4 Dividend Stocks With Liquidity Growth and Strong Sources of Profitability

When choosing stocks for their dividend income, one important consideration is the company’s liquidity. If a company’s profitability suffers and threatens the dividend yield, the company can use its liquidity to continue paying the dividend. Therefore, liquid companies pay more reliable dividend yields. We wanted to run a screen on dividend stocks for those with strong liquidity growth as well as strong sources of profitability. We first screened for dividend stocks (paying dividend yields between 2-7% with sustainable payout ratios below 35%) with high liquidity growth, comparing the current asset 10-year compound annual growth rate (CAGR) with the current liabilities growth rate. We then ran a DuPont analysis of return on equity (ROE) profitability. 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... Read more