Increasingly Profitable Dividend Stocks Short Sellers are Covering

Looking for profitable dividend stocks for your portfolio? We created a stock list with this in mind.

To create the list below we began with a universe of dividend stocks, with market caps above $500 million, paying yields above 1% and with sustainable payout ratios below 50%.

To refine the list for profitability we collected data on annual financial statements, and only focused on companies that have reported rising gross profit margins over the last four years (based on annual filings). For each stock, we describe the relevant time interval and change in gross margin.

Over 100 names made the cut. So, to narrow our list further we then screened for those with bullish sentiment from short sellers, with significant short covering month over month. This indicates short sellers are feeling less pessimistic about their future performance.

Do you think these stocks pay reliable dividends? Do you think these companies will continue to outperform like hedge funds expect? Use this list as a starting point for your own analysis. List Average 1-Year Return: 12%.

1. Family Dollar Stores Inc. (FDO, Earnings, Analysts, Financials): Operates a chain of self-service retail discount stores primarily for low and middle income consumers in the United States. Market cap at $7.71B, most recent closing price at $65.98.

Diluted normalized EPS increased from 2.07 to 2.62 during the first time interval (52 weeks ending 2010-08-28 vs. 52 weeks ending 2009-08-29). For the second time interval, diluted normalized EPS increased from 2.62 to 3.12 (52 weeks ending 2011-08-27 vs. 52 weeks ending 2010-08-28). And for the last time interval, the EPS increased from 3.12 to 3.64 (52 weeks ending 2012-08-25 vs. 52 weeks ending 2011-08-27).

Dividend yield at 1.27%. Payout ratio at 16.66%. Shares shorted have decreased from 4.45M to 3.25M over the last month, a decrease which represents about 1.24% of the company’s float of 96.42M shares. Days to cover ratio at 2.19 days.

2. FactSet Research Systems Inc. (FDS, Earnings, Analysts, Financials): Provides financial and economic information to investment community worldwide. Market cap at $4.08B, most recent closing price at $91.80.

Diluted normalized EPS increased from 2.97 to 3.13 during the first time interval (12 months ending 2010-08-31 vs. 12 months ending 2009-08-31). For the second time interval, diluted normalized EPS increased from 3.13 to 3.61 (12 months ending 2011-08-31 vs. 12 months ending 2010-08-31). And for the last time interval, the EPS increased from 3.61 to 4.12 (12 months ending 2012-08-31 vs. 12 months ending 2011-08-31).

Dividend yield at 1.35%. Payout ratio at 27.48%. Shares shorted have decreased from 4.99M to 4.31M over the last month, a decrease which represents about 1.67% of the company’s float of 40.73M shares. Days to cover ratio at 12.21 days.

3. Finish Line Inc. (FINL, Earnings, Analysts, Financials): Operates as a mall-based specialty retailer in the United States. Market cap at $1.06B, most recent closing price at $20.91.

Diluted normalized EPS increased from 0.61 to 1.19 during the first time interval (52 weeks ending 2010-02-27 vs. 52 weeks ending 2009-02-28). For the second time interval, diluted normalized EPS increased from 1.19 to 1.3 (52 weeks ending 2011-02-26 vs. 52 weeks ending 2010-02-27). And for the last time interval, the EPS increased from 1.3 to 1.64 (53 weeks ending 2012-03-03 vs. 52 weeks ending 2011-02-26).

Dividend yield at 1.15%. Payout ratio at 13.9%. Shares shorted have decreased from 3.62M to 3.09M over the last month, a decrease which represents about 1.08% of the company’s float of 49.26M shares. Days to cover ratio at 4.18 days.

4. Kohl’s Corp. (KSS, Earnings, Analysts, Financials): Operates department stores in the United States. Market cap at $12.1B, most recent closing price at $51.59.

Diluted normalized EPS increased from 2.79 to 3.18 during the first time interval (52 weeks ending 2010-01-30 vs. 52 weeks ending 2009-01-31). For the second time interval, diluted normalized EPS increased from 3.18 to 3.66 (52 weeks ending 2011-01-29 vs. 52 weeks ending 2010-01-30). And for the last time interval, the EPS increased from 3.66 to 4.31 (52 weeks ending 2012-01-28 vs. 52 weeks ending 2011-01-29).

Dividend yield at 2.48%. Payout ratio at 27.17%. Shares shorted have decreased from 15.56M to 13.33M over the last month, a decrease which represents about 1.03% of the company’s float of 215.92M shares. Days to cover ratio at 4.38 days.

5. The Men’s Wearhouse, Inc. (MW, Earnings, Analysts, Financials): Operates as a specialty retailer of men’s suits in the United States and Canada. Market cap at $1.63B, most recent closing price at $32.22.

Diluted normalized EPS increased from 1.04 to 1.12 during the first time interval (12 months ending 2010-01-30 vs. 12 months ending 2009-01-31). For the second time interval, diluted normalized EPS increased from 1.12 to 1.46 (12 months ending 2011-01-29 vs. 12 months ending 2010-01-30). And for the last time interval, the EPS increased from 1.46 to 2.38 (12 months ending 2012-01-28 vs. 12 months ending 2011-01-29).

Dividend yield at 2.23%. Payout ratio at 28.13%. Shares shorted have decreased from 3.58M to 2.46M over the last month, a decrease which represents about 2.34% of the company’s float of 47.85M shares. Days to cover ratio at 4.69 days.

6. Sturm, Ruger & Co. Inc. (RGR, Earnings, Analysts, Financials): Engages in the design, manufacture, and sale of firearms in the United States. Market cap at $873.31M, most recent closing price at $45.58.

Diluted normalized EPS increased from 0.41 to 1.47 during the first time interval (12 months ending 2009-12-31 vs. 12 months ending 2008-12-31). For the second time interval, diluted normalized EPS increased from 1.47 to 1.48 (12 months ending 2010-12-31 vs. 12 months ending 2009-12-31). And for the last time interval, the EPS increased from 1.48 to 2.08 (12 months ending 2011-12-31 vs. 12 months ending 2010-12-31).

Dividend yield at 2.31%. Payout ratio at 28.6%. Shares shorted have decreased from 7.85M to 7.59M over the last month, a decrease which represents about 1.49% of the company’s float of 17.49M shares. Days to cover ratio at 16 days.

*EPS data sourced from Yahoo! Finance, institutional buying data from Fidelity, all other data sourced from Finviz.

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