6 Profitable and Cash Rich Stocks Paying Sweet Dividends

It’s not always easy to find dividend stocks in hot industries with good margins, but we’d like to give it a try:

The list of stocks below includes only companies that have higher than average gross, operating and pretax margins than their industry peers. That should provide some wiggle room no matter the macro-trends.

These companies also have plenty of cash. We take a look at the past five quarters of operating expenses, and then compare the average of those to the company’s short-term investments and most recent cash on hand. A ratio of 1 means that they can cover their average expenses for the quarter without earning any income, assuming they haven’t increased operations. If the ratio is below 1, then they won’t be able to cover their costs. Anything higher than a 1 is good news.

We analyzed their expenses and cash/investments for companies that have a cash/operating expense ratio over 4, just to have some extra cushion.

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Having enough working capital is critical for funding current operations and expansion plans. High cash reserves put the following companies in a good position to make new investments in capacity or make strategic acquisitions.

Offsetting growth uncertainty, investors can pocket a margin of safety in dividends. Dividends signify that a company is interested in value creation AND returning it to shareholders.

Use this list as a starting-off point for your own analysis.

1. Analog Devices Inc. (ADI, Earnings, Analysts, Financials): Engages in the design, manufacture, and marketing of analog, mixed-signal, and digital signal processing integrated circuits used in industrial, communication, computer, and consumer applications. Market cap at $11.53B, most recent closing price at $38.56. Dividend yield at 3.11%. Average quarterly operating expense over the last five quarters at $471.46M, vs. most recent cash and short term investments at $3765.05M, implies a Cash / Avg. Operating Expense ratio at 7.99. TTM gross margin at 68.68% vs. industry average at 61.88%. TTM operating margin at 31.41% vs. industry average at 22.96%. TTM pretax margin at 30.56% vs. industry average at 21.51%.

2. Altera Corp. (ALTR, Earnings, Analysts, Financials): Designs, manufactures, and markets programmable logic devices (plds); structured application-specific integrated circuit devices; predefined design building blocks or intellectual-property cores; and associated development tools. Market cap at $10.51B, most recent closing price at $32.85. Dividend yield at 1.22%. Average quarterly operating expense over the last five quarters at $300.35M, vs. most recent cash and short term investments at $2988.21M, implies a Cash / Avg. Operating Expense ratio at 9.95. TTM gross margin at 71.22% vs. industry average at 61.88%. TTM operating margin at 35.1% vs. industry average at 22.96%. TTM pretax margin at 35.1% vs. industry average at 21.51%.

3. Alexander’s Inc. (ALX, Earnings, Analysts, Financials): Engages in leasing, managing, developing, and redeveloping properties in the greater New York City metropolitan area. Market cap at $2.16B, most recent closing price at $422.50. Dividend yield at 3.55%. Average quarterly operating expense over the last five quarters at $31.11M, vs. most recent cash and short term investments at $488.78M, implies a Cash / Avg. Operating Expense ratio at 15.71. TTM gross margin at 50.77% vs. industry average at 42.69%. TTM operating margin at 50.77% vs. industry average at 40.14%. TTM pretax margin at 31.9% vs. industry average at 22.59%.

4. Choice Hotels International Inc. (CHH, Earnings, Analysts, Financials): Operates as a hotel franchisor worldwide. Market cap at $1.82B, most recent closing price at $31.41. Dividend yield at 2.36%. Average quarterly operating expense over the last five quarters at $119.49M, vs. most recent cash and short term investments at $490.57M, implies a Cash / Avg. Operating Expense ratio at 4.11. TTM gross margin at 44.89% vs. industry average at 36.94%. TTM operating margin at 28.69% vs. industry average at 19.37%. TTM pretax margin at 26.05% vs. industry average at 16.84%.

5. InterDigital, Inc. (IDCC, Earnings, Analysts, Financials): Engages in the design and development of digital wireless technology solutions. Market cap at $1.52B, most recent closing price at $35.70. Dividend yield at 1.12%. Average quarterly operating expense over the last five quarters at $46.01M, vs. most recent cash and short term investments at $524.12M, implies a Cash / Avg. Operating Expense ratio at 11.39. TTM gross margin at 100.% vs. industry average at 60.73%. TTM operating margin at 35.75% vs. industry average at 19.93%. TTM pretax margin at 31.77% vs. industry average at 20.77%.

6. QUALCOMM Incorporated (QCOM, Earnings, Analysts, Financials): Engages in the development, design, manufacture, and marketing of digital wireless telecommunications products and services. Market cap at $100.99B, most recent closing price at $59.29. Dividend yield at 1.69%. Average quarterly operating expense over the last five quarters at $3058.6M, vs. most recent cash and short term investments at $13395M, implies a Cash / Avg. Operating Expense ratio at 4.38. TTM gross margin at 68.54% vs. industry average at 60.67%. TTM operating margin at 31.58% vs. industry average at 19.88%. TTM pretax margin at 34.63% vs. industry average at 20.72%.