As Warren Buffett famously said, whether we're talking about socks or stocks, I like buying quality merchandise when it is marked down. One quality stock recently hitting 52-week lows is Cash Converters International Limited (ASX: CCV).

Cash Convertors is involved in the sale of second-hand goods, franchising, personal loans and vehicle leasing. It runs 131 of the Cash Converters stores with a network of more than 750 stores in 18 countries. Cash Converters shares are down over 50% from their 2013 peak, giving investors an opportunity to pick up shares at a big discount.

Reasons for the share price decline are numerous, including: the Australian micro credit rate cap that came into effect mid-2013, the U.K. credit legislation that came into effect at the start of 2015, a New South Wales-based class action that settled last month for $20 million plus capped costs of $3 million, Carboodle (the vehicle leasing company) taking longer than anticipated to turn a profit, a tough 2014 financial year and a tougher 2015 financial year. Top it all off with a capital raising to terminate the Kentsleigh licenses being funded by an unfair placement offer and you can see why some have lost patience.

These are formidable challenges, but I believe the market has under-rated the strength of this company. For instance, cash advance levels in Australia have returned to "pre legislation change" levels and the new legislation has removed uncertainty and allows Cash Converters to plan ahead with greater clarity.

The termination of the Kentsleigh licenses resulted in a $30.8 million payout but will save the company $5.7 million per annum based on the current value of loans written, and more if the company continues to increase loans written.

The earliest information I could find on earnings per share (EPS) for Cash Converters showed the 2003 EPS at 2.05 cents per share (cps). Since then the EPS has increased to a high of 8.09 cps in 2013 but dropped back down to 5.67 cps in 2014. Even with the recent EPS reduction, that equates to a 177% increase from 2003 and with analysts expecting EPS in 2016 to hit 9.9cps, the share price could rebound nicely.

The settlement of the class action, which was for charging unlawful deferred establishment fees on small loans, will allow Cash Converters to focus its efforts on returning to growth. The $20 million settlement is half of the original claim of $40 million, and will be funded from existing resources. It is deductable for tax purposes. This action was settled without any admission of liability and I would hope that lessons have been learnt from this expensive exercise.

While there are definite risks to buying Cash Converters, investors with mid- to long-term time frames should be well rewarded. While waiting for Cash Converters to deal with what I expect are short-term problems, you can enjoy the 4 cents a year dividend, which is a yield of 5.71%, grossing up to a very respectable 8.2%.

The post Is Cash Converters International Limited a bargain at current prices? appeared first on The Motley Fool Australia.

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When considering stocks to add to their portfolio many investors get caught up in looking for the next big thing. But for every Google, there are countless others that never make it to profitability. One way to protect yourself from these losses is to look for companies with fat profit margins, so that they can weather any downturn they might encounter.

One company all ASX investors will be familiar with is ASX Ltd. (ASX: ASX). Last month ASX released its results, giving us an earnings update for the first three quarters of the year. With revenue increasing 5.8% to $516.8 million, net profit after tax (NPAT) increasing 4.1% to $298.7 million and net profit margin increasing to 57.8%, it was a beautiful set of numbers. With the added bonus of a monopoly in some of its markets, ASX is unlikely to be put under pricing pressure in the near term.

Mid to long-term is another matter, with ASX facing intense international competition. Ranked the ninth largest exchange in 2011, the ASX is now ranked 14th in the world. Tony Osmond, head of corporate and investment banking at Citigroup, puts this down to delistings outstripping new listings, fund managers' short-term focus and low levels of capital raising. With investing overseas continuing to become easier and cheaper, ASX needs to take steps to retain its current listings and capture more of the new listings that are currently heading offshore.

The much smaller IMF Bentham Ltd (ASX: IMF) may have flown under the radar of many readers. IMF is the oldest and most experienced commercial litigation funder in the world and has an incredible 95% success rate. In February, IMF released its half-year results, with revenue increasing to 131% to $77.6 million, NPAT increasing 152% to $23 million and net profit margin increasing to 29.64%. While IMF's profit margin is around half that of ASX Ltd., it is miles ahead of the total market average of 7.84% and one of the juicer ones available.

Late last month, IMF released an investor presentation that included details on four recent losses and their possible impact. Of the four cases, three are being appealed but it is unlikely IMF will have such impressive results continue for the second half of the year.

Over the mid- to long-term, IMF is in a much better position, and unlike ASX, it currently has limited competition with only two other funds vying for multi-national leadership. A company like IMF Bentham is always going to have very choppy earnings, but with a growing case portfolio and international expansion well underway, IMF should be a good move for investors who are prepared for the volatility that owning these shares will entail. IMF is currently trading at 52-week lows and from here I expect to see market-beating returns.

High profit margins aren't the only measure of great companies, but when you are assured that the companies you own can go through lean times while still making substantial profits, it can help you with the "sleep at night" test.

The post 2 worry-free stocks for your portfolio  appeared first on The Motley Fool Australia.

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Since 1 January 1900, dividends have made up 45% of the total return of the Australian share market. For those who are looking to recoup their money in the shortest time frame, retirees and others looking for income, dividends matter. With that in mind let's have a look at two of the biggest dividend-returning stocks in the ASX 100 to see if they are good candidates for your portfolio.

Metcash Limited (ASX: MTS) is the distribution and marketing company behind such brands as IGA, Mitre 10, Autobarn and Cellarbrations. Metcash is currently trading at $1.38 with a trailing dividend ratio of 11.23%. When we gross up for franking credits, it becomes a massive 16.04%.

The first thing we need to ask ourselves about Metcash is whether the dividend has further to fall. In 2012 Metcash paid out 28 cents per share, in 2013 it paid out a reduced 26 cents and in 2014 it only paid out 15.5 cents per share. I believe on reduced earnings and dividend ratio that the dividend does have further to fall, perhaps to 14.5 cents this year.

The second question we need to ask is whether Metcash has managed to turn around its business and offers us good long-term growth prospects from here. Metcash is at the beginning of a five-year restructuring phase to allow it to compete with the likes of Coles, owned by Wesfarmers Limited (ASX: WES), and Woolworths Limited (ASX: WOW). The major problem Metcash faces is that it is number three in all its markets and with the likes of Aldi and Costco nipping at its heels it is going to need to pull something pretty special out of the bag.

Metcash shares have fallen 50% in the last 12 months and are facing significant headwinds with both profitability and its dividend payout under pressure for the foreseeable future. Personally I am going to wait to see how successful Metcash's turnaround is.

Woodside Petroleum Limited (ASX: WPL) is an oil and gas company involved in the exploration, development and production of hydrocarbons around the world. Woodside is currently trading at $36.42 with a trailing dividend ratio of 8.32%. When grossed up for franking credits, it grows to a huge 11.89%

Again we need to look at the sustainability of this dividend yield. Woodside has increased its dividend every year for the last five years, but in 2013, it paid out 116% of the earnings per share (EPS), and in 2014 it paid out 87% of EPS. Woodside has a strong balance sheet but at some stage will need to start investing heavily in new production. Also, being a commodity producer means it has no ability to set its own prices, so the dividend will be impacted by what the market is willing to pay for oil and gas.

Woodside shares have fallen 14.2% in the last 12 months due to oil and gas price falls but I believe this weakness is a buying opportunity. Over the mid-term I expect Woodside to grow both its EPS and dividend payouts on the back of increased production. Whether or not it can maintain such a big dividend ratio remains to be seen.

The post Are these the two biggest dividend yields on offer in the ASX100?  appeared first on The Motley Fool Australia.

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