Dividends and S&P 500 stocks creating shareholder wealth

Since December the stock market has been up and that is a good thing, particularly if you were invested in October and November, most of your losses should have been gained. But which companies have and are continuing to do well for shareholders? Noor Hussain of Inovestor Inc. came up with some answers with the Inovestor for Advisors software. No matter what software you use, the issue is always how do you narrow the field to have the best alternatives? Noor used the following criteria:

Market cap in the S&P 500 of more than $10 billion.

Positive 12 month change in economic value added (EVA) metric – the figure tells you the company’s profit is increasing at greater pace than the cost of capital. The EVA is economic profit generated by the company or net operating profit after tax – capital expenses.

Economic performance index (EPI) of more than 1 and a positive EPI 12 month change. For every dollar invested in the company, more than one dollar is generated in return.

Free cash flow to capital (FCF) is greater than 5%. The ratio gives you an idea of how efficiently the company converts it invested capital to free cash flow. This helps you determine if the company can continue to pay its dividends and reinvest in the company.

Company                Recent    Mkt Cap    FCF/     EPI      Div      1 Yr Price       EVA

Price        in $Bil       Cap                   Yield   Return %       12 Chg %

Church & Dwight    63.34      15.619      14.3      4.0       1.3        29.5               198.3

Union Pacific           161.74    117.256     11.5     3.3       2.2        19.9               392.9

CSX                              68.75       56.249     10.3     2.5       1.4        14.3               477.8

Republic Services      76.68      24.729       5.9    1.3        2.0        10.0               133.4

Norfolk Southern     171.46     45.968     6.4      2.4        2.0          9.4               518.2

Verizon Comm             53.95   222.921    6.6      2.9         4.2         3.1               628.5

Walt Disney                111.51    167.265   7.8     1.5          1.5         -1.0                53.5

Sherwin Williams       421.01     38.987   5.5     3.5          0.9         -7.3              168.9

Southwest Airlines     57.65         31.857  16.4   2.4          1.3         -9.6              205.4

The other companies in the list were Comcast, Microchip Tech, Lam Research, Paccar, Dover Inc and Applied Materials.

Linking to dividend paying stocks, the lists help you narrow the field to what you do not want to buy. The lists also help to put companies on your watch list to know whether they are good to buy now or wait. Whatever list you use, remember why you are buying the company which means you have a good idea when to sell. If you are buying for the dividend it implies a longer holding pattern and as long as the Free Cash Flow is very good, you can hold. If the Free Cash Flow then other investors will push up the stock as the company is profitable.

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

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