What are we looking for?
High, sustainable and growing dividends among U.S. companies.
The screen
We have screened our U.S. and ADR (American depositary receipt) universe of stocks with the following criteria:
- A minimum market capitalization of $10-billion (U.S.);
- A return on capital of 10 per cent or higher;
- Positive free cash-flow to capital ratio. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good – 5 per cent and above is excellent;
- A dividend payout of 100 per cent or lower;
- A dividend yield of 2 per cent or higher;
- A positive dividend growth rate on the one-, two-, three- and four-year horizons;
- Increasing earnings per share over 12 months (not shown in the table).
More about StockPointer
StockPointer is a fundamental analysis tool based on an EVA (economic value added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 7,500 companies (Canadian stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.
What did we find?
Only 11 companies fit our list of criteria. Pfizer comes up as the highest dividend payer of the group with a 3.85 per cent yield. Its dividend growth rate is very stable, around 7 per cent a year over the one-, two-, three- and four-year horizons. Unfortunately, its high yield is compensated by a lower return on capital and FCF/capital ratios than the group average.
AbbVie, another biopharmaceutical company, also offers a high yield (3.62 per cent), with a stronger return on capital of 15.5 per cent, higher dividend growth rates and a more conservative payout ratio.
Paychex also offers a very balanced profile for dividend investors. It generates high free cash flows, offers an attractive yield (3.7 per cent) with dividend growth rates hovering around 10 per cent a year. This IT company has also had a strong revenue growth of 8 per cent a year over the past five years (not shown in the table).
Investors are advised to do additional research prior to investing in any of the companies mentioned.
Jean-Didier Lapointe is a financial analyst at Inovestor Inc.