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Margin of Safety Investing
Margin of Safety Investing

Who are the best US-listed dividend payers?

Following my recent post on the relationship between higher payout ratio and higher future earnings growth, Pierre-Olivier of www.jourly.com asked me who I thought were the best US dividend plays in the US…and while I had some ideas based on stocks I have reviewed since creating Margin of Safety Investing, I thought I should try and answer the question based on the entire US stock universe, not just the stocks I have analyzed so far.

To do so, I first generated a list of US companies using Morningstar’s stock screener using the following criteria:

- Market capitalization > $100M

- Dividend yield > 2%, making sure we are looking at the highest dividend payers (current S&P dividend yield = 2.3%)

- Payout ratio of 60% or less: I usually want companies to have enough cash to keep growing and hence prefer company with manageable payout ratios

- I excluded financial services companies as I generally do not really know how to analyze/value them

- Using Morningstar’s rating as a first pass, I set my screen to only select companies with a “Financial health grade” of B or better

These criteria lead us to a list of c.180 stocks (much more than I was expecting), representing $4.6T of cumulative market cap!

You can find the list of companies and the key metrics that I will be using for the selection of the best US dividend payers in this Google Doc.

Now, in order to select the best stocks among those 182, I will use filters along the three risk categories I usually review:

1- Business risk

In order to evaluate business performance, I usually look into ROE and ROA over time as a starting point. Using ROE>12%and ROA>6% both on a Trailing Twelve Month and 5-year average, our list of potential best dividend payers comes down to 82 candidates.

In addition to good returns, I usually screen out companies experiencing very low growth or revenue declines. By filtering out companies having a 3-year revenue growth of 1% or less, our list of candidates drops to 53 stocks.

2- Balance sheet risk

I prefer companies with conservative balance sheets and usually look at current ratios, debt/equity and Debt/FCF. As current ratios level are often “industry dependant” I will only use Debt/Equity as a criteria here. Using Debt / Equity<1.0x, our universe is now down to 40 companies.

3- Valuation risk

Finally, using a price to earnings (trailing)< 18x and FCF / Market Cap > 5% leaves us with 18 companies.

Name Ticker % ROE

5 Year

5 Year


Debt to Equity Price/


Abbott Laboratories ABT 22.9 10.1 3.6 0.6 15.6
Analog Devices, Inc. ADI 20.1 15.8 2.3 0.1 16.2
AstraZeneca PLC ADR AZN 38.7 16.6 5.0 0.4 8.7
AZZ, Inc. AZZ 18.8 11.0 2.6 0.5 14.8
Bristol-Myers Squibb Company BMY 37.7 15.7 4.9 0.4 9.7
Cal-Maine Foods, Inc. CALM 28.3 14.3 3.1 0.3 10.3
ConAgra Foods, Inc. CAG 16.2 6.5 3.7 0.7 13.7
Darden Restaurants, Inc. DRI 24.5 8.7 2.3 0.8 16.6
Eli Lilly and Company LLY 19.9 7.9 5.6 0.6 8.0
Flowers Foods, Inc. FLO 15.9 9.2 3.1 0.2 17.2
General Dynamics GD 20.6 8.5 2.4 0.2 10.7
Harris Corporation HRS 18.6 8.8 2.0 0.5 9.6
Johnson & Johnson JNJ 28.1 15.8 3.4 0.2 12.7
Kimberly-Clark Corporation KMB 32.3 9.6 4.3 0.8 13.3
Medtronic, Inc. MDT 22.7 12.1 2.4 0.5 12.4
Merck & Co Inc MRK 29.0 12.0 4.2 0.3 13.8
Microsoft Corporation MSFT 40.6 21.5 2.0 0.2 11.8
Novartis AG ADR NVS 19.3 11.9 3.0 0.2 12.5
PepsiCo, Inc. PEP 35.6 15.9 2.9 0.9 16.4
Procter & Gamble Company PG 19.4 8.7 3.0 0.4 17.7
Raytheon Company RTN 15.5 7.0 3.2 0.2 9.5
Telecommunications of Sao Paulo ADR TSP 23.9 12.9 4.1 0.1 8.8
Tupperware Brands Corporation TUP 28.4 7.3 2.1 0.6 13.4
United Breweries Company, Inc. ADR CCU 19.7 9.4 2.1 0.5 15.1
United Technologies UTX 22.2 7.8 2.2 0.5 17.1
VF Corporation VFC 16.7 9.3 2.8 0.2 16.4
Wal-Mart Stores, Inc. WMT 20.7 8.3 2.2 0.7 12.9

As you can see, a lot of companies are Drug manufacturers which I tend to avoid as a lot of them face major patent cliff and thus potential for large revenue drops. However amongst those 18 companies, I think one can find some of the best US-listed dividend payers, with strong returns, good dividends, conservative balance sheets are reasonable valuations!

It’s reassuring to me to see that I have already performed a stock reviews of a number of these stocks and put them in my watchlist.

Many happy returns



Rating: 3.2/5 (6 votes)


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