3 Cash-Rich Stocks Ready to Start Paying Dividends
0.00%September 09 | MyPlanIQ portfolio symbol P_37040

We continue to look for interesting dividend stocks that can help offset the significantly reduced income from fixed income instruments. Lisa Springer from Street Authority speculates about companies who are not paying dividends today but  may be on the brink of making that change.

She commented: "If dividend stocks continue to outperform, then it's likely more companies will start paying dividends. Additional incentives come from retiring baby boomers, who will most likely switch to income-generating investments rather than riskier growth stocks. Given this rosy outlook for dividend stocks, there are many companies not paying dividends now that will possibly ponder commencing payments soon."
 
We have already stated that companies may pay dividends to boost interest in the company and it could be a danger sign. However, Lisa screened for those that were fundamentally strong and initiating dividends is not a sign of desperation.

Her filter was:

• Companies that have good earnings, abundant cash, strong cash flow and little long-term debt
• Companies trading at low price-to-earnings (P/E) and price-to-cash flow (P/CF) ratios

From that filter she picked her top three

• Tech Data Corp. (TECD) a giant distributor of IT products.
• $24 billion sales (12% increase)
• EPS improved 22% to $3.37
• $900 million of cash. T
• Long-term debt $61 million
  
• Trades at just 10 times its forward earnings. 
• Western Digital Corp. (WDC) Hard drive manufacturer
• Averaged 17% sales growth and 12% earnings growth in the past five years
• $3.9 billion in cash
• $231 million of debt
• Trades at only seven times cash flow
• EMC Corp. (EMC) Data storage and information security
• $20 billion in revenue (18% increase)
• Earnings increased 24% to $3.4 billion
• $6.3 billion of cash
• $3.4 billion of debt
• Trades for 14 times cash flow
  

Well these are strong companies in the IT sector so we have a double problem of a small number in a single market so there will be volatility but worth measuring to see whether these are companies to consider adding to a long term portfolio -- whether or not they add dividends. We will compare it with our broadly diversified dividend bearing ETF portfolio.