The Hunt For High Dividend Yield by Sure Dividend
This is a guest post by Adam Hejl from simplywall.st. The article does not reflect the opinion of Sure Dividend.
Finding quality high yielding stocks can be challenging – in this article we will hunt down and select a pair of potential high dividend yield candidates and compare them side-by-side.
Initial selection & Business Overview
We have selected all stocks paying a dividend of 4% or better, and which meet a number of qualifying metrics. The top 4 candidates are listed below:
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Of our top 4 candidates, we have selected Advanced Semiconductor Engineering (ASX) and Computer Programs and Systems (CPSI) for further consideration.
Advanced Semiconductor Engineering is the US ADR of the Taiwan headquartered ASE Group; the world’s largest provider of independent semiconductor manufacturing assembly and testing services. Essentially the ASE group provides outsourced semiconductor manufacturing, assembly, testing and packaging on behalf of integrated circuit designers.
Computer Programs and Systems. is a US provider of healthcare information technology solutions for rural and community hospitals. The company has over 650 client hospitals in 46 states and the District of Columbia. Computer Programs and Systems offers its services via the Evident and TruBridge brands. Evident offers an integrated Electronic Health Record (referred to as EHR) solution, while TruBridge is a services provider that delivers business, consulting and managed IT services.
We have analyzed a series of criteria to assess the dividend paying power of these companies. Criteria analyzed include dividend yield, a peer group comparison, dividend consistency, and sustainability.
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Both Advanced Semiconductor Engineering and Computer Programs and Systems score highly across all metrics, with Advanced Semiconductor Engineering currently yielding 5.0% and Computer Programs and Systems 4.6%.
We prefer companies with a consistent track of profit growth, which is an indicator of whether dividends are sustainable, and if there is potential for a future increase.
The past performance metrics of Advanced Semiconductor Engineering and Computer Programs and Systems are shown below:
On a 12 month basis Advanced Semiconductor Engineering has grown profit by 36%, whereas Computer Programs and Systems profit has fallen 13%. On a 5 year view, Advanced Semiconductor Engineering has average profit growth of 28%, versus Computer Programs and Systems profit growth of 15%.
Computer Programs and Systems’ quarterly revenues have declined modestly over the past year. Revenues fell from $52.1 million in the first quarter of 2014 to $46.2 million in the first quarter of 2015.
The decline followed several strong years of growth arising from the US government’s electronic health record adoption program. In its first quarter 2015 results announcement, management admitted that:
“There is no doubt the healthcare IT market is in somewhat of a lull…”.
Whether Computer Programs and Systems can resume its previous growth remains to be seen.
Advanced Semiconductor Engineering continues a trend of increasing revenues. The company realized revenue growth of 18% in its first quarter of 2015 versus the first quarter of 2014.
With that said, first quarter 2015 revenue fell by 15% versus fourth quarter 2014 revenue. Management attributed the decline to seasonal factors affecting comparison.
Clearly Advanced Semiconductor Engineering has a stronger performance history.
In terms of future expectations (ie consensus analyst estimates), Advanced Semiconductor Engineering is expected to grow rapidly. Earnings are expected to grow by 46% over the next 12 months, and by an amazing 81% over the next 3 years. This compares to Computer Programs and Systems slower expected growth rates of 6% over the next 12 months, and 26% over the next 3 years.
“Health” refers to a company’s overall balance sheet strength – primarily the level of debt compared to its cash holdings and equity, and the ability of the company to service debt through operating cash flows and earnings.
Advanced Semiconductor Engineering holds a moderate level of debt with debt to equity of 60%, although debt is covered by its holdings of cash and short term investments, and is strongly serviced by operating cash flow.
Computer Programs and Systems conversely has no debt, leading to a stronger Balance Sheet position.
On a discounted cash flow basis, both Advanced Semiconductor Engineering and Computer Programs and Systems are currently trading fairly close to fair value.
We value Advanced Semiconductor Engineering at $5.67 vs the current price of $5.56 – nearly spot on with the recent price correction – and Computer Programs and Systems at $46.71 vs the current price of $53.42 – overvalued by 13%.
Advanced Semiconductor Engineering and Computer Programs and Systems are both well rounded stocks paying high dividends well above the risk free rate and at the top of the range of their peer groups.
Of the two stocks, we prefer Advanced Semiconductor Engineering based on its stronger historical profit growth and expected performance going forward. On the downside, Advanced Semiconductor Engineering is holding a moderate (although manageable) level of debt.
For those seeking high dividend yield opportunities, Advanced Semiconductor Engineering could be a solid potential investment purchased on stock price dips.
This article does not necessarily contain the opinion of Sure Dividend. It is a guest post written by Adam Hejl from simplywall.st.