Dividend investing is a strategy centered on owning stocks that provide a consistent and ideally growing stream of income. However, a high dividend yield alone can be a trap if the underlying company is financially weak or unable to sustain its payouts. A stronger approach balances yield with quality, focusing on companies that demonstrate solid profitability and a healthy balance sheet. Using a 'Best Dividend' screener, we filter for stocks with a top-tier ChartMill Dividend Rating of 7 or higher, while also ensuring they have a Health Rating and Profitability Rating of at least 5 out of 10. This method helps find resilient companies where the dividend is both attractive and sustainable.
One stock that stands out from this screen is Shell Plc (NYSE:SHEL), a global energy giant with operations spanning integrated gas, upstream, marketing, and renewables. This analysis is based on its fundamental report and the specific screening criteria.
Dividend Profile: Strong and Sustainable
The primary draw for dividend investors is Shell's impressive dividend rating of 7 out of 10, which is the key filter in our screen. Breaking down this score highlights several strengths:
- Attractive Yield: With a yearly dividend yield of 3.16%, Shell offers a return that is significantly higher than the S&P 500 average of 1.81%. This immediately catches the eye of income-focused investors.
- Solid Growth History: A healthy dividend is not just about the current payout; it is about seeing it grow over time. Shell has been paying a dividend for at least 10 years, providing a reliable track record. More importantly, the dividend has been growing at an impressive annual rate of 8.63%.
- Sustainable Payout: Sustainability is crucial for long-term income. Shell's payout ratio stands at 47.49% of its earnings. While on the higher side, this is still manageable and falls well short of the danger zone. The financial report also notes that its dividend growth is supported by underlying earnings growth, a key sign of sustainability.
Balancing with Profitability and Health
A high dividend rating is meaningless if the company is struggling. Our screen ensures a minimum Profitability and Health rating of 5, and Shell meets these thresholds, providing a necessary layer of security.
- Profitability (Rating: 5): Shell has been consistently profitable over the past year and the last five years, with a positive operating cash flow throughout. While its profit margins have shown some recent pressure, the company's return on equity (10.23%) outperforms over 61% of its industry peers, indicating it still generates solid returns for shareholders.
- Financial Health (Rating: 5): The company maintains a reasonable level of debt. Its Debt to Equity ratio of 0.38 is considered healthy, and a Debt to Free Cash Flow ratio of just 3.16 is strong, meaning Shell could theoretically pay off all its debt in about three years using its free cash flow. The Altman-Z score of 2.50, while not perfect, indicates a relatively low risk of bankruptcy compared to the broader industry.
Growth and Valuation: The Added Bonus
While not the primary focus of a dividend screen, Shell's growth and valuation scores provide additional context. The company shows a promising forward EPS growth estimate of 16.34% per year, suggesting future earnings that can continue to support dividend increases. Furthermore, the stock appears reasonably valued with a P/E ratio of 13.79, which is considerably cheaper than the S&P 500's average of 27.79. This valuation, combined with its decent growth outlook, makes Shell an attractive candidate for a "value and dividend" approach.
Discover more stocks that combine a high dividend rating with solid fundamentals. You can run the full Best Dividend Stocks screen here to find more ideas for your own research.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. Always conduct your own research and consider your financial situation before making any investment decisions.