The Clorox Co (CLX), Hawaiian Electric Industries, Inc. (HE): Income Stocks That Passed Our ’2-Minute Test’

Page 1 of 2

http://cdn2.insidermonkey.com/blog/wp-content/uploads/2013/07/sa-logo-color-tagline.pngWe all know the value of investing in dividend stocks. That’s why I was intrigued by StreetAuthority expert Amy Calistri’s unorthodox idea about investing in stocks with low dividend yields.

Her point: Lower-yielding stocks can outperform their higher-yielding counterparts.

Amy’s not saying that all low dividend yield stocks were identical. In fact, she provided a four-step test for screening prospects to determine a stock’s dividend track record, ensuring it had a low payout ratio and high revenue growth, as well as a compelling story for future growth.

The Clorox Co (NYSE:CLX)

I ended up with three stocks I could confidently rate good, better and best. Here’s how I got there.

I was expecting quite a few would survive the first test of paying and increasing dividends, and I wasn’t disappointed. I found 726 possible names on FINVIZ.com, which had a record of at least five years of increasing dividends.

To add my own stamp to the process, I fiddled with the ratings screener. When I moved the rating screen to 3 or better (out of 5), the list shrank to 547 entries. Moving it to the top rating screen of 5 chopped the list to only 10 names. I was in business with a manageable group.

But because I was being picky about only finding top-rated stocks, I decided to add another hurdle before continuing the test. I took the remaining 10 top-rated stocks, matched up “years paying” and “years increasing,” and threw out any company that hadn’t increased each year. Any missteps, and they were out — which was how Caterpillar Inc. (NYSE:CAT) and Monmouth R.E. Inv. Corp. (NYSE:MNR) dropped off the list.

Although I was only looking for companies with five or more years of increasing dividends, the only remaining stocks had been paying for 20 years or more.

Low Payout Ratio
I tossed out any stock that had a payout ratio more than 100%, which was why I bid farewell to Harsco Corporation (NYSE:HSC), Kinder Morgan Inc (NYSE:KMI) and Landauer Inc (NYSE:LDR).

With the first two screens of Amy’s test completed — plus my added criteria of isolating only the highest-rated stocks boasting a perfect record of increasing dividends — I had five contenders: The Clorox Co (NYSE:CLX), Hawaiian Electric Industries, Inc. (NYSE:HE), Kaydon Corporation (NYSE:KDN), Leggett & Platt, Inc. (NYSE:LEG) and Raytheon Company (NYSE:RTN).

Revenue Growth
For revenue growth, I used the five-year growth rate. A negative five-year revenue growth rate of minus 2.6% eliminated Leggett & Platt, Inc. (NYSE:LEG) despite its positive net income growth rate of 32.9%.

The concept of future growth starts to get into subjective territory, but I decided it was fair to add two more numeric screens to be sure I was looking at the best of the best. First, I screened for net income growth rate over the same period and decided Kaydon Corporation (NYSE:KDN)’s minus 62.3% was a red flag, so my list shrank to three.

My next screen caused no further concern because all three remaining stocks had low price-to-earnings (P/E) ratios.

At this point, I decided to rank the data I had for the remaining stocks for each metric. With one being best, this meant the stock with the lowest total score would be the best.

Future Growth
The final test would determine whether the case for future growth matched up with the ranking.

The Clorox Co (NYSE:CLX) was in the news earlier this year for its worse-than-expected profit decline in its fiscal third quarter and shrinking margins. The company recently said it expects sales growth of 2% to 4% next year, and The Clorox Co (NYSE:CLX) has been trading near its one-year high near $90. I see neither spectacular growth in its future nor a great bargain.

Raytheon Company (NYSE:RTN) recently reported higher second-quarter profits and beat analysts’ EPS estimates. the company also raised its full-year forecasts for this year and next, saying it expects EPS of between $5.51 and $5.61. Like The Clorox Co (NYSE:CLX), Raytheon Company (NYSE:RTN) is trading near its 52-week high, so it’s not a bargain at its current price.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!