I’ve previously talked about using the Altman Z-score to avoid companies that have too much financial risk. These are companies that have a real danger of facing financial difficulties — including possible bankruptcy liquidation — in the next couple of years.
Needless to say, owning one of these stocks leaves us facing the real possibility of a permanent destruction of capital, which can devastate our portfolios.
In today’s low-interest-rate world, I see many investors really stretching for yield, purchasing shares in companies with dubious financial prospects in an attempt to capture higher dividend rates.
They needn’t — and shouldn’t — do so.
Investors might be better off looking for dividend stocks that have both attractive yield and a high Altman Z-score, indicating less financial risk.
We can’t do anything about market fluctuations, but we can at least control the quality of dividend stocks we buy.
Read on to learn about our picks.
Dividend Stocks With ‘Z’: Mattel, Inc. (MAT)
MAT Dividend Yield: 6.3%
Mattel, Inc. (NASDAQ:MAT) is a great example of the type of dividend stock that income-oriented investors should want to own right now.
The toy company has been under selling pressure as sales and earnings haven’t met expectations. Barbie has not translated well into the digital world, and that has hurt MAT stock … but the company is not sitting still. CEO Bryan Stockton resigned … er, was pushed out … and was replaced by Christopher Sinclair, who has been on the board since 1996 and was formerly CEO of PepsiCo, Inc. (NYSE:PEP). He appears to have a solid strategy to turn the company around, including cost cutting and plans to “reduce bureaucracy that has slowed decision making and diffused accountability.”
Mattel is in solid shape financially with an Altman Z-score of 3.71. There had been some concerns that a dividend cut in the works, but analysts have reassured investors that the payout is safe.
Shares currently yield a massive 6.3%, and shares could have appreciation potential as well if Sinclair can get the ship turned around.
Dividend Stocks With ‘Z’: Petmed Express Inc (PETS)
PETS Dividend Yield: 4.1%
Petmed Express Inc (NASDAQ:PETS) isn’t exactly the type of company you’d expect to see on a list of secure dividend stocks, but … here it is.
PETS stock is an intriguing growth and income pick at current prices. Petmed is the parent of 1-800-PetMeds, which sells leading brands of prescription drugs, non-prescription drugs, health supplies, food and beds for pets, then delivers them to consumers’ doorsteps.
PetMed’s balance sheet is solid with no debt, and the company boasts a sky-high Altman Z-score of 37. Shares yield 4.1% at current prices, and management has raised the dividend 70% over the past five years.
The case for growth is clear: Americans love their pets and are willing to pay for their care — and that should drive earnings and sales for years to come. That should not only drive PETS stock higher, but keep the dividend climbing too.
Dividend Stocks With ‘Z’: Houston Wire & Cable Company (HWCC)
HWCC Dividend Yield: 5%
Houston Wire & Cable Company (NASDAQ:HWCC) is another intriguing choice for income investors.
HWCC is one of the largest providers of wire and cable in the U.S., and sells its wares to industries including utilities and infrastructure. The company also does a lot of business with the oil and gas industry, so naturally weakness there has weighed on Houston Wire & Cable.
Still, HWCC is in sound financial shape with an Altman Z-score of 5.43. The company just declared its 47th consecutive dividend, and at 12 cents quarterly, shares yield just about 5%.
Wire and cable might not be the most glamorous way to make a buck, but it’s a necessary industry, and Houston Wire & Cable’s management appears to be share-holder friendly. In addition to the dividend, HWCC bought back 3% of its shares in the fourth quarter alone.
As of this writing, Tim Melvin did not hold a position in any of the aforementioned securities.
