For investors aiming to build a portfolio focused on reliable income, a disciplined screening process is important. One useful method involves filtering for companies that not only offer an attractive dividend but also have the basic financial strength to maintain and possibly grow those payments over time. This strategy emphasizes quality and sustainability over seeking the highest possible yield, which can sometimes signal basic problems. A practical use of this method is using a screener that targets stocks with a high ChartMill Dividend Rating, while also setting a minimum level for profitability and financial health ratings. This multi-factor filter helps identify companies where the dividend is backed by a strong business model.
MAXIMUS INC (NYSE:MMS), a provider of government health and human services program administration and technology solutions, appears as a candidate from such a screen. With a ChartMill Dividend Rating of 7, a Profitability Rating of 8, and a Health Rating of 6, it presents a profile that deserves closer examination from income-focused investors.
Dividend Sustainability and Track Record
The center of any dividend investment case is the payout's reliability. MAXIMUS shows several positive traits here. The company has built a reliable track record, having paid a dividend for at least ten years without a reduction in that time. This history points to a management dedication to returning capital to shareholders.
Importantly, the dividend seems sustainable based on current earnings. The payout ratio is at a conservative 18.02%, meaning the company uses less than one-fifth of its net income to fund the dividend. This leaves significant room to reinvest in the business, handle economic declines, and continue the payout even if earnings vary. Also, analysts expect the company's earnings per share (EPS) to increase faster than its dividend, which supports the possibility for future dividend raises.
- Dividend Yield: 2.01%
- Payout Ratio: 18.02%
- Dividend Growth (5-Yr Avg): 1.30%
- Track Record: 10+ years of uninterrupted payments
Supporting Fundamentals: Profitability and Valuation
A strong dividend is built on a profitable business. MAXIMUS scores well here, with a Profitability Rating of 8. The company's return metrics are notable within its IT Services industry peer group. Its Return on Equity (ROE) of 21.62% and Return on Invested Capital (ROIC) of 12.02% both rank in the top quartile, showing efficient use of shareholder capital. These solid profitability metrics provide the basic engine that creates the cash needed for the dividend.
Perhaps equally interesting for value-conscious dividend investors is the stock's valuation. MAXIMUS trades at a Price-to-Earnings (P/E) ratio of 8.62 and a Forward P/E of 7.16, which are much lower than both the industry average and the wider S&P 500. This valuation implies the market may be pricing the stock cautiously, possibly offering an interesting entry point for the combined yield and business quality.
Financial Health Considerations
The screening process also required a minimum level of financial health, which serves as a cushion against difficulty. MAXIMUS's Health Rating of 6 points to a generally firm position with some areas to note. On the good side, the company shows strong liquidity, with a Current Ratio and Quick Ratio both at 2.34, well above industry averages and pointing to no short-term solvency worries.
The balance sheet does show a level of debt, with a Debt-to-Equity ratio of 0.88. While this is not concerning and is typical for firms in its field, it is a factor for investors to note, particularly in a period of rising interest rates. The company's Altman-Z score of 3.21, however, points to a low near-term chance of financial trouble.
A Candidate for Further Research
For investors using a quality dividend strategy, MAXIMUS INC presents an interesting case. It joins a sustainable dividend with a long track record, supported by better-than-average profitability and a low valuation. The company's role as a government services contractor can also give a level of revenue stability. While its dividend yield is not very high, the low payout ratio and earnings growth outlook indicate possibility for future income growth. The financial health profile is acceptable, though the debt is a point for continued review.
A detailed fundamental analysis, including specific charts on dividend history versus earnings, can be found in the full ChartMill Fundamental Report for MMS.
This review of MAXIMUS comes from a systematic screen for dividend-paying stocks with solid fundamentals. Investors can use the same method to find other possible candidates. You can review the current results of this "Best Dividend" screen for yourself by clicking here.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. Readers should conduct their own research and consult with a qualified financial advisor before making any investment decisions.