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What are we looking for?

Large-cap North American companies that have consistently had positive cash flow, strong debt and profitability ratios, and offer a dividend.

The screen

North American equities have remained relatively flat for the past six months. Although the Dow Jones Industrial Average hit a record high of 26,616 in January, the index has levelled off, sitting around 24,000 for the past few months. Additionally, the S&P/TSX Composite Index has only returned 1.94 per cent year to date. Investors may look at protecting some of the gains they have made and gravitate toward companies that can weather a possible pullback in the market.

For today’s screen, we screened for companies that have positive cash flow for the past three years, a strong debt to equity ratio, consistent profitability and also pay a dividend.

We first screened for North American large-cap firms, with market capitalizations over $10-billion (U.S. or Canadian, depending on market). We then filtered companies that have a total debt to equity ratio less than 0.7 (Outstanding debt is no more than 70 per cent of shareholder equity). Our companies then had to have positive free cash flow for the past three years (a measure of financial performance), a net profit margin ratio of at least 20 per cent each year over the past three years, and have a dividend yield of at least 2 per cent.

We’ve also included price-to-earnings ratio and 52-week total returns for informational purposes.

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What we found

Select large-cap dividend stocks with consistent profitability, cash flow

CompanyTickerMkt. Cap. (US$ Mil.)Debt/EquityNet Profit Margin (Last FY)Net Profit Margin (Fiscal 2Y Ago)Net Profit Margin (Fiscal 3Y Ago)FCF (Last FY) (US$ Mil.)FCF (Fiscal 2Y Ago) (US$ Mil.)FCF (Fiscal 3Y Ago) (US$ Mil.)Trailing P/E Div. YieldRecent Close (US$)Revenue (US$ Mil.)52W Total Return
Johnson & JohnsonJNJ-N337,280.457.5%23.0%22.0%22.0%8,447.07,519.08736.016.72.9%126.0578,693.0-1.6%
Texas Instruments Inc.TXN-Q109,726.939.4%26.6%22.6%21.3%2,373.02,124.02343.023.72.2%112.0915,348.045.8%
BlackRock Inc.BLK-N78,753.815.8%28.4%29.3%29.7%1,735.01,902.02138.020.92.3%504.1013,250.018.1%
SunTrust Banks Inc.STI-N31,306.157.9%31.3%35.4%32.0%1,528.01,823.01750.015.62.3%69.549,141.023.9%
T. Rowe Price Group Inc.TROW-Q28,535.90.0%28.2%28.7%30.0%698.3139.0753.018.22.4%117.855,007.456.7%
Franklin Resources Inc.BEN-N17,167.88.7%25.9%25.5%27.9%1,342.81,471.22171.610.32.8%32.336,464.1-21.0%

Source: Thomson Reuters Eikon

No Canadian-listed stocks made the screen, while only six U.S. companies met our criteria. They are ranked by market capitalization.

Two companies that stand out are:

T. Rowe Price Group Inc., which has returned 56.7 per cent over the past 52 weeks. The company provides investment management services to investors across the world. The company pays a dividend yielding 2.4 per cent and the outstanding short interest (not shown – the number of shares sold short divided by the total number of outstanding shares, a gauge of investor sentiment) is only 3.3 per cent.

Texas Instruments Inc., which has returned 45.8 per cent over the past 52 weeks. The company designs, makes and sells semiconductors to electronics designers and manufacturers worldwide. The company has a short interest of 1.5 per cent (not shown) and pays a dividend yielding 2.2 per cent.

Investors are encouraged to do their own research before investing in any stocks listed here.

Paul Hoyda, CFA, is an account manager in the financial and risk division of Thomson Reuters and covers Central Canada.