Why Carnival Has Both Capital Growth And Income Potential

 | Apr 30, 2019 11:37

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.

h2 Does Carnival pass our F-Score test?/h2

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.

h2 Prospects for Carnival/h2

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: