When you look at the list of the stocks traded on the exchanges, you will find hundreds of companies, invariably all trying to do the same thing – make money. One of the first tasks you have is to narrow the field – this blog believes one of the best methods to make money is by investing in companies that are proven winners which have a history of paying dividends. By starting with that list, you will tend to be better off in the future. Occassionally in the Globe and Mail and other financial papers, analysis are run to help people. Ian McGugan does a column which helps to narrow the list. Recently he teamed up with Craig McGee of Morningstar.
They were looking to see if US Dividend stocks are still reasonably priced? The first test determined yes they are – dividend stocks are trading at 14.7 times earnings, while historically they trade at 14.9 times.
Next step – which ones are the good ones? To find firms that appear the most reasonably valued, he used CPMS to select the 20 U.S. stocks with the best combination of low price-to-earnings ratios, low price-to-cash-flow ratios and low price-to-sales ratios. (All of them are based on the past four quarters’ results.)
To make the grade, a stock had to be in the top 30 per cent of the CPMS U.S. database on the above criteria, with an expected yield of at least 3 per cent. Any stock for which analysts had reduced their earnings estimates over the past three months was ruled out.
The results – Mr. McGee back-tested the strategy assuming that an investor held equal dollar amounts of each stock until a stock fell below the 30 per cent mark, at which point it was replaced with the best ranking alternative.
Since Dec. 31, 1993, this strategy would have generated an annualized return of 12.1 per cent, versus 8.7 per cent for the S&P 500 total return index. Remember, though, that past results don’t necessarily predict future success. The strategy beat the index with a low risk to the investor.
The top 20 stocks to look at were:
| Rank | Company | Symbol | Expected Yield % | P/E | P/CF | Price/ Sales | 3m Estimate Revision % |
|---|---|---|---|---|---|---|---|
| 1 | Entergy Corp. | ETR-N | 5.25% | 11.26x | 3.35x | 1.05x | 2.49% |
| 2 | Frontier Communications | FTR-Q | 9.25% | 17.92x | 2.77x | 0.88x | 4.76% |
| 3 | Gannett Co. Inc. | GCI-N | 3.15% | 10.63x | 7.33x | 1.12x | 5.49% |
| 4 | Lockheed Martin Corp. | LMT-N | 3.68% | 12.56x | 7.93x | 0.88x | 5.27% |
| 5 | ConocoPhillips | COP-N | 4.02% | 12.01x | 5.17x | 1.46x | 1.67% |
| 6 | Verizon Communications | VZ-N | 4.56% | 18.59x | 3.88x | 1.13x | 2.21% |
| 7 | CenturyLink Inc. | CTL-N | 6.62% | 19.10x | 3.10x | 1.11x | 0.00% |
| 8 | CMS Energy Corp. | CMS-N | 3.91% | 16.22x | 4.64x | 1.07x | 0.00% |
| 9 | Cincinnati Financial Corp. | CINF-Q | 3.60% | 14.85x | 12.03x | 1.78x | 10.23% |
| 10 | Public Svc Enterprise | PEG-N | 4.46% | 12.98x | 4.96x | 1.65x | 0.00% |
| 11 | AT&T Inc. | T-N | 5.30% | 14.39x | 5.03x | 1.50x | 0.75% |
| 12 | Ameren Corp. | AEE-N | 4.81% | 15.19x | 5.05x | 1.27x | 0.00% |
| 13 | Xcel Energy Inc | XEL-N | 4.04% | 14.22x | 5.55x | 1.28x | 0.25% |
| 14 | AGL Resources Inc | GAS-N | 4.22% | 16.62x | 5.90x | 1.18x | 0.00% |
| 15 | Dow Chemical Co. | DOW-N | 3.20% | 19.24x | 7.88x | 0.85x | 3.64% |
| 16 | DTE Energy Co. | DTE-N | 3.93% | 16.33x | 6.07x | 1.24x | 0.00% |
| 17 | CenterPoint Energy Inc | CNP-N | 3.59% | 18.45x | 5.83x | 1.22x | 0.00% |
| 18 | Northeast Utilities | NU-N | 3.59% | 16.15x | 6.21x | 1.69x | 0.00% |
| 19 | Waste Management Inc. | WM-N | 3.59% | 19.21x | 7.50x | 1.38x | 0.21% |
| 20 | Wisconsin Energy Corp. | WEC-N | 3.81% | 16.87x | 7.91x | 2.12x |
There are more questions than answers, till the next time – to raising questions
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