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What are we looking for?

We're looking for large-cap U.S. companies offering robust economic performance and high free cash flows.

The screen

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

  • A minimum market cap of $10-billion (U.S.);
  • An economic performance index, or EPI (return on capital divided by cost of capital) of 1.5 or higher. An EPI ratio of one or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);
  • A return on capital of 15 per cent or higher;
  • A five-year average return on capital of 15 per cent or higher;
  • A free-cash-flow-to-capital ratio of 5 per cent or higher. This ratio gives a sense of how well the company uses the invested capital to generate free cash flows, which could be used to stimulate growth, pay and/or increase dividends, reduce debt, etc. A positive figure is good, 5 per cent and above is excellent;
  • An annualized dividend growth rate of 5 per cent or above on the one-, two-, three- and four-year horizons;
  • A future-growth-value-to-market-value ratio of maximum 70 per cent – FGV represents, in percentage, the portion of the market value that exceeds the company’s current operating value. The higher the number, the higher the baked-in premium for expected growth, and the higher the risk. A negative number reflects a discount;
  • All companies must pay a dividend.

More about StockPointer

StockPointer is a fundamental analysis tool based on an EVA (economic value-added) model to quickly and easily identify investment opportunities. In addition to providing detailed reports on more than 7,500 companies (Canadian stocks, U.S. stocks and American depositary receipts), StockPointer also allows investors to create personalized filters and build custom portfolios.

What did we find?

Sixteen companies fit our list of criteria.

C.H. Robinson Worldwide Inc., one of the world's largest freight transportation and logistics providers, comes up as the highest shareholder wealth creator with an EPI of 3.4. The company generates high free cash flows and its dividend growth rate has been accelerating in the recent years. Surprisingly, the future growth value premium of 31.7 per cent is small when compared with other companies (not in this screen) that are struggling in terms of economic performance. This relatively low premium to pay for such high quality is in line with our investment philosophy of QARP – quality at reasonable price.

Starbucks Corp., occupying the 11th position on our list is the dividend growth winner of the group. Not only is its one-year dividend growth rate the highest, but this growth has been accelerating every year and yet is extremely stable, around 25 per cent a year. The high free cash flow that Starbucks generates should allow the management to continue to regularly increase the dividend. Unlike C.H. Robinson, the price to pay for Starbuck's stock is high: The future growth value premium is almost 64 per cent, meaning there are already significant growth expectations imbedded in the stock price.

Investors are advised to do additional research prior to investing in any of the companies mentioned.

Jean-Didier Lapointe is a financial analyst at Inovestor Inc.

U.S. large caps with strong cash flow

CompanyTickerMkt. Cap. ($Mil U.S.) EPIR/CR/C Avg. 5Yr FCF / CapitalDividend Yield1Y Div. Gr/ Yr2Y Div. Gr/ Yr3Y Div.  Gr/ Yr4Y Div. Gr/ YrFGV of Mkt Value
C.H. Robinson WorldwideCHRW-Q10,9303.422.5%0.2618.6%2.3%10.8%10.3%7.5%6.8%31.7%
Nike Inc.NKE-N91,6303.222.8%0.209.5%1.3%13.3%14.4%14.8%14.9%38.2%
Hershey Co.HSY-N22,7203.018.6%0.1912.6%2.3%7.4%8.5%9.9%11.4%32.3%
Marriott InternationalMAR-Q35,6002.926.8%0.1824.3%1.3%21.1%22.2%21.6%23.8%66.9%
L BrandsLB-N14,2702.820.3%0.2211.1%4.8%20.0%32.8%26.0%24.5%4.1%
TJX Companies IncTJX-N51,0002.721.7%0.2320.9%1.6%23.8%21.9%21.5%22.6%42.6%
Home DepotHD-N183,1802.725.9%0.2024.2%2.4%17.0%21.2%21.0%24.2%56.2%
Expeditors Int'l of Wash.EXPD-Q10,3202.621.9%0.1725.9%1.4%11.1%11.8%10.1%9.3%53.8%
Hormel Foods Corp.HRL-N18,4802.517.8%0.165.8%2.0%16.4%19.3%19.5%18.2%26.9%
Accenture PlcACN-N77,9302.425.7%0.2616.0%2.0%9.0%8.8%9.9%11.7%45.2%
Starbucks Corp.SBUX-Q89,7502.017.3%0.1710.2%1.6%25.0%24.3%24.1%24.0%63.8%
Texas InstrumentsTXN-Q80,4702.021.9%0.1724.3%2.5%17.1%15.0%15.3%22.9%59.9%
Twenty-First Century FoxFOX-Q56,1001.917.9%0.177.7%1.2%10.0%14.9%16.3%18.0%-14.7%
Apple Inc.AAPL-Q753,6001.919.5%0.2616.8%1.6%9.9%9.9%9.8%31.0%46.3%
3M Co.MMM-N116,1801.816.7%0.1615.2%2.4%8.3%13.9%20.5%17.1%53.7%
Abbvie Inc.ABBV-N103,1001.616.4%0.2112.1%4.0%11.9%15.9%13.7%55.7%40.9%