In the last column it was recommend to ensure your portfolio has profitable stocks, about the same time Ian Tam of Morningstar Research looked for profitable stocks and his criteria was:
S&P 500 companies
10 year average return on equity (ROE)
10 year earnings per share growth rate (EPS)
10 year deviation of ROE and EPS lower figures are better
Dividend yield of 2.4% or higher and the payout ratio must be less than 80% on expected earnings or 60% on operating cash flows to ensure dividends are reasonable sustainable
Company Mkt Cap 10 Yr Ave 10 Yr dev 10 Yr EPS 10 Yr dev Div Payout on
bil$ ROE ROE Growth EPS Yield For EPS Op CF
Xcel Energy 29.737 10.3 0.4 5.5 2.5 2.8 62.1 24.5
Consol Edison 28.631 9.0 0.4 3.1 3.3 3.4 68.0 28.6
Southern Com 56.384 12.8 0.6 3.4 3.8 4.6 81.6 45.5
American Elec 42.953 10.5 0.5 3.3 4.5 3.1 65.0 27.0
JM Smucker 14.172 10.6 0.6 5.5 3.7 2.7 40.5 34.3
P&G 262.568 17.7 1.2 1.0 3.8 2.9 63.0 51.4
CH Robinson 10.957 37.8 5.0 7.7 8.4 2.5 40.3 31.4
Paychex 30.677 38.2 3.4 7.9 6.4 2.9 80.0 55.5
AT&T 229.741 25.2 3.5 6.5 5.4 2.8 44.1 44.4
The other companies on the list were J&J, T Rowe Price, Cisco, Snap-On, Packaging Corp of America, Foot Locker
Linking to dividend paying stocks, one may notice a number of the companies are utilities which are great defensive companies and you should own at least one of them. If you are going to own list such as these help make the alternatives on a very good list to pick. If you do buy them every year you can look at the ROE and EPS to ensure your dividends are safe and whether you should keep the stock for another year.
There are more questions than answers, till the next time – to raising questions.