What does a diversified portfolio of 10 stocks really look like? Ian Tam of Morningside Research offered an opinion. Morningside Research provides independent investment research around the world and from its data base, Ian used the following criteria:

Market cap (the larger the better)

Dividend yield – needs to be paying a dividend

Variability of earnings over 5 year period – looking for consistency of earning money

Quarterly Earnings Momentum (QEM) – the latest 4 quarters of reported earnings compared the same figure one quarter ago

the Return on Equity (ROE) which is a profitability measure

Price to book multiple ( a value based ratio)

Company        Morningside Sector       Mkt Cap   Div.    Earnings    OEM   ROE   P/B

$ Bil           Yield    Var %         %          %       Ratio

GM               Consumer Cyclical            49.044      4.8          23.1           10.5      24.1      1.2

AT&T           Communication                242.142      4.9           2.8            0.3       14.5       2.1

Cisco             Technology                       152.636       3.4            2.2           1.7        19.5       2.5

Altria             Consumer Defense        122.428      3.9             1.5            2.4    200.2     62.9

Pfizer           Healthcare                         198.286      3.7            3.4            3.4         23.2       3.3

Southern     Utilities                                 48.106     4.4            3.0            0.9         12.9       2.2

AMEX           Financial Services               55.500    2.1            2.5              2.3         24.9     2.7

GE                  Industrials                           259.696   3.2           14.9           18.9        11.0       3.1

LyondellBassell  Basic Materials            33.332    4.2           10.2          -3.4        62.7      5.7

Enterprise Prod   Energy                           56.615    6.0             7.9           -3.5       12.9       2.7

 

Linking to dividend paying stocks, the above stocks are some of the companies that power the economy every year and play important roles in their sectors. In Mr. Tam’ s research if you kept these types of companies you would have better the index fund by 3%.The fact they pay a dividend and are profitable allows them to trade at higher multiples and that is good for you.

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