Dividend investing is a strategy focused on generating a steady stream of passive income from a portfolio of stocks that regularly distribute a portion of their profits to shareholders. However, a high dividend yield alone can be a trap if it comes at the cost of a company's financial health or growth potential. A better approach is to look for companies that score well across multiple dimensions: they must have a reliable dividend track record, but also demonstrate decent profitability and a solid financial foundation to ensure those payouts are sustainable. The "Best Dividend Stocks" screen on ChartMill is designed to do exactly this, filtering for stocks with a high Dividend Rating (≥7), while also requiring minimum thresholds for both Profitability and Health Ratings (≥5). This method helps investors avoid value traps and focus on quality companies that can pay and grow their dividends over time.
Why Kennametal Inc. (NYSE:KMT) Passes the Screen
Kennametal Inc. (NYSE:KMT) is a global leader in the manufacturing of tungsten carbide tooling and wear-resistant components, serving critical end markets like aerospace, energy, and general engineering. The company emerged from the screen with a strong Dividend Rating of 7 out of 10, supported by a Profitability Rating of 6 and a Health Rating of 5, meeting all the criteria for the strategy. Let’s break down the details.
Deep Look into the Dividend Profile
The core of the screen is the dividend quality, and KMT offers several encouraging features for income-focused investors.
- Attractive Yield: KMT offers a yearly dividend yield of 2.20% . This is not only a reasonable return on its own but also stands out when compared to its industry. The company pays more in dividends than 88.72% of its peers in the Machinery industry and also beats the S&P 500 average yield of 1.83%.
- Reliable Track Record: KMT has been paying a dividend for at least 10 years and, crucially, has not decreased its dividend during that entire period. This provides a solid base of reliability for investors looking for consistent income.
- Sustainable Payout: The sustainability of a dividend is often measured by the payout ratio. KMT’s payout ratio sits at 44.42% . While this is a bit on the higher side—meaning nearly half of its earnings are distributed to shareholders—it is far from the danger zone. More importantly, the company’s earnings are currently growing at a faster pace than its dividend. This is a strong positive signal, as it means the dividend has room to grow without putting pressure on the company’s finances.
Balancing the Scorecard: Profitability and Health
The screen’s requirement for decent profitability and health ensures that the dividend is not built on a shaky foundation.
Profitability Rating: 6/10
KMT shows solid underlying profitability metrics that support its ability to generate cash.
- Positive Trends: The company has been consistently profitable, with positive earnings and operating cash flow in each of the last five years. Furthermore, its latest Return on Invested Capital (ROIC) of 7.47% is above its three-year average of 6.49% , indicating that its efficiency is improving.
- Margins Under Pressure: While profitability is decent, the report notes that its profit margin has declined in recent years and its operating margin has been stable rather than growing. This suggests the company is facing some headwinds, which is a key factor to monitor for future performance.
Health Rating: 5/10
While only a neutral score, the health metrics show a company that is financially stable, which is the minimum needed to support a long-term dividend program.
- Strong Liquidity: KMT has a current ratio of 2.38 , indicating it has more than enough short-term assets to cover its immediate liabilities. This provides a cushion against short-term financial shocks.
- Manageable Debt: The company’s debt-to-equity ratio is 0.45 , a low level that shows it is not overly reliant on debt financing. However, a debt-to-free-cash-flow ratio of 8.40 indicates it would take a number of years to pay off all its debt using its free cash flow, a point warranting attention.
- Solvency Confirmed: A solid Altman-Z score of 3.19 places KMT well into the “safe zone,” suggesting a very low risk of bankruptcy in the near future.
Analysts See Growth Ahead
The strategy also benefits from checking the analyst outlook. While not a direct filter in the screen, the fundamental report provides valuable context for the valuation. For KMT, analysts expect strong earnings per share (EPS) growth of 19.23% on average over the next years. This expected growth is significant for two reasons: it makes the current Price-to-Earnings (P/E) ratio of 18.28 look much more reasonable, and it provides the fuel necessary for future dividend increases. The low PEG ratio confirms that the stock may be undervalued relative to its growth potential, an attractive combination for a dividend stock.
Finding More Opportunities
Kennametal (KMT) illustrates how a disciplined screening approach can uncover a stock that offers a blend of immediate income, long-term dividend reliability, and reasonable growth prospects. The broader market offers many such opportunities for investors who take a structured approach.
If you’d like to explore more stocks like KMT, you can run the same "Best Dividend Stocks" screen yourself to see the full list of candidates.
Click here to access the live screen and start your search.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment decisions should be made based on your own research and financial situation.
Read full article here »
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KENNAMETAL INC (NYSE:KMT): A Quality Dividend Stock for Sustainable Income
Dividend investing is a strategy focused on generating a steady stream of passive income from a portfolio of stocks that regularly distribute a portion of their profits to shareholders. However, a high dividend yield alone can be a trap if it comes at the cost of a company's financial health or growth potential. A better approach is to look for companies that score well across multiple dimensions: they must have a reliable dividend track record, but also demonstrate decent profitability and a solid financial foundation to ensure those payouts are sustainable. The "Best Dividend Stocks" screen on ChartMill is designed to do exactly this, filtering for stocks with a high Dividend Rating (≥7), while also requiring minimum thresholds for both Profitability and Health Ratings (≥5). This method helps investors avoid value traps and focus on quality companies that can pay and grow their dividends over time.
Why Kennametal Inc. (NYSE:KMT) Passes the Screen
Kennametal Inc. (NYSE:KMT) is a global leader in the manufacturing of tungsten carbide tooling and wear-resistant components, serving critical end markets like aerospace, energy, and general engineering. The company emerged from the screen with a strong Dividend Rating of 7 out of 10, supported by a Profitability Rating of 6 and a Health Rating of 5, meeting all the criteria for the strategy. Let’s break down the details.
Deep Look into the Dividend Profile
The core of the screen is the dividend quality, and KMT offers several encouraging features for income-focused investors.
Balancing the Scorecard: Profitability and Health
The screen’s requirement for decent profitability and health ensures that the dividend is not built on a shaky foundation.
Profitability Rating: 6/10
KMT shows solid underlying profitability metrics that support its ability to generate cash.
Health Rating: 5/10
While only a neutral score, the health metrics show a company that is financially stable, which is the minimum needed to support a long-term dividend program.
Analysts See Growth Ahead
The strategy also benefits from checking the analyst outlook. While not a direct filter in the screen, the fundamental report provides valuable context for the valuation. For KMT, analysts expect strong earnings per share (EPS) growth of 19.23% on average over the next years. This expected growth is significant for two reasons: it makes the current Price-to-Earnings (P/E) ratio of 18.28 look much more reasonable, and it provides the fuel necessary for future dividend increases. The low PEG ratio confirms that the stock may be undervalued relative to its growth potential, an attractive combination for a dividend stock.
Finding More Opportunities
Kennametal (KMT) illustrates how a disciplined screening approach can uncover a stock that offers a blend of immediate income, long-term dividend reliability, and reasonable growth prospects. The broader market offers many such opportunities for investors who take a structured approach.
If you’d like to explore more stocks like KMT, you can run the same "Best Dividend Stocks" screen yourself to see the full list of candidates. Click here to access the live screen and start your search.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. All investment decisions should be made based on your own research and financial situation.
Read full article here »