Featured Stock In September’s Safest Dividend Yields Model Portfolio

Four new stocks make our Safest Dividend Yields Model Portfolio this month, which was made available to members on September 20, 2018.

Recap from August’s Picks

The best performing large-cap stock was up 3%. Overall, four out of the 20 Safest Dividend Yields stocks outperformed the S&P in August.

This Model Portfolio leverages our Robo-Analyst technology[1], which scales our forensic accounting expertise (featured in Barron’s) across thousands of stocks.[2]

This Model Portfolio only includes stocks that earn an Attractive or Very Attractive rating, have positive free cash flow and economic earnings, and offer a dividend yield greater than 3%. Companies with strong free cash flow provide higher quality and safer dividend yields because we know they have the cash to support the dividend. We think this portfolio provides a uniquely well-screened group of stocks that can help clients outperform.

Featured Stock for September: Principal Financial Group (PFG: $60/share)

Principal Financial Group (PFG) is the featured stock in September’s Safest Dividend Yields Model Portfolio. PFG was also featured as a Long Idea in February 2018.

Since 2008, PFG has grown after-tax profit (NOPAT) by 20% compounded annually, to $2.0 billion in 2017. The company’s NOPAT increased to $2.2 billion over the trailing twelve months (TTM). NOPAT margins have increased from 4% in 2008 to 15% TTM while return on invested capital (ROIC) improved from 3% to 11% over the same time.

Figure 1: PFG Revenue & NOPAT Since 2008

 

Sources: New Constructs, LLC and company filings

Free Cash Flow Easily Covers Dividend Payments

Over the past five years, PFG has increased its annual dividend from $0.98/share to $1.87/share, or 18% compounded annually. TTM dividend payments have totaled $2.05/share. This dividend payment has been supported by PFG’s free cash flow. From 2013-2017, PFG generated a cumulative $4.4 billion (26% of market cap) in FCF while paying $2.1 billion in dividends. Over the TTM period, PFG has generated $721 million in FCF and paid $573 million in dividends.