Q2 Earnings: Food Is Good

By Charles Rotblut
July 08, 2009

With the market being topsy-turvy as of late, consumer staples stocks are coming back into vogue.

The appeal of these stocks is their more stable business models and lower beta. What should really attract you, however, are the rising earnings estimates – particularly for food companies.

During the past 4 weeks, 47 full-year forecasts have been raised on companies within Food-Miscellaneous/Diversified, while only 8 have been cut.

The positive revisions have come on the heels of 2 good profit reports.

General Mills Sees Good Demand
Last week, General Mills (GIS) reported adjusted fiscal fourth-quarter profits of 86 cents per share. The results topped expectations by 5 cents and represented year-over-year growth of 18%.

Revenues increased 5%, though the actual growth would have been higher were it not for currency fluctuations. Domestically, the company saw strong demand for many of its brands, including Cheerios, Bisquick, Yoplait and Totino’s. Internationally, sales rose, but GIS could not convert those gains into higher profits because of the dollar.

Nonetheless, General Mills thinks it can continue to grow in fiscal 2010, especially if commodity costs don’t rise sharply. The company guided for full-year profits of $4.20 to $4.25 per share. All 14 covering brokerage analysts raised their forecasts in response, pushing the consensus estimate 7 cents higher to $4.25 per share.

General Mills is a Zacks #2 Rank (”buy”) stock.

Smuckers Gets A Big Boost From Folgers Acquisition

General Mills’ bullish report was preceded by good numbers from J.M. Smucker (SJM). SJM topped fiscal fourth-quarter expectations by 41 cents with adjusted profits of $1.02 per share. EPS jumped 40% year-over-year.

The results were inflated by the acquisition of Folgers, which accounted for 42% of sales. However, even when Folgers is excluded, SJM performed well. Pillsbury and Hungry Jack both saw volume gains. Higher prices also had an impact on revenue growth.

Peanut butter sales were down, though the segment is recovering. (The FDA’s recall of another manufacturer’s peanut products damaged sales across the entire industry.) As was the case with GIS, the stronger dollar was a drag on overall revenue and profit growth.

SJM raised its fiscal 2010 adjusted profit guidance to between $3.65 and $3.80 per share. Previously, the company had guided for profits of $3.62 to $3.72 per share. All of the covering analysts raised their forecasts in response, sending the consensus earnings estimate 38 cents higher to $3.75 per share. SJM is a Zacks #1 Rank (”strong buy”) stock.

Other Food Companies That Could Also Beat
Kellogg Co. (K) and Corn Products International (CPO) could surprise to the upside. Both are Zacks #2 Rank stocks.

K has topped expectations during 8 out of the last 9 quarters. Two analysts recently raised their second-quarter forecasts and 3 raised their full-year forecasts. The consensus estimate calls for K to have earned 81 cents per share last quarter. Kellogg is scheduled to report on Jul 30.

Though CPO disappointed investors with its first-quarter earnings, the company had previously topped expectations for 5 consecutive quarters. One analyst recently raised his second-quarter profit projection and 2 raised their full-year forecasts. The consensus second-quarter estimate calls for profits of 32 cents per share, though the most accurate estimate is far more bullish at 39 cents per share. CPO is scheduled to report on Jul 28.

If K and CPO release good results, Nestle S.A. (NSRGY) could rise in response. Though the company is not scheduled to release first-half results until Aug 12, the full-year consensus estimate has been revised upward by 11 cents higher over the past 30 days. NSRGY is a Zacks #1 Rank stock.

Earnings Acceleration

By: Kevin Matras
July 07, 2009

In good markets or bad, strong earnings are one of the most important things that influence stock prices.

But instead of just looking at the most recent quarter’s earnings, try looking for earnings acceleration as well. With earnings season kicking off this week, it’s a good time to go over this. Studies have shown that almost all of the most successful stocks in the past had displayed accelerated earnings BEFORE their most impressive price moves.

Sideways ‘percentage earnings growth’ (even if they’re good) or decelerating ‘percentage earnings growth’ (strong or not) can potentially signal a period of consolidation (or slowdown), which in turn can flatten out prices or send them lower. But increasing ‘percentage earnings growth’ (consistently improving from the company’s prior percentage of earnings growth) can often be the difference between good stocks and great stocks.

The Parameters:
In this screen, I’m focusing on increasing ‘percentage earnings growth’ and projected ‘percentage earnings growth’.

I want the last two Quarter over Quarter % EPS Growth periods to be greater than the previous periods and the next projected Quarter over Quarter % EPS Growth period to be greater than the previous period as well.
* EPS % Growth (Q-1)/(Q-2) > EPS % Growth (Q-2)/(Q-3)
* EPS % Growth (Q0)/(Q-1) > EPS % Growth (Q-1)/(Q-2)
* EPS % Proj. Growth (Q1)/(Q0) > EPS % Growth (Q0)/(Q-1)

For Research Wizard users, this would be done in the Calculation Expression feature: The expressions look like this:
i520 > i521 = 1 (True)
i519 > i520 = 1 (True)
i547 > i519 = 1 (True)

In addition to that, I’m only including stocks greater than or equal to $5 with an average daily share volume of 100,000 or more.
* Current Price >= $5
* Avg. Daily Volume >= 50,000

Here are 5 stocks to watch from this week’s screen:
ADPI – Snapshot Report American Dental Partners
CNQR – Analyst Report Concur Technologies, Inc.
CTB – Analyst Report Cooper Tire & Rubber Company
FLO – Snapshot Report Flowers Foods, Inc.
SRSL – Analyst Report SRS Labs, Inc.

When a company reports earnings, take a look at their numbers, and then see how their current % EPS Growth stacks up to their previous period’s % EPS Growth (and the period prior to that). Moreover, take a look at how their Earnings Growth is forecasted in their next reporting period as well.

Again, with statistics suggesting that accelerated earnings typically appear BEFORE the most impressive price moves of a stock, this is definitely a screen worth watching for finding winning stocks on the move!!!

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Trade Dissection: Ratio Combination Write

By: Kevin Matras
July 02, 2009

The last time I talked about option writing, I explained how it worked by going over a recent trade of mine. It was almost a picture perfect example of how a put option writing strategy should work. At the end, I said that I’d be back to review another trade just like it when it was over. So here we are.

This one is a good example because it shows how things work when things don’t go perfectly. But that’s what’s so great. Things don’t have to be perfect to make money. So… I wrote a ratio combination on Apple Computer (AAPL – Analyst Report) on May 13th (2009). At that time, AAPL was trading around $122.

The Trade:
* I wrote 1 Jun 120 put for a premium of 5.15 or $515
* I wrote 1 Jun 115 put for a premium of 4.10 or $410
* I wrote 1 Jun 130 call for a premium of 4.20 or $420

Combined, I stood to collect $1,345 on the trade if everything went right at expiration (i.e., AAPL stayed between $120 and $130), which was only about 4-5 weeks away.

As it turns out, the low of AAPL from that point was later on that day at $119.38, and it proceeded to move up from there.

My puts were never in jeopardy and started making money for me within a day.

My written call on the other hand started to work against me as AAPL started to rally.

About 2 weeks later, on May 27, AAPL was trading over $133, more than $10 higher than where I put the trade on.

My puts were doing great. But the call was now valued at 7.90 which translated into an open ‘loss’ of $370.

It looked like AAPL was headed higher, so I bought back the Jun 130 call for $7.90.

At that point, I lost 370 on that written call but it was looking increasingly likely that I’d keep 100% of the $925 premium I was expecting.

By expiration time on 6/19, AAPL was trading at 139.48, well above the $120 level, so those put options expired worthless, meaning I pocketed all the premium.

So the net result was not the $1,345 I had hoped for. But it was a gain of $555 (before commissions and fees). Not so bad for a 5-week wait. And I have to tell you, these kinds of trades, for me at least, are some of the easiest and stress-less trades to put on.

In future articles, we’ll also dissect some losers as well. (Hope I can find some). Dissecting losers is just as important as looking at winners because that’s how you can correct mistakes and learn. In the meantime, you can learn more about different types of option strategies by downloading our free options booklet: 3 Smart Ways to Make Money with Options (Two of Which You Probably Never Heard About).

Cashing in South of the Border

By: Tracey Ryniec
July 02, 2009

With growth rates nonexistent in the United States and expectations for future growth muted due to ongoing debt levels and credit problems, investors have turned to other regions of the world to boost their portfolios. China and the Asian Tiger countries have long been popular destinations to diversify portfolios. But countries south of the border have also seen an emerging middle class and sometimes are overlooked on the world stage.

Buy Individual Companies or Buy a Basket
There are two ways to invest in Latin America: through individual companies that trade on the American exchanges or through a basket of companies in an exchange traded fund (ETF). If you want to take the no hassle approach there are several ETFs available to capture the Latin American market.

You can buy a basket of companies from many countries in the iShares Latin America 40 ETF (ILF). Or you can buy individual countries such as with the popular iShares Brazil (EWZ), iShares Mexico (EWW), or iShares Chile (ECH). But a more interesting investment opportunity, with the possibility of bigger returns, lies in buying the individual companies.

Finding Latin America Companies
You might be confused as to where to even begin in finding individual companies. But one shortcut is to look at the holdings in the ETFs. Financial sites such as Yahoo Finance list the top 10 holdings in ETFs. These will be the largest holdings and usually are large cap companies with a long earnings history. But this is a good place to start.

Using this method, I easily discovered several companies with well-known name brands.
Companhia de Bebidas Das Americas (otherwise known as AmBev) (ABV – Analyst Report) is the world’s 5th largest brewer and one of the largest in Latin America. Based in Brazil, it distributes beer, soft drinks and other non-alcoholic beverages in the Americas. It also is PepsiCo’s largest bottler outside of the United States. AmBev trades with a forward P/E of 14.8 and has an outstanding 1-year return on equity (ROE) of 29.73%.

Petrobras (PBR – Analyst Report) is a large Brazilian-based integrated oil company. It has more than 100 production platforms, 16 refineries and 6,000 gas stations. Recently, the company announced a huge find in the giant Tupi oil field off the coast of Brazil which would rank the country ninth in oil reserves in the world. The company is trading with a forward P/E of 17 and has a 1-year return on equity (ROE) of 24.01%.

Coca-Cola FEMSA S.A. de C.V. (KOF – Analyst Report) produces and distributes Coca-Cola products in nine Latin American countries. Headquartered in Mexico, the company is the second largest Coca-Cola bottler in the world by volume. It accounts for 10% of Coca-Cola sales in the world and 40% in Latin America. Despite challenges including the global recession and the swine flu outbreak in Mexico, Coca-Cola FEMSA is benefiting from its strong brand. The company is trading at just 13.6x forward estimates. It also pays a dividend, with a current yield of 1.24%.

Expand Your Horizons South of the Border
These are just a few of the options investors have in expanding their portfolios to include Latin American exposure. In today’s global economy, investors will find there can be faster growth and opportunities outside of the United States. It pays to look.

Earnings Preview for Jul 6 – 10

By: Charles Rotblut
July 02, 2009

Second-quarter earnings season “officially” starts on Wednesday afternoon with Alcoa’s (AA – Snapshot Report) report. The aluminum producer is expected to have lost 34 cents per share.

Joining AA will be 18 other companies, including Family Dollar (FDO – Snapshot Report) and Pepsi Bottling Group (PBG – Analyst Report).

Analysts are forecasting a 21% drop in median S&P 500 earnings. The actual decline could be far smaller, especially given that 18 of the 23 companies to report so far have topped expectations.

The economic calendar is pretty light this week. The most notable reports will be the ISM services index and the preliminary University of Michigan July consumer confidence survey.

* Monday: June ISM services index
* Wednesday: May Consumer credit, weekly crude inventories
* Thursday: May wholesale inventories, initial jobless claims
* Friday: July University of Michigan consumer confidence survey (preliminary), June import and export prices, May trade balance

Federal Reserve Governor Elizabeth Duke will speak at the FDIC’s Interagency Minority Depository Institutions National Conference on Thursday morning.

We won’t see the bulk of earnings news until the latter half of the month. Therefore, I expect another light volume week with more range-bound trading.

Companies That Could Issue Positive Earnings Surprises

3Com (COMS – Analyst Report) has topped expectations for 4 consecutive quarters. The average margin of surprise has been 3 cents per share. Though the fiscal fourth-quarter consensus earnings estimate is unchanged at 4 cents per share, there have been several signs of improving conditions for the tech sector. 3Com is scheduled to report on Thursday, Jul 9, before the start of trading.

Early last month, Pepsi Bottling Group (PBG – Analyst Report) raised its second-quarter guidance by 5 cents to between 70 and 74 cents per share. The company credited improved sales of carbonated beverages and a more stable dollar. Most of the covering analysts promptly raised their forecasts soon after, though 1 analyst adjusted his forecast within the past few days. Cumulatively, these revisions have pushed the consensus earnings estimate 4 cents higher to 73 cents per share. PBG has topped expectations during 3 out of the last 4 quarters. Pepsi Bottling Group is scheduled to report on Wednesday, Jul 8, before the start of trading.

Tech – Demand for Hardware Improving

By: Charles Rotblut
July 01, 2009

Though the Nasdaq has been one of the best-performing indexes this year, tech stocks could be poised for further gains in the second half of the year.

In particular, demand for storage devices and smartphones is showing signs of strength. During the past 2 weeks, several brokerage analysts have raised their profit projections on makers of these products.

Storage Device Revenues Higher Than Anticipated
Two storage makers recently raised their quarterly guidance. Seagate Technology (STX – Snapshot Report) said last week that both unit demand and pricing were “tracking favorably”. As a result, the company expects fiscal fourth-quarter revenues to be in a range of $2.2 to $2.3 billion. Previously, STX had guided for revenues of $1.9 to $2.2 billion.

Gross margins should also be better at approximately 15%.
Ten of the 17 covering analysts promptly raised their projections in response, narrowing the expected loss by 15 cents to 16 cents per share. Expectations for fiscal 2010 were revised as well, with profit of 52 cents now expected.

Strong sales of its ZeusIOPS solid-state drive led STEC, Inc. (STEC – Snapshot Report) to recently raise its second-quarter guidance. Solid-state drives are faster and use less energy than the hard drives currently used by most computers. Though still more costly, solid-state drives are starting to appear in more high-end laptops.

STEC now expects second-quarter non-GAAP profits to total between 32 and 36 cents per share, versus the previous forecast of 20 to 22 cents per share. Nearly all of the covering brokerage analysts raised their forecasts in response, pushing the consensus earnings estimate up to 32 cents per share. (Full-year projections were also revised, sending the consensus estimate 36 cents higher to $1.08 per share.)

Smartphones Selling Well
The bullish guidance for the hard drive makers came as smartphone makers Research in Motion (RIMM – Analyst Report) and Palm (PALM – Analyst Report) delivered comparatively good earnings reports.

Though RIMM’s fiscal first-quarter results were not well received, the company did beat expectations with profits of 98 cents per share. More importantly, 29 analysts raised their fiscal 2010 projections. The revisions sent the consensus earnings estimate 18 cents higher to $4.11 per share. (One analyst revised his forecast within the past 7 days.)

PALM, one of the year’s hottest stocks, saw its shares jump even higher following last week’s report. The company generated a fiscal fourth-quarter loss of 40 cents per share, which was 32 cents better than the analysts had projected. PALM’s results were aided by the initial shipments of the Pre, though the new phone will have a much greater impact during fiscal 2010.

Following the report, 4 of the 6 covering analysts revised their projections for the current year. The consensus estimate now calls for a loss of 28 cents, 88 cents narrower than the average forecast of a week ago.

Of course, any discussion about smartphones would not be complete without mentioning Apple (AAPL – Analyst Report). One million units of the iPhone 3GS were sold during the launch weekend, an impressive number.

Two analysts have since raised their fiscal 2009 forecasts. Though the revisions were not significant enough to move the consensus earnings estimate (36 analysts cover AAPL), they do suggest that the average projection of $5.50 per share could be too conservative.

PALM and STEC are a Zacks #2 Rank (”buy”) stocks. AAPL, RIMM and STX are Zacks #3 Rank (”hold”) stocks. STX and STEC is classified in Computer-Storage Devices. PALM and RIMM are classified in Telecom Equipment. AAPL is classified in Computer-Micro.

The Zacks Industry Rank List can be viewed on Zacks. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Tech – Demand for Hardware Improving

By: Charles Rotblut
July 01, 2009

Though the Nasdaq has been one of the best-performing indexes this year, tech stocks could be poised for further gains in the second half of the year.

In particular, demand for storage devices and smartphones is showing signs of strength. During the past 2 weeks, several brokerage analysts have raised their profit projections on makers of these products.

Storage Device Revenues Higher Than Anticipated
Two storage makers recently raised their quarterly guidance. Seagate Technology (STX – Snapshot Report) said last week that both unit demand and pricing were “tracking favorably”. As a result, the company expects fiscal fourth-quarter revenues to be in a range of $2.2 to $2.3 billion. Previously, STX had guided for revenues of $1.9 to $2.2 billion.

Gross margins should also be better at approximately 15%.
Ten of the 17 covering analysts promptly raised their projections in response, narrowing the expected loss by 15 cents to 16 cents per share. Expectations for fiscal 2010 were revised as well, with profit of 52 cents now expected.

Strong sales of its ZeusIOPS solid-state drive led STEC, Inc. (STEC – Snapshot Report) to recently raise its second-quarter guidance. Solid-state drives are faster and use less energy than the hard drives currently used by most computers. Though still more costly, solid-state drives are starting to appear in more high-end laptops.

STEC now expects second-quarter non-GAAP profits to total between 32 and 36 cents per share, versus the previous forecast of 20 to 22 cents per share. Nearly all of the covering brokerage analysts raised their forecasts in response, pushing the consensus earnings estimate up to 32 cents per share. (Full-year projections were also revised, sending the consensus estimate 36 cents higher to $1.08 per share.)

Smartphones Selling Well
The bullish guidance for the hard drive makers came as smartphone makers Research in Motion (RIMM – Analyst Report) and Palm (PALM – Analyst Report) delivered comparatively good earnings reports.

Though RIMM’s fiscal first-quarter results were not well received, the company did beat expectations with profits of 98 cents per share. More importantly, 29 analysts raised their fiscal 2010 projections. The revisions sent the consensus earnings estimate 18 cents higher to $4.11 per share. (One analyst revised his forecast within the past 7 days.)

PALM, one of the year’s hottest stocks, saw its shares jump even higher following last week’s report. The company generated a fiscal fourth-quarter loss of 40 cents per share, which was 32 cents better than the analysts had projected. PALM’s results were aided by the initial shipments of the Pre, though the new phone will have a much greater impact during fiscal 2010.

Following the report, 4 of the 6 covering analysts revised their projections for the current year. The consensus estimate now calls for a loss of 28 cents, 88 cents narrower than the average forecast of a week ago.

Of course, any discussion about smartphones would not be complete without mentioning Apple (AAPL – Analyst Report). One million units of the iPhone 3GS were sold during the launch weekend, an impressive number.

Two analysts have since raised their fiscal 2009 forecasts. Though the revisions were not significant enough to move the consensus earnings estimate (36 analysts cover AAPL), they do suggest that the average projection of $5.50 per share could be too conservative.

PALM and STEC are a Zacks #2 Rank (”buy”) stocks. AAPL, RIMM and STX are Zacks #3 Rank (”hold”) stocks. STX and STEC is classified in Computer-Storage Devices. PALM and RIMM are classified in Telecom Equipment. AAPL is classified in Computer-Micro.

The Zacks Industry Rank List can be viewed at http://www.zacks.com/zrank/zrank_inds.php. This interactive list allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. Shown below is the Zacks Sector Rank List, which shows the trend in estimate revisions on a broader scale.

Current Ratio

By: Kevin Matras
June 30, 2009

This week, I’m focusing on another ratio to help gauge a company’s financial health: the Current Ratio.

It is calculated by dividing current assets by current liabilities. The higher the ratio the better, since that means the company has more liquid assets to meet its short-term obligations. A ratio of 2 or more (meaning a company has at least twice as many short-term assets than short-term liabilities) is generally considered good. Currently, the average current ratio for the stocks in the S&P 500 is 1.75. (This is an improvement from the beginning of the year when it was 1.67.)

Not surprisingly, the Finance Sector (as applied to companies with over 50,000 shares traded on a daily basis) has one of the worst Current Ratios with a median of .99. This is actually a bit worse than back in January when it was at 1.06.

How to Use:
Screening for this is quite easy to do. It’s a ratio, so on any of our screeners, including the Research Wizard, you’d want to first go to “Ratios”. And then go to the “Liquidity and Coverage” section. From there, you’ll find an item called “Current Ratio”. That’s the one. As for what value to use, I prefer to compare a stock’s Current Ratio to the median for its Industry.

And in this week’s screen, were doing just that. We’ll also add in some other items to help us find sound companies with solid prospects for the future.

Screen Parameters
* Zacks Ranks less than or equal to 2
(Only Buys and Strong Buys allowed.)
* Current Ratio > median for its respective X Industry
(Looking at the companies with the strongest liquid positions to meet their short-term financial obligations.)
* Current ratio > 2
(And at the very least, we want the companies to exceed the commonly-held definition of good, which means greater than 2.)
* Projected 1 Yr. Growth Rate > median for its respective X Industry
(This means we’re looking for the companies with the best growth rates within their groups.)
* Projected 1 Yr. Growth Rate > 0
(And I only want positive projected growth rates.)
* Price >= $5
* Volume >= 100,000

Here are 5 stocks that passed this week’s screen:
CHRW – Snapshot Report C.H. Robinson Worldwide, Inc.
CHTT – Snapshot Report Chattem, Inc.
HMSY – Snapshot Report HMS Holdings Corp.
SONE – Snapshot Report S1 Corp.
SYNT – Snapshot Report Syntel, Inc.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

Earnings Preview for Jun 29-Jul 3

By: Charles Rotblut
June 26, 2009

This will be a holiday week with a limited number of earnings reports and low volume. Out of the 19 companies confirmed to report, 4 are in the S&P 500: Apollo Group (APOL – Snapshot Report), Constellation Brands (STZ – Snapshot Report), General Mills (GIS – Analyst Report) and H&R Block (HRB – Analyst Report).

June unemployment and nonfarm payrolls data will be published a day early on Jul 2. Combined with what should be really light volume, the numbers could result in a sizeable market move on Thursday.
* Tuesday: June Conference Board consumer confidence survey, S&P/Case-Schiller housing index, Chicago PMI
* Wednesday: ISM manufacturing survey, ADP employment survey, May pending home sales, May construction spending, June auto sales, weekly crude inventories
* Thursday: June unemployment and nonfarm payrolls, weekly initial jobless claims, May factory orders

No Fed officials are scheduled to speak.
The U.S. financial markets will be closed on Friday, Jul 3. The stock exchanges will operate normal hours on Thursday, Jul 2.

As stated above, this is going to be a light volume week. Any move we see on Thursday should be taken in the context that a lot people are probably going be on vacation or looking to get out of the office early.
Have a great holiday.

Companies That Could Issue Positive Earnings Surprises
Apollo Group (APOL – Snapshot Report) has topped expectations during 7 out of the last 8 quarters and is currently riding a streak of 8 consecutive positive surprises. Recently, the fiscal third-quarter consensus earnings estimate has risen by a penny. Analysts now expect the education provider to have earned $1.13 per share. Apollo Group is scheduled to report on Monday, Jun 29, after the close of trading.

Companies That Could Issue Negative Earnings Surprises
Two analysts recently cut their forecasts on H&R Block (HRB – Analyst Report). The negative revisions have pushed the fiscal fourth-quarter estimate down 3 cents to $2.07 per share. The most accurate estimate is more bearish at $2.07 per share. HRB has missed once over the past 3 quarters. H&R Block is scheduled to report on Monday, Jun 29, after the close of trading.

Dividend Attraction

By: Kevin Matras
June 23, 2009

In this week’s roundtable discussion, we talked about the prospect of slower growth in the US (approx. 2% as opposed to the historical 3%). This discussion also included slower growth rates in the emerging markets as well.

One of the reasons for the projected slower growth rates is the across the board de-leveraging we’re seeing from businesses to individual households. Businesses in general will find it harder to acquire credit/financing to expand their businesses. And consumers will find it tougher to afford all of the goods and services that they desire. And while small cap companies with innovative products and solutions will always have an audience, I believe the larger, stable and more solid companies will gain additional attention in times like these and become sought-after holdings.

Many larger companies are large because they have an established and loyal customer base with widespread usage of their products. In turn, they see steady and sustainable growth for their business. It is unlikely that financing is an issue for their operations. And they likely generate a great deal of cash. But that’s not all. A lot of the big name companies will also pay their investors a nice dividend.

And as different investment vehicles compete for investors’ cash in this lower growth environment – the companies offering a ‘little extra’ (dividends) will have an edge.

What’s interesting is that a lot of companies have cut their dividends while others have stopped paying them altogether, making the search for good paying dividends that much harder. But they are still out there if you’re committed to finding them.

Smaller growth companies will typically not pay a dividend as they will pour all their money into growing their business. However, the larger companies that have solid earnings, but without the aggressive growth rates that may have marked their earlier years, will often reward their investors by paying out a portion of their earnings in dividends. And these are the companies we’re looking for in this week’s screen: strong stocks with good dividends and a track record of excellent growth and payment history.
* Zacks Rank less than or equal to 3
(This will give us Zacks #1 Ranks, Zacks #2 Ranks and Zacks #3 Ranks. It’s harder for a larger cap company to crack the #1 and #2 spots, so we’re allowing #3’s. But no Zacks #4 Ranks or Zacks #5 Ranks, which are Sells and Strong Sells.)
* 5 Year Historical Growth Rate >= 10%
(We want to see a history of solid growth.)
* Next 3-5 Year Projected Growth Rate >= 10%
(In addition to a track record of solid earnings, it’s important to have a successful future of solid growth as well, otherwise your dividend could be in jeopardy. And 10% is still pretty exciting when you consider that growth will be harder to come by nowadays in light of the slower growth predictions.)
* 5 Year Average Dividend Yield >= Average for the S&P 500
(We’re looking for above average market yields.)
* Current Dividend Yield >= 5 Year Average Dividend Yield
(We’re also insisting that their current yield be greater than their average dividend yield over the last 5 years.)
Of course, this screen will not preclude a company that decides to cut their dividend in the future. But these additional measures should help us find some of the best dividend paying companies with a history of success.

Here are 5 stocks from this week’s screen:
ITC – Snapshot Report ITC Holdings Corp.
MCD – Analyst Report McDonald’s Corp.
PEP – Analyst Report Pepsico, Inc.
RSG – Snapshot Report Republic Services, Inc.
VIVO – Snapshot Report Meridian Bioscience, Inc.

Get the rest of the stocks on this list and start finding top dividend paying companies on your own today. It’s easy to do.

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.