Dividends and free cash flow metric drives search for US dividend stocks

In the charts the below, Sean Pugliese and Allan Meyer of Wickham Investment Counsel examined the S&P 500 ensure one of their favorite metrics – free cash flow to enterprise value is highlighted. I would think since this is their favorite when advising clients they would ensure it is one of the metrics being seen. The reason being is they offer safety and value in investing, they need to watch changes in the metric. It is one of the many reasons why you should pick a couple of things why you invest? If those reasons change for the worse, you know when to sell; if they change for the better, then you can do nothing. Learning when to sell is a key aspect in investing.

The criteria Mr. Pugliese used was:

S&P 500 because larger companies tend to be more stable and diverse.

Dividend yield is the projected annualized dividend payments dividend by the share price. In this chart all companies have a plus 4% dividend yield.

Dividend payout ratio is the dividend payment divided by earnings. A low number is preferred and over 100 suggests a dividend cut is coming.

Debt to equity is the debt outstanding divided by shareholders’ equity. A smaller number is low debt. It is difficult to go bankrupt without owing any debts.

Free cash flow to enterprise value (FCF/EV)  Free cash flow is cash left over for investors after all expenses, reinvestments and capital expenditures. EV is the measure of the company’s value excluding its cash. In the below chart all companies have greater than 6%

Company                      Mkt Cap        Div Yield   Div Payout   Debt/    FCF/     Earns   52 week

$bil                   %               Ratio %      Equity   EV    Momen Tot Ret

Seagate Tech                13.2               5.3                 40.0            289.4       12.1    -10.2     -12.3

LyondellBassell Ind    30.4               4.9                 36.0               91.5       9.1      -7.9       -24.0

Harley Davidson            5.7              4.2                  50.2           428.4         8.4      -6.8       -8.1

Macy’s                            7.0                  6.7                42.7             73.8         8.4      -2.1       -19.0

Westrock                     120.0                4.8                 53.1           272.8        8.2     -1.4        -1.7

Gap                                   9.5                 4.9                60.0              55.9        8.2      -0.7     -36.1

Valero Energy               34.1                4.4                50.6               42.0        7.4      -9.1    -26.1

International Paper      18.2               4.4                46.1            144.7         7.4      3.2     -10.0

AT&T                             221.7                6.7                77.8              95.9        7.3       0.3         1.5

Western Union                8.3                4.2                40.9                 0.0       7.1     -3.1        -0.3

Altria Group                    97.3              6.2                  88.9           174.1        7.0      -1.3      -1.9

Verizon Comm              233                  4.3                  61.6         212.7           6.2      0.6     24.9

Linking to dividend paying stocks, charts such as these offered companies that will not be cutting their dividends anytime soon. There may be over concerns for example how does AT&T integrate Warner Comm; but the business will continue. In this chart total return was down, but that is a function of the market, it goes up and down. If you were a buy and hold type of investor, you are buying for the healthy dividend yields and either reinvesting those dividends or looking at other companies which have decreased in price and offer good dividend yields. When the market turns and the stocks go up in price you have made even more which is a good thing.

There are more questions than answers, till the next time – to raising questions.

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