For investors aiming to create a portfolio that produces steady passive income, a systematic screening process is necessary. One useful technique focuses on finding companies that provide a good dividend and also have the fundamental financial soundness to maintain and raise those payments. This method favors quality and durability over seeking the highest available yield, which can sometimes indicate business problems. A realistic tactic is to apply a multi-factor screen that finds stocks with a high dividend rating, along with good scores for earnings power and balance sheet condition. This pairing aids in selecting companies that are both shareholder-friendly and operationally secure.
ZOETIS INC (NYSE:ZTS), a worldwide head in animal health medicines and vaccines, appears as a strong candidate from this type of screening method. The company’s operations, centered on the necessary and increasing pet care and livestock sectors, offers a steady base for its returns to shareholders. For dividend-oriented investors, ZOETIS illustrates a situation where a reasonable present yield is strengthened by outstanding dividend expansion and a clean history, all backed by a firm financial position.
Dividend Quality and Durability
The center of any dividend investment case rests on the quality and durability of the payment. ZOETIS achieves a 7 out of 10 on the ChartMill Dividend Rating, showing a good total evaluation. A closer inspection of the parts of this rating explains why the company is notable for income investors.
- Yield and Growth: ZOETIS provides a dividend yield of 1.64%, which is higher than the industry average of 1.07%. More notably, the company has raised its dividend at an average yearly pace of 20.56% over the last five years. This effective mix of a better-than-average yield and high expansion is a sign of a company that treats shareholders well and performs effectively.
- Consistent History: Reliability is important for dividend investors. ZOETIS has paid a dividend for at least 10 years and has not cut it in that time, establishing a dependable record of giving capital back to shareholders.
- Manageable Payout Ratio: Maybe the most important measure for durability is the payout ratio. ZOETIS uses only 32.55% of its earnings for dividend payments. This low ratio gives a large buffer, showing the dividend is easily supported and allows plenty of space for putting money back into the business, paying down debt, and future dividend raises. This directly meets the screening strategy's aim of steering clear of companies where the dividend is in danger because of very high payout levels.
Foundational Soundness: Earnings Power and Balance Sheet Condition
A lasting dividend needs a profitable and financially secure business. This is why the screening rules require acceptable scores in these categories, and ZOETIS meets this convincingly.
Profitability Strength: The company gets a leading ChartMill Profitability Rating of 9. Its financial results are marked by broad margins and high returns on capital, which are the sources that finance dividend expansion.
- Profit Margin: At 28.21%, the profit margin for ZOETIS beats 93% of its pharmaceutical industry competitors.
- Return on Equity: An ROE of 49.11% is excellent, putting it in the leading group of its industry and showing very efficient use of shareholder capital.
- Trend: Both its profit and operating margins have gotten better in recent years, indicating improving competitive position and operational effectiveness.
Firm Balance Sheet Condition: With a ChartMill Health Rating of 7, ZOETIS shows a balance sheet able to maintain its activities and duties through different economic conditions.
- Solvency: The company’s Altman-Z score of 6.55 shows no short-term bankruptcy danger, and it performs better than 80% of its industry on this measure. Its debt-to-free-cash-flow ratio of 3.16 is also firm, meaning it could pay off all its debt with just over three years of cash flow.
- Liquidity: A current ratio of 3.64 and a quick ratio of 2.28 indicate the company has more than enough liquid assets to meet its immediate liabilities without difficulty.
- Note: It is important to mention that the company has a debt-to-equity ratio of 1.31, which is elevated. However, this is handled within the setting of its large cash generation and overall firm condition metrics.
Valuation and Growth Setting
While the main point for a dividend investor is the income, valuation and growth outlook give important setting for the total return possibility.
ZOETIS receives a Valuation Rating of 6. Its price-to-earnings ratio of 20.42 is viewed as high in simple terms but is actually lower than 83% of its industry competitors and is under the present S&P 500 average. This implies investors are paying for quality. The company’s Growth Rating of 4 shows a developed but stable profile, with past EPS growth averaging almost 11% per year and future growth projected near 8.4%. While revenue growth is slowing, the company’s excellent earnings power helps turn a modest top-line gain into strong bottom-line results and cash flow for dividends.
A Candidate for More Study
For investors using a strategy that looks for durable dividends supported by fundamental soundness, ZOETIS displays a significant profile. It joins a decent and expanding yield with a very strong balance sheet and top-level earnings power. The low payout ratio provides a safety buffer and a clear route for ongoing dividend growth, matching well with a long-term, quality-focused income plan.
A complete explanation of the fundamental analysis behind these ratings can be seen in the detailed ChartMill Fundamental Report for ZTS.
ZOETIS is only one instance found through a systematic screening process. Investors searching to find other companies that fit similar standards of high dividend quality, firm earnings power, and good balance sheet condition can examine the fully set Best Dividend Stocks screen for more possible ideas.
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.
