When a company makes profits it has many options what to do with the money, and usually there is a combination of both internal and external operations. Often companies will buy back their shares – when interest rates are high, to raise money companies sell shares into the market. When interest rates are low, it is better to issue bonds and buy back some of the shares in the market. For companies which issue dividends, sometimes with the share purchases, the other action is to increase the dividend as there are fewer shares. In a recent article Michael Bowman examined which companies are doing it better than others. Mr. Bowman email is mike@mikebowmangroup.com and works for Wickham Investment Counsel.

To narrow the field, Mr. Bowman started with companies greater than $ one billion in market capitalization. Next in terms of stock buybacks, the company must have done it in the past year. In addition the companies had to have grown the dividend plus 10% over the past 5 years and the current yield greater than 2%. In addition the EV/EBITDA (enterprise value divided by earnings before interest, taxes, depreciation and amortization) is a common metric to use and looking for a low number. The other figure to give indication is Price to free cash flow (P/FCF) which compares the stock price to operating cash – a low number is preferred. The source was Bloomberg.

Company         Ticker        Market Cap  EV/EVTDA    P/FCF  Dividend     DVD

($Bill)                                               5 Yr %       Yield

IBM                   IBM-N        186.18            9.30            14.80       14.32         2.0

Occidental Pete OXY-N       77.81            5.48            31.16        16.09        2.9

Walgreen Co      WAG-N      58.06           12.17           24.18        22.87          2.2

Lockheed Martin LMT-N        52.62          9.31             12.94         19.27         3.2

General Mills        GIS-N        31.83         11.55            17.55         12.42        3.2

Deere & Co             DE-N       31.64           4.83            29.61         13.72       2.8

Yum Brands          YUM-N       30.76          10.96          20.85         14.26       2.1

Rogers Comm B   RCI.B-T      20.19            7.39          15.46          10.57       4.3

Analog Devices        ADI-Q       15.56           12.66        21.48          12.16      3.0

Wisconsin Energy     WEC-N      9.79            9.84          17.20         20.52       3.6

Western Union              WU-N     9.01            8.24            9.58         65.72       2.9

Harris Corp                 HRS-N      7.36            7.77           11.49        16.0         2.4

From the above chart, there are many different types of companies and some are better than others. However by narrowing your scope, you can pick the best of the best or the elements which are most important to you. In this chart you are looking at dividends, their 5 year growth rate and the probabilities the company will continue to pay the dividend and grow it.

There are more questions than answers, till the next time – to raising questions