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Barry North is a successful full-time share trader, owner of North Capital Management and the founder of free investment website www.OnlineSPX.com. The idea for OnlineSPX.com came from a desire to share his successful trading strategies and the stock-selection techniques he uses every day on US... More
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  • No Dividend, No Debt Equals High Growth 0 comments
    Oct 4, 2012 8:48 AM

    Quite often the first thing would be stock buyers ask, is what dividend does it pay? Not unreasonably they feel that from day one they will be eligible to receive dividends, which over time will defray their original outlay and reduce the real cost of the investment. Hard to argue with that, but we will.

    In our experience, although not always, dividends are paid by companies that have no better avenue to re-invest the cash in their own company. They are out of ideas, so give money back to shareholders who in turn "invest" either in low single digit savings accounts or try to find another stock that will give them capital growth, as the one they are in certainly won't do it.

    Companies with no debt are attractive, as apart from the obvious low risk benefit of no debt, they generate so much free cash flow that they simply don't need to borrow.

    Taken together what you have is a company generating strong free cash flow and knowing exactly what they will do with it.

    To find these rare stocks we ran our screening filters through the 932 stocks we currently analyze, setting Dividend Yield and Debt to Equity columns in our Watchlist manager to zero. We found less than 8%, or 72 to be exact, fitted the bill.

    We were not overly impressed with the group's average Annualized Rate of Returns (ARRs). Their 3yr, 5yr and 10yr percentages came out at 21%, 11% and 21% respectively. Certainly better than the 860 non qualifiers managed; which was 11%, 1% and 10% respectively.

    There had to be a super group within the sample of 72, so we added two of our screener filters; Performance Ranking (PR) and Safety Rating (NYSE:SR) of less than 3, i.e. superior to the average setting of 4. We now had our super group consisting of just three stocks.

     

     

        

    Sh / Lng Tr

    ARRs

        

    Ticker

    Value

    Price

    Beta

    TR1

    TR2

    3YR

    5YR

    10YR

    DivY

    FCF

    DER

    ROTC

    AAPL

    874.00

    671.45

    0.99

    UP

    UP

    53%

    33%

    57%

    0%

    77%

    0%

    31%

    HIBB

    53.00

    58.75

    0.99

    UP

    UP

    50%

    18%

    26%

    0%

    83%

    0%

    30%

    MNST

    50.00

    54.38

    0.37

    DN

    DN

    44%

    13%

    71%

    0%

    90%

    0%

    28%

    Note both the high Free Cash Flow (NYSE:FCF) and Return on Total Capital (ROTC) numbers. They have the cash and they know how to use it.

    NB. We should point that we have had Monster Beverage Corp (NASDAQ:MNST) as a Sell since July 19th 2012 when it closing price dipped below its 63dma. Since that call the company disclosed after hours on Thursday August 9th, that an unnamed state AG is investigating its namesake drink line. This caused a 10% fall the following day and it has been fairly stable around that price since. For us, to re-establish a growth trend, the price would have to rise to over $61.60

    Disclosure: I am long AAPL.

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