The ability to generate financial data is easier everyday, more companies use the data and financial institutions tend to pay their bills on time which is why companies cater to them, This means as an investor you can pick and choose as never before and you can always find out what companies are the best of the breed (as Jim Cramer) calls the best stocks. Jean-Didier Lapointe is a financial analyst at Inovestor Inc and he looked at the companies in the S&P 500 that generate high economic profit for their shareholders, above-average dividend growth rates and are presently (Sept 15) trading at a seemingly discount.

To do the above he looked at 7 variables:

• return on capital (ROC) is above 10%
• an economic performance index or EPI (return on capital / cost of capital) above 1.5
• all companies must pay a dividend
• one year dividend growth is 10% or more
• 5 year average dividend growth is above 10%
• price to earnings is below 15
• current price to earnings is below its 5 year average

The result of 500 stocks only 10 fit the criteria or the field was continually narrowed to minimize the risk level.

Company                                Ticker            ROC    EPI      Div Yield   1-Yr Div   5 Yr Avg     P/E     5 Yr Avg

%                      %            Growth %  Div Grth %           P/E

American Express                AXP-N           24.80     2.4         1.55        11.54        12.67          13.2     15.4

Ameriprise Financial             AMP-N           21.0      1.6          2.44        15.52       34.7             12.4     13.5

IBM                                        IBM-N            16.90    2.4          3.53        18.18        14.26          9.8        12.6

Qualcomm                           QCOM-Q         17.30    1.7          3.51        14.29        22.04          14.8       18.2

Scripps Network Intact           SNI-N            18.20    2.1          1.73        15.0          27.14          12.3       17.6

T Rowe Price Group            TROW-Q          23.0      1.9          2.93        18.18        13.85          14.8      19.2

21 Century Fox Inc               FOXA-Q           14.4      1.6         1.13         10.0          18.10           6.7      20.7

Union Pacific                           UNP-N           16.10    1.8          2.55        10.0          28.52          14.7      17.1

Viacom Inc                              VIAB-Q           13.5     1.6           3.61        21.21       19.68           10.3      14.4

Western Union                            WU-N          19.4     2.0           3.39        23.08       19.52           11.3     11.6

Linking to dividend paying stocks, whether you pick the above stocks or others it is possible to continually reduce the risk and have a quality return on your investment. If your first rule is try not to lose money, then the use of financial data to limit your criteria is a wonderful way to start. The next step is to determine why the companies should be able to generate income particularly as the economy continues to improve. In this fashion your choice of which company or companies or index is a good one and your should be well rewarded.

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

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