The latest issue of the T. Rowe Price Report includes an interview with David Giroux, manager of Price’s Capital Appreciation Fund, who wraps up the article with some advice: “Focus on companies with 2% to 3% dividend yields that have high-quality business models and trade for no more than 15 times earnings.”
That sounds like the makings of a stock screen. The Motley Fool’s CAPS Screener found 136 stocks that meet the dividend and P/E ratio criteria. Unfortunately, there’s no “high-quality business model” parameter, so I thinned the results to stocks with a four- or five-star rating from our CAPS community. That cut the field to 79 names from the seven sectors shown below.
The table below lists five of the stocks — one from each of the five sectors with the most hits.
| Company | Current Dividend Yield | P/E (TTM) | CAPS Rating (out of 5) | Sector |
| AFLAC Incorporated (NYSE:AFL) | 2.5% | 8.7 | ***** | Financial |
| HollyFrontier Corp (NYSE:HFC) | 2.5% | 5.5 | ***** | Basic materials |
| CSX Corporation (NYSE:CSX) | 2.4% | 14.1 | ***** | Services |
| Apple Inc. (NASDAQ:AAPL) | 2.7% | 10.6 | **** | Consumer goods |
| Illinois Tool Works Inc. (NYSE:ITW) | 2.2% | 12 | ***** | Industrial goods |
Source: Motley Fool CAPS Screener. TTM = trailing 12 months.
HollyFrontier Corp (NYSE:HFC) is an oil refiner. The trailing P/E looks like deep-value territory, but analyst estimates going forward bump the ratio up to nine — still not expensive. With a payout ratio of only 37%, Holly has some cushion to maintain and grow the dividend. The company has increased the dividend five times since 2011 and authorized two $350 million share buybacks last year.
Apple Inc. (NASDAQ:AAPL) wouldn’t have made this list a year ago. A new dividend started last year, and a recent dividend hike and a stock price retreat over the past several months have put Apple Inc. (NASDAQ:AAPL) squarely into the yield and valuation range recommended by Giroux. In addition to the dividend hike, Apple Inc. (NASDAQ:AAPL) increased its share buyback authorization from $10 billion to $60 billion in April. As for a high-quality business model, I suspect a high percentage of the folks reading this — perhaps even both of you — are doing so on an Apple Inc. (NASDAQ:AAPL) device.
