30 Efficient, Dividend Paying Companies With Cheap Stock Prices

Dividend stocks are a portfolio anchor in turbulent investing times, as 2011 has surely been. These stocks provide steady income returns, many at rates much higher than Treasury bonds, with the added bonuses of capital appreciation potential and the ability to raise their dividend payments over the years.

Joel Greenblatt's Magic Formula Investing (MFI) strategy can be used to target attractive dividend stocks. It simply ranks the entire stock universe by two simple metrics: earnings yield to find companies selling at low multiples to their profits, and return on capital to find companies that earn those profits efficiently. The resulting list of stocks are high quality and selling cheaply in the market. Who can argue against buying those characteristics?

In this article, I want to take it a step farther and throw out firms that do not pay a regular dividend. Doing this, we automatically get rid of highly volatile and unpreditable companies, leaving the steady income generators that pay their shareholders in cash. Their cheap stock prices allow us the potential for capital appreciation on top of dividend payments, and also can lock us in at dividend yields that may be higher than usual. And, since these are all highly capital efficient companies, the cash they generate can often be put to use in raising the dividend in the future.

The table below lists the top 30 dividend paying stocks over 50 million market cap, ranked in the Magic Formula fashion (using MagicDiligence's screener). There are, of course, some rather unstable dividend payers in this list. For example, PDL BioPharma (PDLI) and Great Northern (GNI) are essentually annuity companies, with a set point in the near future where they will go out of business by design. By and large, though, most of these companies have proven to be stable dividend payers well worth a look by income-focused investors:

Ticker	Company	DivYield	EY	ROIC	Rank
MANT	ManTech International Corporation	2.5%	28.0%	121.1%	1
STRA	Strayer Education, Inc.	4.7%	18.2%	139.0%	2
PETS	PetMed Express, Inc.	5.3%	19.9%	110.7%	3
AMAT	Applied Materials, Inc.	2.9%	23.9%	76.3%	4
LPS	Lender Processing Services, Inc.	2.6%	17.8%	106.4%	5
PDLI	PDL BioPharma, Inc.	10.9%	16.4%	124.5%	6
USPH	U.S. Physical Therapy, Inc.	1.6%	15.0%	157.4%	7
DV	DeVry Inc.	0.6%	17.9%	97.5%	8
MKSI	MKS Instruments, Inc.	2.6%	27.8%	63.5%	9
KLAC	KLA-Tencor Corporation	3.3%	18.8%	86.5%	10
UTIW	UTi Worldwide Inc.	0.4%	22.7%	66.2%	11
GNI	Great Northern Iron Ore Properties	15.5%	13.6%	223.5%	12
LINC	Lincoln Educational Services Corporation	11.3%	41.9%	55.5%	13
CATO	The Cato Corporation	3.7%	19.5%	71.0%	14
UNTD	United Online, Inc.	7.1%	14.3%	135.3%	15
DLX	Deluxe Corporation	4.5%	15.1%	112.4%	16
EME	EMCOR Group, Inc.	0.9%	16.5%	80.6%	17
TNH	Terra Nitrogen Co. LP	9.5%	12.8%	313.9%	18
MSFT	Microsoft Corporation	3.0%	13.8%	132.8%	19
ADI	Analog Devices Inc.	2.9%	13.8%	124.5%	20
CTCM	CTC Media, Inc.	11.3%	13.3%	138.0%	21
NOC	Northrop Grumman Corporation	3.6%	18.2%	64.1%	22
FCX	Freeport-McMoran Copper & Gold Inc.	2.8%	33.9%	49.8%	23
USMO	USA Mobility, Inc.	7.3%	17.8%	62.6%	24
GD	General Dynamics Corporation	3.1%	16.2%	69.4%	25
ASEI	American Science and Engineering, Inc.	1.8%	15.1%	74.5%	26
MDP	Meredith Corporation	4.2%	16.2%	63.0%	27
CMTL	Comtech Telecommunications Corp.	3.4%	13.7%	95.5%	28
GPS	The Gap, Inc.	2.6%	19.8%	51.8%	29
ALTR	Altera Corporation	0.9%	11.6%	286.5%	30

Comments

Posted by gagahonk on 2011-10-19 07:10:20

Hi Steve - what is the reason some of the rows are pink and some white? Thanks!

Posted by Steve on 2011-10-19 07:12:02

Oh yes, should have mentioned that! The entries in pink were "official" Magic Formula stocks on the day the article was published. The ones in white were ones that screened on MagicDiligence's own screener, but not on the "official" one run by Greenblatt.

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