Top-Rated Stocks That Treat Shareholders Right

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The flip side to shareholder-friendly stocks expected to underperform the market? Highfliers that pay little heed to their owners' interests. Conversely, there are top-flight companies that also treat their shareholders with respect.

Institutional Shareholder Services -- the big name in corporate proxies -- measures how well a company performs in as many as 63 categories covering four broad areas. Moreover, each company is scored relative to its market index and its industry group. It assigns the stocks a rating that it calls its corporate governance quotient, or CGQ.

Some evidence supports the notion that companies with weaker governance have higher risk, decreased profitability, and lower valuations. We'll be looking at stocks that Motley Fool CAPS investors have marked to outperform the market and that also sport above-average CGQ scores, either in their index group or among industry peers.


CAPS Rating (out of 5)

Index CGQ Ranking^

Industry CGQ Ranking^

Cliffs Natural Resources (NYSE: CLF  )




Duke Energy (NYSE: DUK  )




FedEx (NYSE: FDX  )




Harvest Natural Resources (NYSE: HNR  )




McDonald's (NYSE: MCD  )




Source: Yahoo! Finance, Motley Fool CAPS.
^Relative placement when compared with companies in index or industry. Higher is better.

Although finding good companies and holding them for the long term is one of the greatest secrets to investing success, there are many factors an investor should consider, and how well a company treats shareholders shouldn't be least among them. View these rankings as a way to gauge how these businesses stack up against one another relative to their shareholder policies.  

Go to the head of the class
McDonald's has become so successful at cementing its image as the go-to place for good value food in rough economic times, that even the destination of choice of the latte-sipping elite -- Starbucks (Nasdaq: SBUX  ) -- is refining its image to emphasize its lower-cost offerings. Bemoaning that his company had become "the poster child for excess," CEO Howard Schultz recently noted that half its drink offerings cost less than $3 and fully a third are under $2.

Of course, that means the other half of Starbucks' drinks menu is as expensive as its critics say, and it's a bit sad to see this chain having to say "Hey! We have value meals, too!" But it points to the success that McDonald's has enjoyed in attracting customers who are trading down.  

It will undoubtedly be easier for McDonald's to operate as a low-priced eatery that offers the occasional high-end experience -- witness the McCafe concept of lattes and cappuccinos -- than for Starbucks to break its image as a haven of the bourgeois.

Same-store sales at McDonald's have been particularly strong over the first few months of the year, rising 9% in January in constant currency terms and more than 5% in February, if you exclude the extra calendar day last year.

Perhaps the only things that will derail a similar showing for March are weak currency exchange rates and rising commodity costs. That's the same winning value proposition formula that can be found at Wal-Mart (NYSE: WMT  ) , where consumers have opted to shop for low prices on everyday items.

Investors are also attracted to the tasty prospects that McDonald's offers. CAPS member bartleyrc praises the combination of food, price, and ambience:

McDonalds owns profitable business and has made improvements in its main food product menu in both healthfulness, taste and presentation (many restaurants have gotten a more inviting upscale makover) while retaining a cheap price. Better products still cheap= more sales = more revenue = more profits = outperform the S&P

A Foolish quotient
Many factors go into whether a stock is a buy or a sell, but do corporate governance policies enter into your equation? They should. It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made -- all from a stock's CAPS page.

Duke Energy is a Motley Fool Income Investor selection. Starbucks and Wal-Mart are Motley Fool Inside Value recommendations. FedEx and Starbucks are Motley Fool Stock Advisor picks. The Fool owns shares of Starbucks. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Duprey owns shares of Wal-Mart, but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.

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9/26/2016 4:01 PM
MCD $116.53 Down -0.64 -0.55%
McDonald's CAPS Rating: ***
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DUK $82.15 Down -0.37 -0.45%
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FDX $175.34 Up +0.95 +0.54%
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HNR $0.79 Up +0.02 +2.36%
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