Custom SPfilter – EVA Momentum + Dividend growth

In today’s content analysis, we built a custom SPfilter looking for Canadian companies showing EVA momentum, dividend growth, and solid balance sheets.

Here is the Excel spreadsheet Download  which contains the results, and the PFscan Download of the constituents.

Here is the list of criteria we asked for :

– Return on capital above 10%;

– Debt / equity ratio below 100%;

– Positive Free cash flows / Capital ratio;

– Positive 3 month change in the intrinsic value;

– Positive 12 and 24 months EVA change;

– EPI above 1.5;

– Positive 5Y annualised dividend growth rate.

SPfilter US Insurance Companies

Last Wednesday, the Federal Reserve decided to raise short-term interest rates for the first time since 2009. While it is true to say that higher interest rates generally mean higher borrowing costs, there are still some sectors that should benefit from this. The Insurance industry is one of them. Insurance companies almost only hold safe debt to back their policies, and these investments have been returning weak returns since the financial crisis. They will yield much better returns in a higher rate environment. Higher interest rates also mean the economy is strengthening and consumer spending is increasing; more car and home sales, which is definitely good news for insurance companies!

We have thus screened the US Insurance companies with four criteria, covering economic performance and also accounting performance.

– An economic performance index, or EPI (return on capital divided by cost of capital) above 1.0. An EPI ratio of 1.0 or more indicates a company’s capacity to create wealth for its shareholders (a higher EPI displays a greater rate of wealth creation);

– Return on Capital above 10 per cent;

– Dividend yield above 1.5 per cent;

– An annualized dividend growth rate of 5 per cent or more over the last 1, 2, 3 and 4 years.

10 US Insurance companies are identified by our screener (click Download ). Amtrust Financial Services (AFSI) is by far the best economic performer with an EPI of 3.1, and also one of the top dividend growers of this group. Maiden Holdings Ltd (MHLD) has the smallest market cap of this group, but offers the best dividend yield with a very aggressive dividend growth too. For someone who wants to stick with Large Caps (Marsh & McLennan, Chubb Corp, Travelers Cos Inc), Chubb (CB) not only offers the best dividend growth rate, but you can see this growth rate has been accelerating every year over the last 4 years.

Custom SPfilter – November 12th

For this week’s content analysis we’re providing the structure and results of a custom filter we’ve built. The filter uses exactly the same criteria as the one we sent you previously this year, on May 27th. This filter puts an emphasis on three key evaluation areas:

1. Generation of shareholder wealth (EVA/Share, Economic Performance Index, return on capital

2. Growth (short and mid-term growth of EVA/Share, dividend growth in each of the past four years)

3. Free Cash-Flow provision

As of November 12th, the group of stocks that were identified by this filter on May 27th (equal-weight) generated a positive return of 3.39% while the TSX Composite Index dropped by 12.06%. To see this previous blog post, please click here.

Only 1.5% (14 of 911) of our Canadian stock universe meets our stated criteria.

The results are sorted by Economic Performance Index (EPI). We’ve included a few other indicators for reference—see share price, Price/Earnings, current 12-month dividend yield.

In the attached PDF document you’ll find both the contents and criteria inputs for the filter, as well as the 14 resulting companies which passed these criteria.  Download