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10 Stocks for the Next 10 Years

Let's open things up today with a little pop quiz. Which company's stock would you rather buy: Spacely Sprockets, which will deliver 10% annual earnings growth over the next decade, or Cogswell Cogs, which will grow at 3%?

Astute investors (and Jetsons fans) know that we need one final piece of information before making a decision: At what rate are these two companies expected to grow?

If all the analysts are calling for Spacely to grow at 15% and Cogswell at 1%, then the market will react with disappoint at the former and elation at the latter ... meaning Cogswell is by far the better buy.

What drives investor returns?
Jeremy Siegel has a similar example in his book, The Future for Investors, which leads to his all-important "basic principle of investor return": "The long-term return on a stock depends not on the actual growth of its earnings, but on the difference between its actual earnings growth and the growth that investors expected."

In the book, Siegel looked at the common characteristics of the top-performing surviving firms from the original S&P 500 Index in 1957. Besides growing earnings at a greater pace than expected, virtually all of these superstar stocks paid out consistent and rising dividends. Most were involved with well-recognized consumer brands or pharmaceuticals. And, valuation mattered: The average P/E ratio was slightly higher than the S&P's average of 17.45, and none was above 27. The top five performers from 1957 to 2003:


Annual Return

Annual EPS Growth

Average P/E

Dividend Yield

Philip Morris (now Altria) (NYSE: MO  ) 19.75% 14.75% 13.13 4.07%
Abbott Laboratories 16.51% 12.38% 21.37 2.25%
Bristol-Myers Squibb 16.36% 11.59% 23.52 2.87%
Tootsie Roll Industries 16.11% 10.44% 16.80 2.44%
Pfizer 16.03% 12.16% 26.19 2.45%

Source: The Future for Investors.

It's instructive to see which factors Philip Morris had in its favor during Siegel's 1957-2003 study period. The threat of lawsuits and smoking bans created low expectations that -- combined with high growth and a high dividend yield -- provided the perfect environment for superb investor returns.

Constructing greatness
Building on Siegel's work, I went in search of companies today that have a reasonable chance of exceeding expectations over the next decade and beyond. I built a screen based on the consistency, valuation, and dividend growth Siegel highlighted. Specifically, these companies:

  • Beat EPS estimates for fiscal 2010 (and 2011, if reported). This is as far back as my screening data goes.
  • Have an annualized EPS growth rate of at least 5% over the last 10 years.
  • Exhibited growth in dividends per share of at least 5% over the last five years.
  • Show signs that payout growth can continue, with a payout ratio less than 60% of earnings.
  • Have manageable debt, with a debt-to-capital ratio below 60%.
  • Have a current P/E below 27 (the current S&P 500 average is 14).

I also added one other element I think will help increase our chances of finding consistently great companies: return on equity. This metric highlights how effectively management allocates capital, and I required an ROE of 15% or better over the past three years. To show you how tough this requirement is, it cut the list of passing companies down from 162 to 44.

Today, I'm highlighting 10 names that passed the screen, sorted by dividend yield:


Market cap (in millions)

EPS Growth (10-year CAGR)


Dividend Yield

Add to Watchlist


Raytheon $13,968 13% 8.4 4.4% Add
Petroleo Brasileiro (NYSE: PBR  ) $133,716 11% 6.3 4.4% Add
DuPont (NYSE: DD  ) $35,892 13% 15.0 4.3% Add
United Parcel Service (NYSE: UPS  ) $61,025 6% 16.6 3.3% Add
Diageo $46,397 14% 20.5 3.3% Add
Microsoft $205,519 15% 12.1 3.3% Add
ExxonMobil (NYSE: XOM  ) $345,940 11% 8.9 2.6% Add
Schlumberger $77,886 22% 22.9 1.7% Add
Joy Global (Nasdaq: JOYG  ) $6,357 26% 12.1 1.2% Add
PotashCorp (NYSE: POT  ) $35,740 31% 17.8 0.7% Add

Source: S&P Capital IQ.

I urge you to take a closer look at any of these companies that interest you. You can start by adding them to your free watchlist by clicking the appropriate link in the table. For more on why dividend payers are your best bet to beat inflation, you can also check out our special free report, "13 High-Yielding Stocks to Buy Today."

Fool analyst Rex Moore played the part of Elroy on The Jetsons. You can keep up with him on Twitter. Of the companies mentioned here, he owns shares of Microsoft. The Motley Fool owns shares of Schlumberger, Altria Group, Diageo, Microsoft, Abbott Laboratories, Petroleo Brasileiro, United Parcel Service, and Raytheon. Motley Fool newsletter services have recommended buying shares of Petroleo Brasileiro, Microsoft, Diageo, and Abbott Laboratories, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (7) | Recommend This Article (73)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 07, 2011, at 7:03 PM, PeakOilBill wrote:

    PBR looks too cheap. Are they having any problems? That is a fat dividend, and oil must eventually go way up as China produces many millions of additional vehicles. I'm guessing it is their unusually inconsistent dividend history. And it is in South America, which adds to the risk.

    Cramer is pushing Conoco which pays a nice dividend and is all over the globe. Total has been paying an almost unreasonable dividend for the last few years. That scares me for the long term. I wonder if they are investing enough? But I guess they know what they are doing, since they are one of the world's largest oil companies.

  • Report this Comment On October 07, 2011, at 10:09 PM, TempoAllegro wrote:


    Could you please post on the the complete list of 44 companies that passed your screen? Were any of the original companies highlighted by Siegel, such as ABT, among them? I am also interested in hearing about other defensive and low-beta companies such as WM and SYY that may be on your list from the screen.

    I also have a BIG question about PBR. I am quite interested in this company. However, in Fool articles I keep seeing it with a huge dividend yield - in your article you say it is a 4.4%. Why then, does Yahoo Finance say 0.70%? And my TD Ameritrade account, within which I have PBR on a watch list where the dividend yield is listed, shows 0.74. With two sources consistently contracticting articles and one of them being the broker that places the results of the dividend yield into my account, I have a problem believing what I read here. Can somebody enlighten me? The other information on other companies shown seems accurate, so why is PBR different?

  • Report this Comment On October 08, 2011, at 12:12 PM, materialsman92 wrote:

    @ mungermanic Yeah kind of wierd. But on my trading account its listed as 5.51% and also on Bloomberg

    Not 100% sure this is right. If it is true it looks very interesting. GL

  • Report this Comment On October 08, 2011, at 5:01 PM, TMFOrangeblood wrote:

    Here's the full list of passing companies:

  • Report this Comment On October 08, 2011, at 7:37 PM, TMFOrangeblood wrote:

    mungermaniac, our data provider (Capital IQ) says it's 4.4%. I'm currently double-checking the discrepancy.

  • Report this Comment On October 14, 2011, at 9:40 PM, GraceAlone wrote: also says that PBR's dividend is 0.7%. (

    Rex, we're still waiting to hear from you which figure is accurate.


  • Report this Comment On October 17, 2011, at 1:34 PM, thidmark wrote:

    From Morningstar:

    Recent Dividends

    Date Type Amount

    08/04/11 Special Cash Dividend 0.2136

    05/12/11 Special Cash Dividend 0.2146

    05/04/11 Cash Dividend 0.1630

    03/22/11 Special Cash Dividend 0.1595

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