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U.S. companies with dividends ... and growing cash flow

What are we looking for?

Dividend payers with growing amounts of cash in their pockets.

The idea here is that companies that are already paying dividends, but are seeing their cash flow grow even faster than they're paying it out, are in a good position not only to maintain their dividends but boost them.

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More about today's screen

Craig McGee, senior consultant at CPMS Morningstar Canada, created today's offering.

He filtered the CPMS database of U.S. companies to find firms that are growing their cash flows faster than their dividends. More specifically, he looked for enterprises with:

-a market capitalization greater than $1-billion (U.S.);

-an increase in dividends per share in the past year;

-a positive year-over-year change in cash flow per share;

-a payout ratio (in other words, the amount of dividends paid as a percentage of cash flow) no greater than 80 per cent;

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-a current payout ratio less than the payout ratio from four quarters ago.

Mr. McGee restricted any one sector to no more than two companies. The accompanying list shows the top 15 companies, based on dividend yields, that passed the criteria.

More about CPMS

CPMS, a division of Morningstar Canada, provides quantitative North American equity research and portfolio analysis to institutional clients and financial advisers through software and Web-based tools. It covers more than 700 Canadian and 2,200 U.S. stocks, and adjusts for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.

What did we find?

An interesting shopping list of stocks with good-sized dividends that seem in a strong position to maintain and grow their payouts. It's worth noting, however, that only four of these 15 companies have actually seen their share prices rise so far this year. Many have sustained significant falls in recent months.

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The discrepancy between growing cash flows and falling share prices is interesting: While all these firms are generating larger amounts of cash, the market appears to be signalling skepticism about whether that growth can be maintained. Investors who are prepared to research these companies further may discover some bargains.

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