Tuesday, February 17, 2015

7 Dividend Stocks With Room To Increase Their Payout

I currently track over 250 dividend growth stocks in my D4L-Database 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 the companies with ample room to increase their dividend payout, I used the following criteria:
  • 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 55%. 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.
  • Yield greater than 2.0%.
Here are the stocks meeting the above criteria:

AXIS Capital Holdings Limited (AXS) provides various insurance and reinsurance products to insureds and reinsureds. It operates in two segments, Insurance and Reinsurance.
- FCF Payout: 11.1%
- Debt + FCFp: 31.1%
- Cash/ST Debt: n/a (no ST debt)
- Yield: 2.2%  

T. Rowe Price Group Inc. (TROW) operates one of the largest no-load mutual fund and life cycle fund complexes in the United States, with September 30 AUM of $731 billion.
- FCF Payout: 40.0%
- Debt + FCFp: 40.0%
- Cash/ST Debt: n/a (no ST debt)
- Yield: 2.1%  

BancFirst Corp. (BANF) company owns and operates BancFirst, which provides a range of retail and commercial banking services in Oklahoma.
- FCF Payout: 12.6%
- Debt + FCFp: 18.9%
- Cash/ST Debt: 150 times
- Yield: 2.3%  

Archer-Daniels-Midland Co. (ADM) is one of the world's leading agribusiness concerns, with major market positions in agricultural processing and merchandising. See full analysis here.
- FCF Payout: 17.5%
- Debt + FCFp: 40.0%
- Cash/ST Debt: 15 times
- Yield: 2.3%  

Qualcomm Incorporated (QCOM) focuses on developing products and services based on its advanced wireless broadband technology.
- FCF Payout: 37.1%
- Debt + FCFp: 37.1%
- Cash/ST Debt: n/a (no ST debt)
- Yield: 2.4%  

Erie Indemnity Co. (ERIE) is a management services company that provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States.
- FCF Payout: 19.9%
- Debt + FCFp: 19.9%
- Cash/ST Debt: n/a (no ST debt)
- Yield: 3.0% 

Cincinnati Financial Corp. (CINF) is an insurance holding company that primarily markets property and casualty coverage. It also conducts life insurance and asset management operations.
- FCF Payout: 32.1%
- Debt + FCFp: 44.2%
- Cash/ST Debt: n/a (no ST debt)
- Yield: 3.5%

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 ERIE, CINF in my Dividend Growth Portfolio. See a list of all my dividend growth holdings here.

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(Photo Credit)


Tags: AXS, TROW, BANF, ADM, QCOM, ERIE, CINF,

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