High Quality + High Yield + High Growth Stocks
by John Bajkowski
Lowell Miller is known for investing in high-quality growth stocks with high and growing dividends. Miller argues that high-yielding stocks have performed well after past bear markets, especially ones induced by a recession. Even in the current environment, 1,700 firms raised their dividend last year. This issue’s First Cut looks for stocks that follow the quantitative screen presented in Miller’s book “The Single Best Investment: Creating Wealth With Dividend Growth” (2006; www.mhinvest.com).
Miller starts out by looking for firms with low debt, strong cash flow, and strong overall credit-worthiness. As a measure of financial leverage, companies with a debt-to-capital ratio of 50% or lower made the First Cut [capital consists of debt plus equity]. To help judge the likeliness of continued dividend payments, Miller looks for a payout ratio [dividends divided by earnings] below 60%, or 85% for utilities. All First Cut companies were also required to have cash flow three times the level of their indicated dividend. Dividends cannot be paid until all cash obligations are satisfied, so Miller recommends an interest coverage ratio [EBITDA divided by interest] of four, or two for utilities.
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Miller feels that dividend growth is critical. At a minimum, dividend growth should exceed the rate of inflation. Dividends are paid from the income stream, so earnings must also be expected to expand. The First Cut firms have a dividend growth rate of at least 4%, while the historical and expected earnings growth rate is at least 5%.
To measure the level of the dividend yield [dividend divided by price], Miller prefers to compare the company’s yield to the market’s. Optimally, the yield should be 1.5 to 2.0 times the S&P 500 yield, which is currently around 2.5%. We were not able to meet this requirement but keep all of Miller’s measures of financial quality and growth. The First Cut presents the 30 stocks with the highest dividend yield. As a final screen, only domestic exchange-listed stocks made the First Cut.
| Company (Exchange: Ticker) |
LT Debt to Capital (%) |
Payout Ratio (%) |
Dividend Yield | Growth Rate |
Current Price ($) |
Relative Strength Index (S&P = 0) |
Description |
|||
|
Historical Div (%) |
Historical EPS (%) |
Expected EPS (%) |
||||||||
|
Current (%) |
7-Yr Avg (%) |
|||||||||
| Overseas Shipholding Group (N: OSG) | 42.5 | 12.3 | 5.6 | 2.0 | 14.0 | 20.1 | 10.0 | 31.17 | -39 | bulk shipping |
| Twin Disc, Inc. (M: TWIN) | 32.2 | 19.7 | 4.0 | 2.6 | 6.0 | 21.5 | 10.0 | 7.07 | -38 | power transmit equip |
| Norfolk Southern Corp. (N: NSC) | 40.0 | 29.5 | 3.9 | 1.5 | 26.1 | 24.9 | 10.6 | 35.08 | -12 | freight railroad |
| Sempra Energy (N: SRE) | 43.0 | 29.5 | 3.5 | 3.1 | 4.6 | 8.5 | 7.8 | 44.25 | 21 | energy servs holding co |
| South Jersey Industries (N: SJI) | 40.0 | 40.6 | 3.5 | 3.6 | 6.0 | 12.6 | 7.0 | 34.45 | 44 | energy servs holding co |
| Marathon Oil Corp. (N: MRO) | 28.5 | 22.1 | 3.4 | 2.6 | 11.1 | 53.3 | 7.0 | 28.63 | -13 | oil & natural gas |
| CSX Corporation (N: CSX) | 49.4 | 26.7 | 3.2 | 1.2 | 9.8 | 25.6 | 10.0 | 27.67 | -32 | rail & intermodal servs |
| Dover Corporation (N: DOV) | 33.0 | 35.6 | 3.2 | 1.7 | 8.2 | 14.4 | 15.3 | 31.15 | -7 | industrial prods |
| Cooper Industries, Ltd. (N: CBE) | 26.0 | 23.0 | 3.1 | 2.5 | 5.2 | 16.8 | 10.0 | 32.56 | 15 | electrical prods & tools |
| McGraw-Hill Companies, Inc. (N: MHP) | 49.2 | 35.7 | 3.0 | 1.7 | 8.7 | 14.7 | 9.0 | 30.12 | 9 | info servs provider |
| J.C. Penney Company, Inc. (N: JCP) | 41.9 | 37.2 | 3.0 | 1.8 | 6.9 | 38.8 | 12.7 | 26.54 | -8 | retailer holding co |
| United Technologies Corp. (N: UTX) | 37.1 | 30.0 | 3.0 | 1.7 | 17.0 | 13.7 | 9.0 | 51.28 | 11 | tech prods for buildings |
| Pentair, Inc. (N: PNR) | 34.5 | 19.9 | 2.9 | 1.8 | 10.0 | 31.7 | 12.1 | 25.26 | 10 | water & tech prods |
| General Dynamics Corp. (N: GD) | 23.3 | 22.7 | 2.8 | 1.6 | 14.0 | 15.0 | 9.0 | 55.01 | -5 | air, ship & combat prods |
| MTS Systems Corp. (M: MTSC) | 0.0 | 23.0 | 2.8 | 1.4 | 14.0 | 27.8 | 7.0 | 21.09 | -4 | mechanical test sys |
| Apogee Enterprises, Inc. (M: APOG) | 2.6 | 16.8 | 2.7 | 1.8 | 5.0 | 10.1 | 13.3 | 12.17 | -14 | glass prods & servs |
| Carlisle Companies, Inc. (N: CSL) | 18.2 | 29.5 | 2.7 | 1.7 | 5.6 | 12.2 | 12.0 | 22.64 | 14 | manufacturing holding co |
| Owens & Minor, Inc. (N: OMI) | 23.4 | 31.8 | 2.7 | 1.8 | 16.8 | 18.7 | 11.0 | 34.07 | 18 | medical & surgical supplies |
| Raytheon Company (N: RTN) | 20.0 | 27.1 | 2.7 | 2.2 | 9.3 | 21.5 | 11.7 | 46.07 | 13 | sys for government |
| A. O. Smith Corporation (N: AOS) | 33.5 | 27.4 | 2.7 | 1.9 | 5.2 | 23.8 | 10.0 | 28.28 | 26 | water equip & elec prods |
| Brown-Forman Corp. (N: BF.B) | 26.7 | 30.9 | 2.5 | 1.7 | 10.6 | 11.3 | 7.5 | 46.03 | 27 | brand alcoholic beverages |
| EQT Corporation (N: EQT) | 36.4 | 44.2 | 2.5 | 2.2 | 15.5 | 7.9 | 11.7 | 35.56 | -21 | oil & natural gas |
| Holly Corporation (N: HOC) | 42.4 | 22.3 | 2.5 | 1.1 | 29.2 | 24.8 | 15.5 | 23.53 | -7 | petroleum refining |
| Rockwell Collins, Inc. (N: COL) | 12.5 | 22.6 | 2.5 | 1.3 | 36.6 | 27.7 | 17.7 | 38.22 | -7 | aviation electronics |
| Ameron International Corp. (N: AMN) | 6.9 | 20.8 | 2.4 | 1.8 | 8.7 | 8.7 | 11.0 | 50.85 | -25 | engineered prods |
| Burlington Northern Santa Fe (N: BNI) | 45.2 | 26.7 | 2.4 | 1.5 | 17.0 | 18.4 | 6.8 | 67.14 | 0 | freight rail holding co |
| Cummins Inc. (N: CMI) | 16.8 | 22.2 | 2.4 | 1.9 | 10.4 | 34.0 | 10.3 | 29.55 | -35 | engines, power sys |
| Exxon Mobil Corp. (N: XOM) | 6.2 | 20.9 | 2.4 | 2.2 | 7.9 | 21.6 | 7.0 | 69.11 | 22 | oil & natural gas |
| W.W. Grainger, Inc. (N: GWW) | 19.5 | 26.6 | 2.4 | 1.6 | 12.0 | 18.7 | 11.2 | 77.71 | 37 | facility maintenance prods |
| Parker-Hannifin Corp. (N: PH) | 29.3 | 22.2 | 2.3 | 1.3 | 8.6 | 16.0 | 10.0 | 43.66 | -17 | motion & control sys |
| Exchange Key: A=American Stock Exchange; M=NASDAQ; N=New York Stock Exchange. | ||||||||||
| Source: AAII's Stock Investor Pro, Thomson Reuters, and I/B/E/S. Data as of 5/15/2009. | ||||||||||
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