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 7 stocks with debt that have a low Free Cash Flow Payout and a dividend yield over 3%:
Genuine Parts Co. (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
FCF Payout: 37.6% | Yield: 3.1%
Wal-Mart Stores, Inc. (WMT) is the largest retailer in the world, operating a chain of over 10,000 discount department stores, wholesale clubs, supermarkets and supercenters.
FCF Payout: 39.8% | Yield: 3.1%
Target Corp. (TGT) operates nearly 1,800 Target, SuperTarget and CityTarget general merchandise stores across the U.S.
FCF Payout: 30.1% | Yield: 3.2%
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: 30.2% | Yield: 3.4%
Cisco Systems, Inc. (CSCO) offers a complete line of routers and switching products that connect and manage communications among local and wide area computer networks employing a variety of protocols.
FCF Payout: 37.1% | Yield: 3.6%
Nucor Corporation (NUE) is the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
FCF Payout: 27.0% | Yield: 4.2%
IBM's (IBM) global offerings include information technology services, software, computer hardware equipment, fundamental research, and related financing.
FCF Payout: 37.6% | Yield: 4.2%
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 250+ 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 GPC, WMT, CINF, CSCO in my Dividend Growth Portfolio and Long IBM in my High Dividend Growth Portfolio. See a list of all my dividend growth holdings here.
- How To Buy Dividend Stocks At The Bottom
- 10 Stocks That Have Paid Dividends Since The 1800s
- Are You Patient Enough To Be Wealthy? These 7 Dividend Stocks Will Help You Wait
- Three Keys For Successful Dividend Growth Investing
- 5 Exceptional Dividend Growth Stocks With Quality Financials
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