Sean Pugliese of Wickham Investment Counsel examined US dividend companies with a focus on safety and value. One of his metrics is Free Cash flow to Enterprise Value (FCF/EV)

He started with companies with a market capitalization of greater than $ 1 billion.

The FCF/EV had to be greater than 0.5. (FCF is the cash left over for investors after all the expenses. reinvestments and capex. EV is a measure of the company’s value excluding cash)

The dividend yield has to be greater than 4%

Payout is less than 100 ( the dividend payment divided by earnings. A lower number is preferred for it could mean dividends could be raised.)

Earnings momentum is the change in annual earnings over the past quarter. A positive number indicates earnings are rising, a negative means to check other signs for possible dividend cut.

Debt to equity ratio of less than 150. A smaller ratio indicates a lower debt.

Company                  Mkt  Cap         FCF/EV       Dividend      Dividend            Earnings    Debt/

($ bil)                                      Yield %     Payout Ratio %    Momentum  Equity

AT&T                          241.68              0.06              4.93              77.96                   -3.43               104.90

Verizon Comm        210.28             0.07              4.47               53.36                      1.01                546.59

Ford Motor                  53.39             0.39               4.91               64.76                   21.10               474.48

Lyondell Bassell       35.22             0.10                 4.07              32.65                 -2.40               142.93

Valero Energy            26.39           0.12                  4.42              56.77                   -10.33             34.12

L Brands                      19.74           0.06                 5.86               22.80                      6.97              0.0

Internat’l Paper      17.68            0.06                 4.18                 53.32                       -2.68          220.07

Macy’s                        10.13             0.08                4.26                 20.66                   -4.18              179.57

Gap                               7.49             0.11                  4.84                 42.99                  -7.29             68.02

Staples                       5.54               0.10                 4.68                92.31                     29.39             19.22

Source: Bloomberg

Of the ten above. Mr. Pugliese believes L Brands and Staples look the most interesting.

Linking to dividend paying stocks, there are many metrics to be examined and eventually you will need to focus on a few. Lists similar to this one helps focus or narrow the companies to a few depending on your selection criteria. Buying when the stock is declined as long as your believe they are still doing their business plan and can pay their dividend will mean in the long run you will be better off through total return.

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