It's a rare company that has a long string of unbroken increases in each of sales, cash flow from operations, and dividend payments for at least seven years, and has an above average yield.
Of about 10,000 companies, only 3 meet those criteria:
There are other issues you would want to evaluate, but it's striking how fast the list of companies reduces when operational performance is demanded.
Passing this test does not make a company a buy, but it certainly makes them something to look into thoroughly.
There are about 10,000 companies in the database we used. Only 845 companies have year-over-year sales increases for seven years. When we added the requirement of seven years of year-over-year cash flow from operations, that list reduced to 67 companies. Then when we required at least a 2.5% yield and a minimum 2.5% five-year dividend growth rate, we got just three names.
Over that seven year period, those stocks have outperformed the S&P 500, but have not been without their own difficult times in terms of market valuations.
Looking at the worst three-month period in the market over the past ten years, BTI was the best with a negative 23.94% worst period. DLR was the worst, with a 39.96% worst period, and SNH was in between with a negative 34.57% period.
The yield picture for the stocks (trailing, forward and 5 year average) is as follows:
- BTI: 4.30%, 4.00%, 3.70%
- DLR: 3.80%, 4.00%, 3.80%
- SNH: 7.10%, 7.00%, 6.80%
We own BTI, have been considering DLR for a while but do not own it, and we would probably chose a another healthcare REIT over SNH (to be discussed in another article) although it is on our short list.
There is so much focus on short-term price performance, and so little by comparison on operational execution and effectiveness. We think it is important for the longer-term view to look more at the operational side of the companies. Presumably, in the long-term, markets will recognize and value the best operators who just keep moving forward, even if they are not exciting to talk about.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. QVM has positions in BTI as of the creation date of this article (May 16, 2012).
Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.