Cash Flow Dividend Payout (FCFp) of 40% or less. This means that 60% of the company's cash, after operating expenses, is going elsewhere.
  • A sum of Debt to Total Capital (Debt) + FCFp of less than 50%. This should help weed out the companies holding the cash to pay interest.
  • Trailing 12-month Free Cash Flow per share is greater than an average of the last 3 years. This weeds out companies where cash flow is decreasing.
  • Cash on the balance sheet in excess of short-term debt. This weeds out companies that may have an immediate debt-servicing need for the cash.
Here are seven stocks out of the 100 that I track meeting the above criteria:

Aflac Incorporated (AFL) - 4-Stars - Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
  • FCF Payout: 10%
  • Debt + FCFp: 34%
  • Cash/ST Debt: 11.5 Times
C.R. Bard Inc. (BCR) - 4-Stars
Bard (C.R.) Inc is a diversified producer of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.
  • FCF Payout: 13%
  • Debt + FCFp: 19%
  • Cash/ST Debt: No ST Debt (4.1 Times LT Debt)
Franklin Resources Inc. (BEN) - 2 Stars
Franklin Resources Inc. is one of the world's largest asset managers, serving retail, institutional and high-net-worth clients.
  • FCF Payout: 17%
  • Debt + FCFp: 31%
  • Cash/ST Debt: 91.2 Times
Donaldson Company (DCI) - 3 Stars - Analysis
Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.
  • FCF Payout: 17%
  • Debt + FCFp: 49%
  • Cash/ST Debt: 1.6 Times
General Dynamics (GD) - 2 Stars - Analysis
General Dynamics is the world's sixth largest military contractor and also one of the world's biggest makers of corporate jets.
  • FCF Payout: 25%
  • Debt + FCFp: 48%
  • Cash/ST Debt: 1.2 Times
Lancaster Colony (LANC) - 2 Stars
Lancaster Colony is a diversified Ohio-based company manufactures and markets consumer products; glassware and candles; and automotive accessories.
  • FCF Payout: 25%
  • Debt + FCFp: 29%
  • Cash/ST Debt: No ST Debt (1.3 Times LT Debt)
Walgreen Co. (WAG) - 3 Stars - Analysis
Walgreen Co is the largest U.S. retail drug chain in terms of revenues. It sells prescription and non-prescription drugs, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods.
  • FCF Payout: 28%
  • Debt + FCFp: 42%
  • Cash/ST Debt: 230 Times
You could view this from a positive perspective and say the above dividends should be very safe and the companies are in an excellent position to continue to raising them each year. In dividend investing, cash is king, but at some point management has to be willing to share it with the company's owners.

Full Disclosure: Long AFL. See a list of all my income holdings here.

Tags: [AFL] [BCR] [BEN] [DCI] [GD] [LANC] [WAG]

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