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Thursday, June 9, 2011

8 Dividend Stocks Yielding Over 3%, With Tiny Payout Ratios

Looking for a stock that will grow its dividend in the future and pay you handsomely now? The yield is not the only thing you need to focus on. You will also need to check the stock's Free Cash Flow Payout. This tells you how much cash the stock has left over after paying the normal operating expenses. This is the cash used to pay for acquisitions, debt obligations and dividends!

This week I am screening my database for stocks with a free cash flow payout below 35% and a dividend yield over 3%. The formula for Free Cash Flow Payout is simply Annual Dividend Per Share divided by Free Cash Flow Per Share. Free Cash Flow is Operating Cash Flow less normal capital expenditures (normally the first line in the investing section). Obviously, this is not a buy list but a potential idea list that will require additional due diligence.

Below are 8 stocks with debt that have a low Free Cash Flow Payout and a dividend yield over 3%:

ConocoPhillips Co. (COP)
FCF Payout: 17.1% | Yield: 3.6%
ConocoPhillips Co. was formed in 2002 when Phillips Petroleum and Conoco merged and is now is the fourth largest integrated oil company in the world.

Meredith Corp. (MDP)
FCF Payout: 20.2% | Yield: 3.2%
Meredith Corp. derives its earnings mainly from magazine publishing (primarily Better Homes and Gardens and Ladies' Home Journal) and ownership of 12 TV stations.

Essex Property Trust, Inc. (ESS)
FCF Payout: 22.1% | Yield: 3.1%
Essex Property Trust Inc. is a real estate investment trust that primarily owns and operates multi-family properties in California and the Pacific Northwest.

Cullen/Frost Bankers, Inc. (CFR)
FCF Payout: 28.3% | Yield: 3.3%
Cullen/Frost Bankers, Inc., is one of the largest multi-bank holding company headquartered in Texas, has more than 110 offices in various cities in the state.

Southside Bancshares Inc. (SBSI)
FCF Payout: 28.5% | Yield: 3.5%
Southside Bancshares Inc. primarily provides financial services to individuals, businesses, municipal entities, and non-profit organizations.

UniSource Energy (UNS)
FCF Payout: 30.6% | Yield: 4.6%
Unisource Energy, through Tucson Electric Power Co., provides regulated electric service to over 392,000 retail customers in Southeastern Arizona.

Community Trust Bank Corp. (CTBI)
FCF Payout: 31.6% | Yield: 4.6%
Community Trust Bank Corp. owns and operates Community Trust Bank, Inc. of Pikeville, KY, which provides commercial banking services in Kentucky and West Virginia; and a trust company.

Verizon Communications Inc. (VZ)
FCF Payout: 32.1% | Yield: 5.5%
Verizon Communications Inc. offers wireline, wireless and broadband services primarily in the northeastern United States.

The data present above is in its raw form. Some of the the companies would be disqualified for poor dividend fundamentals. However some of the others may be worth some additional probing.

My database, D4L-Data, is an Open Office spreadsheet containing more than 20 columns of information on the 200+ companies that I track. The data is sortable and has built-in buttons and macros to make it easy to use. Companies included in the list are those that have had a history of dividend growth. The D4L-Data spreadsheet is a part of D4L-Premium Services and is updated each Saturday for subscribers.

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

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(Photo Credit)

Tags: [COP] [MDP] [ESS] [CFR] [SBSI] [UNS] [CTBI] [VZ]

2 comments:

  1. COP would be a good way to hedge higher costs from gasoline prices if they will continue to remain high for awhile.

    VZ is interesting. They have been spending a lot of capital on their network. I wonder where they are in the buildout process and if cash flow might increase a lot once they are done.

    ReplyDelete
  2. IMO if a company is retaining a large part of their earnings and is not growing earnings at a good rate they are either bad investors or the earnings are not really earnings at all but are needed to maintain the current level of dividends.

    ReplyDelete

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