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What are we looking for?

Following the Number Cruncher we did two weeks ago for the Canadian market, today we focus on U.S. stocks that should show stability in the event of continued market volatility.

The screen

We screened the S&P 500 with the following criteria:

  • We start by setting a market-cap of at least US$10-billion to focus on solely large-cap U.S. stocks;
  • Dividend yield of at least 3 per cent: It is important to note that high dividend-yielding stocks are a good place to invest when markets are falling;
  • An economic performance index, or EPI (return on capital divided by the cost of capital) above one. A positive EPI demonstrates that the company is generating wealth for the shareholders;
  • Return on capital equal to or greater than 10 per cent;
  • Beta of less than one: We are searching for defensive stocks that move less than the market that protect against market downfall;
  • Positive earnings-per-share growth rate;
  • An economic value-added (EVA) figure that is positive. EVA is a measure of true economic profit created by a company. The higher the EVA, the more value a company is generating for its investors.
  • Positive free-cash-flow-to-capital: This will give a sense of how well the company utilizes its invested capital to generate free cash flows to pay debt, increase or at least maintain dividends.

More about Inovestor

Inovestor for Advisors is an investment platform based on the economic value-added (EVA) approach. It aids advisers in quickly identifying attractive investment opportunities and provide detailed reports on more than 13,000 companies (Canadian stocks, U.S. stocks and American depositary receipts), Inovestor allows investors to create personalized filters and build custom portfolios.

What did we find?

Only 13 companies fit our criteria. Altria Group Inc. generates the highest return on capital of 24.9 per cent. Campbell Soup Co.'s EPI is 3.2, which is the one of the highest out of the 13 companies, and its low beta of 0.4 offers downside protection and is more recession-proof.

Campbell Soup, Verizon Communications Inc. and L Brands Inc. offer both a healthy balance of economic performance and dividend growth (the latter not shown in table).

Given Target's solid track record, the company possesses an EPS growth rate of 4.8 per cent as well as a high ratio of free-cash-flow-to-capital, which means the company could be in a good position to substantially increase its dividend, buy back shares or fuel growth using internal cash.

Tiffana Paulrajah is an account executive for Inovestor Inc.

Select U.S. dividend stocks

CompanyTickerR/CEVA Per ShareEPS Growth Rate (%)FCF/CapitalEPIMkt. Cap. (US$ Mil.)Recent price (US$)BetaDiv. Yield
Altria Group Inc.MO-N24.9%n/a5.39.6%3.2127,114$64.590.653.6%
L Brands Inc.LB-N20.9%3.83.33.8%3.222,794$48.710.655.6%
Campbell Soup Co.CPB-N20.3%2.73.58.6%3.216,638$44.120.43.0%
Verizon CommunicationsVZ-N17.6%5.37.43.9%2.8402,088$48.290.564.4%
Kellogg Co.K-N16.4%4.33.77.6%2.533,945$68.540.533.1%
Public StoragePSA-N14.8%4.66.815.0%2.138,423$195.680.463.8%
At&T Inc.T-N12.2%3.54.85.2%2.1455,956$36.720.435.1%
Nordstrom Inc.JWN-N12.1%2.02.95.7%1.814,022$53.560.733.7%
CenterPoint Energy Inc.CNP-N11.4%2.84.21.3%1.824,935$27.730.623.8%
Target Corp.TGT-N11.2%2.44.810.5%1.656,411$75.410.614.1%
Procter & Gamble Co.PG-N10.4%0.93.92.9%1.4234,811$81.050.663.0%
General Mills Inc.GIS-N10.2%1.02.85.8%1.442,478$52.980.613.4%
Tapestry Inc.TPR-N10.1%0.91.14.3%1.517,589$50.650.483.1%

Source: Inovestor

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