The latest issue of the T. Rowe Price Report includes an interview with David Giroux, manager of Price’s Capital Appreciation Fund, who wraps up the article with some advice: “Focus on companies with 2% to 3% dividend yields that have high-quality business models and trade for no more than 15 times earnings.”
That sounds like the makings of a stock screen. The Motley Fool’s CAPS Screener found 136 stocks that meet the dividend and P/E ratio criteria. Unfortunately, there’s no “high-quality business model” parameter, so I thinned the results to stocks with a four- or five-star rating from our CAPS community. That cut the field to 79 names from the seven sectors shown below.
The table below lists five of the stocks — one from each of the five sectors with the most hits.
| Company | Current Dividend Yield | P/E (TTM) | CAPS Rating (out of 5) | Sector |
| AFLAC Incorporated (NYSE:AFL) | 2.5% | 8.7 | ***** | Financial |
| HollyFrontier Corp (NYSE:HFC) | 2.5% | 5.5 | ***** | Basic materials |
| CSX Corporation (NYSE:CSX) | 2.4% | 14.1 | ***** | Services |
| Apple Inc. (NASDAQ:AAPL) | 2.7% | 10.6 | **** | Consumer goods |
| Illinois Tool Works Inc. (NYSE:ITW) | 2.2% | 12 | ***** | Industrial goods |
Source: Motley Fool CAPS Screener. TTM = trailing 12 months.
HollyFrontier Corp (NYSE:HFC) is an oil refiner. The trailing P/E looks like deep-value territory, but analyst estimates going forward bump the ratio up to nine — still not expensive. With a payout ratio of only 37%, Holly has some cushion to maintain and grow the dividend. The company has increased the dividend five times since 2011 and authorized two $350 million share buybacks last year.
Apple Inc. (NASDAQ:AAPL) wouldn’t have made this list a year ago. A new dividend started last year, and a recent dividend hike and a stock price retreat over the past several months have put Apple Inc. (NASDAQ:AAPL) squarely into the yield and valuation range recommended by Giroux. In addition to the dividend hike, Apple Inc. (NASDAQ:AAPL) increased its share buyback authorization from $10 billion to $60 billion in April. As for a high-quality business model, I suspect a high percentage of the folks reading this — perhaps even both of you — are doing so on an Apple Inc. (NASDAQ:AAPL) device.
Cue the duck. AFLAC Incorporated (NYSE:AFL) waddles in with a nice dividend and value territory multiple. The insurance company is also a member of Standard & Poor’s Dividend Aristocrats — S&P 500 members that have raised their dividends every year for at least 25 years. Only 53 other companies are in the club. AFLAC Incorporated (NYSE:AFL) generates most of its revenue from operations in Japan and currency rates are likely to be a drag on earnings as long as the Bank of Japan is aggressively easing.
Illinois Tool Works produces industrial goods and equipment. It’s another Dividend Aristocrat, which is pretty impressive for an industrial company with product demand tied to the economy’s ups and downs. In addition to the dividend track record, the company bought back $366 million worth of shares in the first quarter and expects to buy about another $500 million over the rest of 2013.
CSX Corporation (NYSE:CSX) rolls into the list with a track record of annual dividend hikes dating back to 2005. With a payout ratio of only 31% and company projections of 10%-15% earnings-per-share growth through 2015, it has room to keep the raises coming. In addition, CSX Corporation (NYSE:CSX) has a two-year, $1 billion share buyback plan.
Screen results should always be considered a starting point for further research, not an outright buy signal. If you want to run this screen for yourself, or with different settings, click on over to our screener and play around a bit.
The article 5 Hits From a Stock Screen originally appeared on Fool.com.
Russ Krull has no position in any stocks mentioned. The Motley Fool recommends Aflac and Illinois Tool Works. It recommends and owns shares of Apple.
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