For investors looking for dependable income, a methodical screening process can help find companies that provide more than a high stated yield. A careful method involves selecting stocks with a good overall dividend standing, making sure the payment is lasting, while also requiring good basic business strength and earnings. This approach emphasizes quality and duration over seeking the highest available yield, which can frequently be a sign of basic financial trouble. FactSet Research Systems Inc (NYSE:FDS) recently appeared from such a filter, which asked for a high ChartMill Dividend Rating (7 or more) together with acceptable scores for earnings and financial soundness.
Examining the Dividend Standing
The main attraction of FDS for a dividend-oriented plan is found in its mix of a fair yield, a dependable history, and a lasting payment structure. The company’s dividend numbers indicate a dedication to giving capital to shareholders without endangering its financial steadiness.
- Yield and Increase: FDS presently gives a dividend yield of 2.21%, which is fair next to the wider S&P 500 average. More notable is its history of steady increase; the dividend has risen at a yearly rate of 7.85% over the last five years. This shows management’s belief in the company’s capacity to produce increasing cash flows over time.
- History of Dependability: A lengthy, continuous history of payments is a main sign of dividend reliability. FDS has not only paid but has also not reduced its dividend for at least ten years, establishing a history that income investors regard highly.
- Lasting Payout Ratio: Lasting quality is crucial. FDS uses about 27% of its earnings for dividend payments, a comfortably low payout ratio. This leaves plenty of room to put money back into the business, handle economic declines, and keep increasing the dividend, all of which are important for the long-term strength of an income investment.
Supporting Basics: Earnings and Financial Soundness
A lasting dividend is only as good as the business supporting it. The filter requirements of acceptable earnings and soundness are not random; they are the supports that hold up the dividend. FDS scores well on both counts, giving a firm base for its income payment.
Earnings Quality: The company receives a solid ChartMill Profitability Rating of 8. Main numbers highlight this quality:
- High Returns: FDS produces very good returns on its assets and invested capital (ROIC of 16.45%), doing much better than most of its competitors in the Capital Markets industry. High earnings means the company is effective at producing profits from its capital base, which directly supports possible dividend payments.
- Steady and Getting Better Margins: With a profit margin above 25% and an operating margin that has been getting better, FDS shows pricing ability and operational effectiveness. Steady or growing margins help guard profits—and therefore, the dividend—during various economic periods.
Financial Soundness: A ChartMill Health Rating of 7 shows a good balance sheet, which is needed for getting through difficult times without reducing payments.
- Controlled Debt: The company’s debt amounts are sensible, with a Debt-to-Free-Cash-Flow ratio of 2.1, meaning it could in theory pay off all its debt in just over two years using its cash flow. This small dependence on debt funding lowers risk.
- Sufficient Liquidity: FDS keeps good liquidity ratios, indicating it can easily meet its short-term responsibilities without strain. A financially sound company is much less likely to encounter a situation where the dividend becomes too costly.
Valuation Setting
While the main attention is income, valuation still counts for total return possibility. At present, FDS seems fairly valued. Its Price-to-Earnings ratio of 11.1 is noticeably below the current S&P 500 average, and its forward P/E ratio is also less expensive than most industry competitors. This valuation setting indicates the stock is not trading at a high premium, which can be a good point for investors thinking about a new position.
Locating Additional Dividend Options
The process that brought out FactSet Research Systems Inc. can be used to discover other possible choices for a dividend portfolio. The set filter that found FDS selects for stocks with good dividend ratings supported by acceptable earnings and soundness, giving a selected beginning point for more study.
You can inspect the present results of this "Best Dividend" filter for yourself here.
For a complete explanation of all the basic factors behind the ratings for FDS, you can look at the full ChartMill Fundamental Analysis Report.
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Disclaimer: This article is for information only and does not make up financial guidance, a suggestion, or an offer or request to buy or sell any securities. The information shown is based on supplied data and should not be the only foundation for any investment choice. Investing includes risk, including the possible loss of original investment. You should do your own complete study and talk with a qualified financial consultant before making any investment choices.
