In our search for high quality large-cap stocks that pay good dividends, we set our stock screens as follows:
- Market Cap: >= $100B
- Dividend Yield: >= 3%
- Return on Equity: >= 20%
- Return on Assets: >=10%
Return on Assets is a measure of how efficiently a company utilizes its capital. It should, at least, be more than the prevailing long-term rates, which have been at around 3%-5% of late. A 10% return on assets is considered to be exceptional.
Return on Equity measures the overall financial efficiency, factoring the cost of equity such as debt payments. A bank can have a high return on equity, but may only be achieving this with high debt and very low return on assets.
The results of our search threw up the following five stocks:
|Sym||Company Name||Market Cap||Dividend Yield||Return on Equity||Return on Assets|
|ABV||Ambev - Companhia de Bebidas das Americas||126.92B||4.10%||34.22%||19.72%|
|PM||Philip Morris International||146.98B||3.70%||282.45%||23.98%|
Among the five companies, Ambev is in the beverage business, Philip Morris is in the tobacco business, Chevron and Ecopetrol are in the energy sector, and Intel is the dominant player in the semiconductor industry.
It is noteworthy that several high tech companies, including Intel, are now paying hefty dividends to their shareholders. This is an important step forward in what once used to be an "erratic" industry.
The following table and chart compares a portfolio with equal weight on each stock, with two asset allocation portfolios using diversified dividend stock ETFs.
Portfolio Performance Comparison (As of March 8, 2012)
|1-Yr AR||1-Yr Sharpe||3-Yr AR||3-Yr Sharpe||5-Yr AR||5-Yr Sharpe|
|5 High Dividend And Return On Equity Mega Stocks||13%||34%||164%||48%||236%|
|Retirement Income ETFs Strategic Asset Allocation Risk Profile 0||6%||0%||7%||29%||129%||2%||5%|
|Retirement Income ETFs Tactical Asset Allocation Risk Profile 0||1%||-3%||-7%||14%||69%||10%||51%|
From the above, one can see that the five-stock portfolio has done exceptionally well for the past three years. However, it must be cautioned that this is past performance and investors should conduct thorough studies before making buy/sell decisions.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.