Dividends and defensive US dividend portfolio focuses on cash-flow growth

We know the economy is slowing down, we do not know if there will be a recession or not but we if the economy is slowing down, it is prudent to look at defensive stocks. One solid method to be defensive is focus on cash flow and growing cash flow. In analysis Ian Tam of the Morningstar Research Inc examined the S&P 500 index to find stocks with growing dividends. His criteria were:

Free-cash-flow yield – this compares free cash flow with a company’s enterprise value. A high number is good.

Quarterly and annual cash-flow momentum (use four quarters operating cash flow compare with the same figure 1 quarter and 4 quarters ago)

Standard deviation of total returns over the past 5 years – measures the volatility of the company’s stock price over the past 5 years, lower numbers are good.

Return on invested capital – net operating profit after taxes divided by invested capital

Variation of fiscal EPS estimates – this measure examines how consistent analyst projections are for the coming fiscal year.

To qualify, the company must pay a dividend and must be expected to raise that dividend in the coming 12 months.

Company Mkt Cap FCF Ann CF Qtrly CF Sy Std Dev Var of Rtn Trailng Div

$ Bil Yld Mo % Mo Tot Rtn Fisc Inv ROE Yld

Bristol-Myers Squ 79.432 8.3 22.4 16.7 25.9 6..2 40.8 49.4 3.4

Amerisource Berg 17.891 10.4 16.1 0.3 25.9 0.7 26.1 48.9 1.9

Home Depot 255.170 3.8 15.2 1.4 18.8 0.5 34.1 1727 2.3

Mastercard 276.294 2.1 19.0 6.0 22.0 1.3 75.5 135.4 0.5

Visa 395.095 2.8 30.6 6.8 20.9 1.0 22.5 41.3 0.6

Rockwell Auto 19.174 4.3 69.6 1.1 24.1 3.9 26.1 77.0 2.4

Intuit Inc 69.585 3.3 14.5 -2.4 23.4 0.8 78.4 50.9 0.8

Stryker Corp 79.942 2.2 7.6 5.7 19.4 0.6 22.4 26.4 1.0

S&P Global Inc 62.158 3.0 7.8 2.1 21.3 1.9 43.3 373.7 0.9

Pepsi 189.955 2.8 10.3 -3.5 14.5 1.4 24.4 62.4 2.8

Other companies are: C.H. Robinson, Masco Corp, Ross Stores, TJX Companies, Texas Instruments

Linking to dividend paying stocks, if as predicted the economy slows down the best defensive is a great offensive or dividend paying stocks which consistently make money. Whether you own any of the above stocks it is important to look at the industry and see what companies are good defensively. Some companies seem to do well both in good times and bad, for investors they can be long term holds as the stock prices seem to be consistent and in good times the prices rise higher. The boy scouts motto is Be Prepared, it is good motto for investing. Be prepared for opportunities by ensuring cash flows into your accounts and have time on your side to buy low and sell high.

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

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