The Timely Ten represents our latest top ten recommendations from from those blue chip stocks in our Undervalued category, explains dividend investing expert Kelley Wright, editor of Investment Quality Trends.
Historically, investors that have acquired stocks simply because they are in the Undervalued category have been handsomely rewarded over time. To identify those Undervalued stocks that also have excellent internal economic measures, we produce the following metrics to The Timely Ten:
Return on invested capital (ROIC) measures how much profit a company generates for every dollar invested in the company. Our belief is it is the truest measure of a com-pany’s cash on cash returns.
As such, we are interested in companies that produce a lot of cash from their investments in the company because this is where profits, and therefore dividends, come from. We prefer an ROIC of at least 10%.
Free cash flow (FCF) is the amount of cash that remains after everything has been paid, all new investments have been made, and is available for distributing to all the equity shareholders. In the old days, we used to call this “profits.”
Free cash flow yield (FCFY) is a ratio that compares the free cash flow to the value of the business. FCFY, which is the FCF divided by the adjusted enterprise value of the company, gives much greater insight to a company’s value than does the P/E ratio. We prefer an FCFY of at least 5%.
Price to Value Ratio (PVR) is a measure of how the market is valuing the future growth prospects of a company. The Street uses GAAP, which is flawed for stocks, and tends to extrapolate those flaws from the present into the future, forever, which is just plain silly. The PVR is based on economic values, which identifies value where the Street does not.
Dow Inc. (DOW) — yielding 4.5%
T. Rowe Price (TROW) — yielding 3.3%
3M Company (MMM) — Yielding 3.8%
First Merchants (FRME) — yielding 2.7%
Amgen (AMGN) — yielding 3.5%
Intel (INTC) — yielding 3%
Cardinal Health (CAH) — yielding 3.7%
International Business Machines (IBM) — yielding 5.1%
Renansant Corp. (RNST) — yielding 2.4%
US Bancorp (USB) — yielding 3.1%
