Screening for companies with strong balance sheets and solid dividend yields can be a quick and simple way of identifying potentially high-quality investments that might be attractively priced. One way of doing might be to include stocks that have a Piotroski F-Score of 8 or 9 and a dividend yield of at least, say, 3%.
Take Carnival (NYSE:CCL), for example, which is a large cap company in the Consumer Cyclicals sector. Carnival pays out a rolling 3.74% of its share price in dividend payments.
Does Carnival pass our F-Score test?
Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that Carnival scores 8 out of a possible 9.
By investing in companies scoring 8 or 9 by these measures, Piotroski showed that, over a 20-year test period through to 1996, the return earned by a value-focused investor could be increased by an astounding 7.5% each year. Even better, it suggests that the company is well-placed to continue to pay out attractive dividends.
Prospects for Carnival
Perhaps we can see why this is by looking at the company's most recent financial results.
Carnival appears to have an improving financial condition and a reasonable yield, however, in the group's recent results (for the three months ended 28 February 2019), Carnival plc revenues increased 10% to $4.67bn but net income decreased 14% to $336m. This fall in profitability should be investigated, considering the group's cyclical properties. Carnival's one-year share price performance also suggests the market is wary of prospects for the company:
Find more high-quality stocks
This F-Score suggests Carnival (LON:CCL) is a promising investment candidate and is worthy of further research - but it is only a first step. It has been proven that higher F-Score stocks often trade at a premium compared to other stocks. Investors like to pay up for quality but its important not to pay too much.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.