High payout ratio
Landauer Inc (NYSE:LDR)’ s radiation-monitoring business is mature with little chance of substantial growth. It has added to the core business and acquired a medical- physics segment and a medical-products unit. The company was debt free for nearly a decade before taking on debt for acquisitions. The new business has added revenue but decreased margins.
Cash from operations continues to increase in spite of lower margins and barring more acquisitions, capital spending has stabilized at around 40% of cash flow. Free cash flow is positive and the dividend has a long track record of payment. It increased every year until 2012. The yield is 4.5%. The payout ratio often treads into very high near-100% territory and increases in the dividend may be few and far between. It is selling near a 52-week low but at higher valuations than it probably deserves.
Rising dividends
Paychex, Inc. (NASDAQ:PAYX) works in human resources managing payrolls and taxes for mainly mid-sized businesses. The recession was difficult, but revenue and earnings are recovering along with the price per share. Of the three, it trades at nearer the 52-week high than the low and the yield has dropped to 3.6% from its average 4.1%. Paychex has no debt and given its asset-light model, capital spending is on the low side providing consistent free cash flow. Dividends have been increasing for three years as Paychex, Inc. (NASDAQ:PAYX) recovered from the recession.
Comparisons
All three have predictable free cash flow and stable businesses. None will grow and make an investor rich with capital appreciation. The companies are mature. Garmin Ltd. (NASDAQ:GRMN) with its high free cash flow yield and 5.2% dividend yield is the most attractive income candidate of the three. It also benefits from zero debt and to seal the deal, it’s selling at a discount compared to Landauer Inc (NYSE:LDR) and Paychex, Inc. (NASDAQ:PAYX) with the lowest PE and EV/EBITDA.
The yields are higher than a 10-year Treasury, but it goes without saying, an investor has no guarantee of not losing capital. There is no risk-free free lunch in the search for yield. Of course we can always wait for the 10-year yield to pay us a living wage, but it could be a long time coming. A better strategy is to begin the hunt and turn over enough rocks to build a respectable retirement portfolio.
jean graham owns shares of Landauer Inc (NYSE:LDR). The Motley Fool recommends Paychex, Inc. (NASDAQ:PAYX).
The article Prep Your Portfolio for Yield originally appeared on Fool.com.
jean is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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