6 Dividend Champions With Strong Sources of Profitability

If you are considering stocks for their dividends, be sure to also consider the company’s profitability – if a firm’s profitability suffers, its dividend yield may be the first to go. We ran a screen on dividend champions, stocks that have consistently raised their dividends for the past 25 years. We ran DuPont analysis of return on equity (ROE) profitability on these dividend champions. ROE can be broken up into three components such that increases in ROE can be attributed to those components. ROE = (Net Profit/Equity) = (Net profit/Sales)*(Sales/Assets)*(Assets/Equity) = (Net Profit margin)*(Asset turnover)*(Leverage ratio) Analyzing the sources of returns for a company, we can focus on companies with the following characteristics: Increasing ROE along with, • Decreasing leverage, i.e. decreasing Asset/Equity ratio • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio) Companies passing all requirements are thus experiencing... Read more