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Stock Screen: Debt Free Dividend Payers - July 25, 2012
A debt-free balance sheet is often an indication of financial strength. Although leverage has certain benefits and is, in fact, advisable and appropriate for some industries, operating without debt materially increases a company’s financial flexibility. For example, in lean times, such as a recession, a balance sheet sans debt can allow a company to continue operations without interruption. This is a margin of safety that a highly-leveraged company may not have.
Investors using dividend income to pay living expenses should find such stocks of particular interest. Indeed, if a company, industry, or the entire economy should fall on hard times, a debt-free balance sheet increases the chances that a company will maintain its distribution unaltered. Thus, an investor’s “paycheck” won’t take a hit at the same time that the value of his or her portfolio is declining. Such dividend payments can allow the investor to ride out the bad times and the likely corresponding share-price decline. Although capital preservation is clearly important, sometimes the best way to conserve capital is to sit tight with a good company regardless of what the emotionally-driven stock market is doing. Dividend distributions supported by a strong financial structure make that easier to do.
To find such companies, we used the online screening tools of The Value Line Investment Survey to identify companies, such as Computer Programs & Systems (CPSI) and Accenture PLC (ACN), that feature a dividend but carry no debt. Clearly, the screen could be altered to meet the needs of investors looking for a particular level of dividend payments or made more lenient for those who believe a little bit of debt is a good thing.
Computer Programs & Systems
Computer Programs & Systems engages in the design, marketing, installation, and support of healthcare information technology solutions for roughly 650 small- and mid-size hospitals throughout much of the United States. Specifically, the company offers enterprise-wide clinical management, access management, patient financial management, health information management, strategic decision support, resource planning management, and enterprise application integration solutions.
Higher earnings appear to be in store for 2012. Although first-quarter results came in below expectations and we have lowered our second-quarter target, CPSI ought to be able to make up lost ground during the second half. Indeed, revenues from new system installments made in the first quarter will be spread out over the remainder of the year, whereas 90% of the costs incurred with these installments have already been absorbed. Consequently, it seems that margins will exhibit improvement in the coming quarters, allowing 2012 share net to climb about 13%, to $2.65, from last year’s tally. Assuming further expansion of operating margins, the bottom line ought to advance an additional 17%, to $3.10 a share, the following year.
Product development is one of the keys to future growth. Notably, the company’s team has played an integral part in innovations such as physician documentation, new technology platforms, and user interfaces. These fresh technologies not only attract new clients, but prompt existing customers to broaden their utilization of the company's offerings. We believe that finances are adequate to support further efforts.
Accenture PLC is a leading management consulting, technology services, and outsourcing organization, with units in over 200 cities in 54 countries. The company operates through five business groups, with the largest being Products (23% of revenues for the fiscal year ended August 31, 2011), followed by Communications & High Tech (22%), Financial Services (21%), Resources (19%), and Health & Public Service (15%).
We are optimistic about the company’s prospects for fiscal 2012. That’s partially because a number of companies are encountering difficulties due to the current economic environment and subsequent sluggishness in customer spending levels. Consequently, restructurings have occurred across corporate America, plus other parts of the globe, and this plays into the strengths of Accenture. Units that provide consulting services have become a bigger piece of companywide sales (59% last year) and should thrive in this type of operating environment. The outsourcing segment ought to perform nicely, too, as firms look to curtail expenditures. All things considered, earnings per share stand to increase around 15%, to $3.90, in fiscal 2012, versus the prior-year figure. If business conditions cooperate, the bottom line should advance another 10%, to $4.30 a share, in fiscal 2013.
Operating margins might well expand at a moderate rate over the 2015-2017 time frame. A combination of premium pricing and global delivery leverage should mix to boost Accenture’s profitability. The growth investments management has made are also likely to blossom at lucrative spreads.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.