For investors looking for a dependable source of passive income, a systematic screening process is needed to distinguish good dividend payers from possible disappointments. One useful technique focuses on companies that provide an appealing dividend and also show the basic financial soundness to keep it. This method favors stocks with a high ChartMill Dividend Rating, which examines yield, growth, history, and payout sustainability. Importantly, it combines this with minimum levels for the ChartMill Profitability and Health Ratings, confirming the company earns enough profit and has a balance sheet strong enough to continue payouts, even in weaker economic times. This layered method helps investors see past an appealing headline yield to evaluate the real quality and endurance of a dividend.
Using this process finds companies such as APA CORP (NASDAQ:APA), an independent energy company working in the U.S., Egypt, and the North Sea. The stock makes an interesting case for dividend-focused investors, since its fundamental report shows a profile matching the main ideas of a sound dividend strategy.
A Sound Dividend Profile
The main draw for income investors is APA's dividend, which receives a good rating of 7 out of 10. This score comes from several important parts that dividend investors look for regarding reliability and sustainability.
- Appealing and Competitive Yield: APA gives a yearly dividend yield of 3.71%. This supplies a satisfactory income stream that exceeds the present average yield of the S&P 500 (about 1.85%) and is also a bit higher than the average for its industry group in Oil, Gas & Consumable Fuels.
- Established History: Consistency is key in dividend investing. APA has built a dependable record by paying a dividend for at least ten straight years, giving investors a history of dedication to shareholder returns.
- Maintainable Payout Ratio: Maybe the most important measure for dividend sustainability is the payout ratio. APA uses only 24.12% of its earnings for dividend payments. This low ratio is a notable positive, showing the company keeps most of its profits. This kept capital can be put back into the business for expansion or used to fortify the balance sheet, building a large cushion that lets the dividend be kept easily during times of lower profit or unsteady commodity prices.
This mix—a yield above market and industry averages, a ten-year payment history, and a very careful payout ratio—creates the base of APA's attraction for an income-producing portfolio.
Supporting Fundamentals: Profitability and Financial Health
A high-yielding dividend is only as reliable as the company's capacity to pay for it. This is why the screening rules require satisfactory scores in profitability and financial health, areas where APA displays a varied but finally acceptable situation.
Profitability Soundness: APA gets a Profitability Rating of 7, supported by good returns on capital. The company's Return on Equity (ROE) of 25.30% and Return on Invested Capital (ROIC) of 14.25% are very good, doing better than over 90% of its industry peers. These numbers show that APA is very effective at creating profits from the capital used in its business. This solid profitability is the source that pays for the dividend and validates the screening emphasis on earnings capacity; a company cannot maintain payouts without regularly producing profits.
Financial Health Points: APA's Health Rating of 5 shows a sufficient but not outstanding financial condition, meeting the screen's "satisfactory health" level. The examination shows a clear split:
- Soundness in Debt Coverage: The company's debt amount is very well covered by its good free cash flow, with a Debt-to-FCF ratio of 0.94. This means APA could pay off all its debt in under a year using its present free cash flow, a very good position that exceeds almost 88% of the industry.
- Liquidity Notes: The report points out notes about short-term liquidity, with Current and Quick Ratios under 1.0. This indicates APA depends on operating cash flow and credit lines to meet near-term needs, a typical feature in the capital-heavy energy sector but a point for investors to acknowledge.
The screening filter for financial health is important because it helps find companies that, like APA, have workable debt loads compared to their cash production, lowering the chance of a dividend reduction from financial pressure.
Valuation and Growth Setting
From a valuation view, APA seems low-priced. With a Price/Earnings (P/E) ratio of 7.97, it is valued lower than nearly 90% of its industry peers and much below the wider S&P 500 average. This valuation, along with its dividend, might interest value-focused income investors. However, the growth prospect is limited, with analyst projections indicating mostly steady revenue and a small drop in earnings per share soon. This modest growth profile is normal for established, cash-producing companies in the energy sector and is part of the balance often found when concentrating on high dividend yields.
Conclusion
APA CORP shows the kind of stock a systematic dividend screen tries to find. It provides a competitive and well-backed yield, supported by a ten-year history of payments and a very low payout ratio. These dividend positives are driven by better profitability numbers and a debt setup that is very workable relative to the company's cash flow. While its liquidity condition and growth prospect are areas for careful attention, its total profile—good dividend sustainability, very good profitability, and low valuation—makes it a stock deserving of more study for investors constructing a portfolio aimed at income.
Interested in examining other stocks that meet this quality dividend screen? You can see the complete list of outcomes and change the filters to your own standards here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investors should conduct their own thorough research and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.
