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Dividends Plus Buybacks: 11 Stock Picks

NEW YORK (TheStreet) -- I've long been a proponent of the notion that rising dividends may be a better indicator of a company's health than earnings alone. After all, earnings can be manipulated, but dividends are paid in cash, so what you see is what you get.

Rising dividends can indicate a sense of confidence from management in a company's prospects. There is also a self-policing aspect; companies would be unwise to increase dividends to an unsustainable level just to appeal to investors, because the prospect of having to cut the dividend is not something companies want to face.

But when you add stock buybacks on top of rising dividends, you've got a potentially powerful combination. Granted, while the announcement of a stock buyback is often greeted enthusiastically by the markets, it's the follow-through, the actual share repurchases that matters most.

I've covered this subject previously, in searches designed to identify larger companies that have simultaneously paid dividends and repurchased shares. Today's endeavor is to identify some smaller names.

This stock screen utilizes the following criteria; somewhat less stringent than the earlier search, given the smaller size, and potentially shorter operating histories of the companies:

  • Minimum market cap of $100 million, maximum market cap $5 billion;
  • increasing dividends for the past three years;
  • shares outstanding reduced by at least 5% over the past year;
  • U.S. companies only.

Just 11 names qualified, and the list is perhaps not surprisingly top-heavy with banks and insurance companies. Property and casualty name American Financial Group (AFG) tops the list in terms of market cap. The company has reduced shares outstanding by more than 7% over the past year, and currently yields 1.4%. The quarterly dividend (excluding a special dividend paid at year-end 2012) has grown at a 14% clip over the past three years. Life insurers Assurant (AIZ) and Primerica (PRI) also made the cut, as did savings and loan name People's United Financial (PBCT).

One of the more recognized qualifiers is Tupperware Brands (TUP), which has increased its quarterly dividend by 72% over the past year, and 35% per year over the past three years. The company has also reduced shares outstanding by 5.2% over the past year, and by more than 16% since year-end 2010. Shareholders have been well rewarded; Tupperware is up 60% over the past year.

TUP ChartTUP data by YCharts

Rounding out the list are financial services name Legg Mason (LM), commercial information provider Dunn & Bradstreet (DNB), financial research and data provider Morningstar (MORN), packaging name Silgan Holdings (SLGN), rental and leasing company Rent-A-Center (RCII) and security-threat detection products name American Science and Engineering (ASEI).

At the time of publication, Heller had no positions in stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Stock quotes in this article: TUP, AFG, AIZ, PRI, PBCT, LM, MORN, SLGN, RCII, ASEI, DNB 
At the time of publication, Heller had no position in stocks mentioned.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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