The Smart Set: Five Stocks with Stellar Scores

S&P's latest screen turns up outfits with top marks in three key categories: Dividend yield, p-e to growth, and return on equity

by Michael Kaye From Standard & Poor's Equity Research

Investors like to buy stocks that are attractively priced. They cotton to equities that pay a nice dividend. And they no doubt favor those issues that have demonstrated a history of fat returns. This week, we set out to find stocks that satisfy all three of those criteria.

So we screened for stocks with three characteristics that we believe could indicate a smart investment: a p-e-to-growth ratio between zero and 1, a dividend yield above 2.6%, and return on equity of at least 25%.

A stocks's p-e-to-growth ratio, also known as its PEG, is calculated by dividing the p-e by the projected earnings growth rate. So if a company has a p-e of 20 and analysts expect its earnings will grow 15% annually over the next few years, you would say it has a PEG of 1.33. Investors usually look for a PEG of 1 or below.

Energetic Results

A dividend yield is the annual percentage of return earned by an investor on a common or preferred stock. It's determined by dividing the amount of dividend per share by the current stock price.

Return-on-equity shows how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. It's calculated by dividing common stock equity at the beginning of the accounting period into net income for that period (after preferred stock dividends).

But enough with the explanations. When we ran the numbers, five names emerged, all of them resource or energy-related plays:

Kaye, a chartered financial analyst, is an analyst for Standard & Poor's Portfolio Services. He is the author of The Standard & Poor's Guide to the Perfect Portfolio: Five Steps to Allocate Your Assets and Ensure a Lifetime of Wealth.