Three new stocks make our Safest Dividend Yield Model Portfolio this month, which was made available to members on October 24, 2018.
Recap from September’s Picks
The best performing small cap stock was up 2%. Overall, 12 out of the 20 Safest Dividend Yield stocks outperformed the S&P in September.
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 October: National Presto Industries (NPK: $126/share)
National Presto Industries (NPK), is the featured stock in October’s Safest Dividend Yields Model Portfolio. NPK was also featured as a Long Idea in June 2018.
Since 2014, NPK has grown after-tax operating profit (NOPAT) by 16% compounded annually. NOPAT margin has increased from 7% in 2014 to 12% TTM while return on invested capital (ROIC) has improved from 9% to a top-quintile 19% over the same time.
Figure 1: NPK NOPAT and Margin Since 2014
Sources: New Constructs, LLC and company filings
NPK’s Free Cash Flow Supports Dividend Payments
NPK pays a regular dividend of $1/share and recently paid a special cash dividend of $5/share, which combines for a total dividend yield of 4.8%. While special dividends are by definition non-recurring, NPK has paid one in each of the past four years. This dividend payment (regular and special) has been supported by NPK’s strong free cash flow. Since 2013, NPK has generated a cumulative $185 million (21% of market cap) in FCF while paying $179 million in dividends.
