Dividend Ideas: 10 S&P 500 Dividend Stocks With the Strongest Sources of Profitability

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Looking for stocks paying dividend income? It's important to keep several things in mind if you want to be able to rely on a company's dividend payment. After all, just because a company has paid dividends does not guarantee they'll continue to do so.

One of the most important considerations for a stock's dividend is whether the company has strong profitability. If a company's profitability suffers, their dividend may be the first to go. There are hundreds of different ways to look at a company's profitability, but one of analysts' most popular is called DuPont analysis.

DuPont equation
DuPont analyzes the return on equity (ROE) profitability of a company, measured by net income/equity.
ROE can be broken up into three components such that increases in ROE can be attributed to those components.

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

Analyzing the sources of returns for a company, you can focus on companies with the following characteristics: 

  • Increasing ROE along with,
  • Decreasing leverage, i.e., decreasing Asset/Equity ratio
  • Improving asset use efficiency (i.e., increasing Sales/Assets ratio) and improving net profit margin (i.e., increasing Net Income/Sales ratio)

Companies passing all requirements are thus experiencing increasing profits due to operations and not to increased use of leverage. 

Investing ideas
To give you a starting point, we ran a screen on the S&P 500's dividend stocks for those passing DuPont analysis with flying colors. These stocks have seen increasing ROE profitability with increases in efficiency and profit margin, as well as decreases in leverage.

Do you think these companies pay reliable dividends?

List sorted by dividend yield. (Click here to access free, interactive tools to analyze these ideas.)

1. Entergy (NYS: ETR) : Operates as an integrated energy company in the United States. Market cap of $11.97B. Dividend yield at 4.89%, payout ratio at 41.72%. MRQ Net Profit Margin increased to 18.64% from 14.94% year-over-year, Sales/Assets increased to 0.0867 from 0.0862, while Assets/Equity decreased to 4.22 from 4.28. The stock has gained 0.22% over the last year.

2. NYSE Euronext (NYS: NYX) : Operates securities exchanges. Market cap of $7.15B. Dividend yield at 4.40%, payout ratio at 48.77%. MRQ Net Profit Margin increased to 15.90% from 12.19% year-over-year, Sales/Assets increased to 0.10 from 0.08, while Assets/Equity decreased to 1.91 from 2.0. The stock has gained 3.92% over the last year.

3. General Electric (NYS: GE) : Operates as a technology, service, and finance company worldwide. Market cap of $157.52B. Dividend yield at 4.02%, payout ratio at 47.38%. MRQ Net Profit Margin increased to 9.12% from 5.81% year-over-year, Sales/Assets increased to 0.0479 from 0.0466, while Assets/Equity decreased to 5.93 from 6.57.

4. The Dow Chemical (NYS: DOW) : Manufactures and supplies products used as raw materials in the production of customer products and services worldwide. Market cap of $30.43B. Dividend yield at 3.88%, payout ratio at 32.23%. MRQ Net Profit Margin increased to 5.96% from 4.64% year-over-year, Sales/Assets increased to 0.23 from 0.19, while Assets/Equity decreased to 2.77 from 3.01.

5. Northrop Grumman (NYS: NOC) : Provides products, services, and solutions in aerospace, electronics, information systems, shipbuilding, and technical service sectors. Market cap of $14.40B. Dividend yield at 3.63%, payout ratio at 30.93%. MRQ Net Profit Margin increased to 7.86% from 7.03% year-over-year, Sales/Assets increased to 0.26 from 0.23, while Assets/Equity decreased to 2.10 from 2.29.

6. Chevron (NYS: CVX) : Engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. Market cap of $193.95B. Dividend yield at 3.33%, payout ratio at 22.20%. MRQ Net Profit Margin increased to 12.15% from 7.58% year-over-year, Sales/Assets increased to 0.32 from 0.28, while Assets/Equity decreased to 1.69 from 1.73.

7. Eaton (NYS: ETN) : Operates as a power management company worldwide. Market cap of $14.16B. Dividend yield at 3.21%, payout ratio at 35.17%. MRQ Net Profit Margin increased to 8.85% from 7.50% year-over-year, Sales/Assets increased to 0.23 from 0.21, while Assets/Equity decreased to 2.28 from 2.36.

8. Wisconsin Energy (NYS: WEC) : Engages in the generation, distribution, and sale of electric energy and steam. Market cap of $7.48B. Dividend yield at 3.21%, payout ratio at 43.57%. MRQ Net Profit Margin increased to 12.33% from 11.53% year-over-year, Sales/Assets increased to 0.0795 from 0.0765, while Assets/Equity decreased to 3.34 from 3.38.

9. Honeywell International (NYS: HON) : Operates as a diversified technology and manufacturing company worldwide. Market cap of $39.88B. Dividend yield at 2.89%, payout ratio at 40.04%. MRQ Net Profit Margin increased to 9.27% from 7.35% year-over-year, Sales/Assets increased to 0.24 from 0.21, while Assets/Equity decreased to 3.38 from 3.69.

10. Staples (NAS: SPLS) : Operates as an office products company. Market cap of $9.96B. Dividend yield at 2.81%, payout ratio at 28.03%. MRQ Net Profit Margin increased to 4.97% from 4.42% year-over-year, Sales/Assets increased to 0.48 from 0.47, while Assets/Equity decreased to 1.90 from 2.05.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Alexander Crawford does not own any of the shares mentioned above. Accounting data sourced from Google Finance. Profitability data sourced from Fidelity.

At the time this article was published The Motley Fool owns shares of Northrop Grumman. Motley Fool newsletter services have recommended buying shares of Staples, Chevron, and NYSE Euronext. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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