For investors looking for a reliable source of passive income, a methodical selection process is needed to distinguish truly lasting dividend payers from risky high-yield choices. A typical and careful approach uses filters for companies that have a high-quality dividend history and are also supported by sound core business operations. This requires looking past the stated yield to evaluate the company's earnings strength, financial condition, and its potential to raise its dividend over time. By focusing on stocks with strong dividend ratings together with good profitability and condition scores, investors can construct a portfolio aimed at both income and steadiness.
Hubbell Inc. (NYSE:HUBB), a maker of electrical and utility products, appears as a strong candidate from this type of selection method. The company’s operational profile indicates it fits the main principles of defensive, income-focused investing.
A High-Quality Dividend Profile
The central point of Hubbell's attraction for dividend investors is its highly graded payout, which receives a ChartMill Dividend Rating of 7 out of 10. This rating combines several important elements into one number, and Hubbell's detailed measurements illustrate a story of dependability and careful capital return.
- Sustainable Payout Ratio: A main focus for dividend investors is lasting power. Hubbell’s payout ratio is at a very manageable 32.59%, meaning it allocates less than one third of its profits to pay the dividend. This low ratio offers a wide margin of safety, protecting the dividend during times of lower earnings and keeping plenty of capital for business investment.
- Reliable History of Growth: Steadiness is important. Hubbell has both paid and raised its dividend for at least ten straight years, building a dependable history. The dividend has risen at a good yearly rate of 7.79% over the last five years, showing management’s dedication to giving more capital back to shareholders.
- Sensible Yield in Perspective: With a present yield of 1.31%, Hubbell may not draw those seeking only high yield. However, this yield is sensible and should be seen alongside the company's solid growth and safety. It is much higher than the average yield of similar companies (0.28%) and comes from a company with much better financial condition than many options with higher yields.
Supported by Strong Profitability
A lasting dividend needs to be paid for by a profitable business. This is where Hubbell performs very well, having a notable ChartMill Profitability Rating of 9. Strong profitability is the driver that supports both business expansion and shareholder returns, making it an essential requirement for the selection approach.
- Notable Returns: Hubbell produces notable returns on its invested capital. Its Return on Invested Capital (ROIC) of 15.21% and Return on Equity (ROE) of 23.49% place it in the top group of its industry, doing better than over 93% of similar companies. This shows very effective use of capital.
- Sound and Improving Margins: The company’s financial position is further shown by its margins. An operating margin of 20.68% is with the best in the industry, and both operating and profit margins have gotten better in recent years. This direction of improving earnings directly helps the ability for future dividend raises.
A Foundation of Solid Financial Health
The final part of the selection approach is financial health, which serves as a balance sheet safeguard. Hubbell gets a firm ChartMill Health Rating of 7, pointing to a stable financial base that can endure economic changes, a key quality for a long-term dividend stock.
- Strong Solvency: The company shows very good solvency. Its Altman-Z score of 5.87 implies a very small chance of near-term bankruptcy, and a reasonable Debt-to-Equity ratio of 0.43 shows it does not depend too much on debt funding. Significantly, Hubbell produces good value, as its ROIC is well above its cost of capital.
- Controlled Debt Level: Hubbell’s debt is controlled compared to its cash production, with a Debt to Free Cash Flow ratio of 2.35 years. This means it could pay off all its debt with just over two years of cash flow, a situation better than 85% of its industry rivals.
While the company’s price seems acceptable rather than very low, and its short-term sales growth is moderate, these points are often less important for dividend investors who value endurance and quality over fast growth or low price. The mix of a secure, rising dividend, first-class profitability, and a solid balance sheet makes Hubbell a stock worth examining for a central income-producing portfolio.
For investors wanting to find more companies that meet this balanced group of standards for dividend investing, you can review the fully set Best Dividend Stocks screen.
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 due diligence and consult with a qualified financial advisor before making any investment.
