Stock Screen: Cheap FCF Stocks With Good Dividends

Barron’s recently spotlighted Yahoo! Finance’s new Java-powered stock screener. As members know, I am regularly looking for new prospects so a new screening tool is of utmost interest. I am pleased to report that Yahoo’s screener works beautifully, with optimal user functionality and relevant stock metrics.

Using the Yahoo screener, I formulated this week’s stock screen. Free cash flow (FCF) is a metric often neglected by simple stock screeners but Yahoo! includes it. Unlike Morningstar, Yahoo also makes it simple and straightforward to screen for stocks selling cheaply relative to FCF and it is this criteria which forms the basis of our screen.

  • Exchange-traded stock
  • Enterprise value-to-FCF <= 10x
  • Dividend yield >= 1%

Members should be keen to the fact that I am rather partial to dividends, hence the yield criteria to narrow our search. I excluded OTC and pink sheet stocks. I also had to adjust the results to exclude two stocks with negative FCFs, which turned the EV/FCF ratio negative and thus less than 10. The following six stocks made the list:

  • Chase Corp (United States) (CCF)
  • Chicago Rivet & Machine Co (CVR)
  • Imergent, Inc. (IIG)
  • Amcon Distributing Co (DIT)
  • Espey Manufacturing & Electronics Corp (ESP)
  • CCA Industries Inc (CAW)

As shown on the spreadsheet, most of these stocks are trading closer to 52-week highs than lows, despite the cheap valuations and recent market correction. Many of them have large cash balances and insider ownership. Examining FCF return on assets over multiple years, it appears most of these companies have volatile business models.

It is important to remember the limitation of examining stocks from such a zoom-out view. I liken this to judging high-school students based solely on their report cards and extra-curricular activities without meeting them or even reading an essay. The point is these metrics can be overly broad and hide some important details but nevertheless, they are useful.

In evaluating the most promising prospects in this batch, I recommend focusing on consistent FCF generation, sustainability of the dividend via payout ratio and returns on equity/assets vs the industry.

Readers can peruse some of these figures via the stock screen spreadsheet (more thorough review is available only to EA-Premium members). Keep in mind, the results of this screen should be used as a launching pad for further research, not as the sole basis for an investment decision.

4 Responses to “Stock Screen: Cheap FCF Stocks With Good Dividends”

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