When the operating income margin keeps on expanding, it typically means that the company is successful in implementing policies that keep expenses well below profits.
The operating income margin is a more effective measure than the net income margin when evaluating whether the company is capable of generating income. This is because the metric excludes those one-off items on which the company has no or limited control, but that could weigh on the net income considerably in a given year.
Therefore, investors may want to consider the following three stocks, as their operating income margins have expanded over recent years, beating most competitors.
Taiwan Semiconductor Manufacturing Co Ltd
The first stock investors may want to consider is Taiwan Semiconductor Manufacturing Co Ltd (TSM, Financial), a Taiwanese global producer and distributor of integrated circuits.
The company saw its trailing 12-month operating income margin (43.45%) grow by 0.2% on average every year over the past five years. The operating margin ranks higher than 97% of the 834 companies that operate in the semiconductors industry.
The share price has grown by nearly 370% over the past five years to trade at $118.64 at close on Friday for a market capitalization of $615.28 billion and a dividend yield of 1.48% (based on a 44 cents quarterly cash dividend per common share). The last dividend distribution was made by the company on April 15.
On Wall Street, the stock has a median recommendation rating of buy with an average target price of $144.22 per share.
JPMorgan Chase & Co dominates the group of top fund holders with 1.22% of shares outstanding. It is followed by Sanders Capital, LLC with 0.85% of shares outstanding and Bank of New York Mellon Corp with 0.79% of shares outstanding.
Visa Inc
The second stock under consideration is Visa Inc (V, Financial), a credit card services giant based in San Francisco, California.
The company saw its trailing 12-month operating income margin (67.61%) rise by 0.1% on average every year over the past five years. The operating margin ranks higher than 86% of the 360 companies that operate in the credit services industry.
The share price of $230 at close on Friday has risen 192% over the past five years, determining a market capitalization of $507.12 billion and a dividend yield of 0.56% (based on a quarterly cash dividend of 32 cents per common share the company paid on March 1).
On Wall Street, the stock has a median recommendation rating of buy and an average target price of $249.48 per share.
Vanguard Group Inc, BlackRock Inc., and Price T Rowe Associates Inc /Md/ are among the largest top fund holders of the company, owning 6.74%, 5.77%, and 3.65% of shares outstanding, respectively.
Cisco Systems Inc
The third stock to consider is Cisco Systems Inc (CSCO, Financial), a San Jose, California-based communication equipment distributor.
The company saw its trailing 12-month operating income margin (28.90%) grow by 3.7% on average every year over the past five years. The operating margin ranks higher than 96% of the 2,337 companies that operate in the hardware industry.
The share price has grown by 81.3% over the past five years to trade at $51.91 at close on Friday for a market capitalization of $219.15 billion. On April 28, the company will pay a quarterly cash dividend of 37 cents per common share (up 2.78% from the previous distribution), leading to a forward dividend yield of 2.9% as of April 23.
On Wall Street, the stock has a median recommendation rating of overweight and an average target price of $53.67 per share.
Vanguard Group Inc dominates the group of top fund holders with 7.83% of shares outstanding. It is followed by BlackRock Inc. with 7.76% of shares outstanding and State Street Corp with 4.24% of shares outstanding.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
- This Trio of Risky Picks Could Pay Off
- 3 Stocks Growing Free Cash Flow Fast
- A Trio of Stocks With Low 12-Month and Forward PEG Ratios
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