Here at the Fool, we look for companies that are not only producing and growing earnings, but are producing and growing cash. After all, it's cash that lets a company reinvest in future growth and it's cash that we investors receive through dividends and share repurchases.

To find some of those generating the green stuff so that they can give it to us, I set up a simple screen:

  • First, I wanted companies earning at least 15% on equity. These are more likely to be producing shareholder value than destroying it.
  • Then, I wanted companies trading at or less than 11 times free cash flow. These are bringing in the cash, but are possibly being underappreciated by the market.
  • Finally, I wanted those that were paying at least 2% in dividend yield.

From the resulting list, here are three that caught my eye today:




Dividend Yield

Eli Lilly (NYSE: LLY)




Sherwin-Williams (NYSE: SHW)




Intel (Nasdaq: INTC)




Source: Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months.

Lilly is facing some patent expirations soon, namely Gemzar this year and Zyprexa next. Those two drugs contributed roughly 30% of Lilly's 2009 revenue. Its pipeline appears to be deep, with 29 drugs in phase 2 or phase 3 (weighted heavily toward the former) and three up for approval, but it hasn't had a big success recently. It does have a potential winner with Bydureon, the diabetes drug that it will sell with Amylin Pharmaceuticals (Nasdaq: AMLN) and Alkermes (Nasdaq: ALKS), assuming it gets approved by the end of the year. More importantly, this uncertainty all seems to be priced into the stock already, given the single-digit multiple. Plus, that dividend yield is quite tempting.

You'd think Sherwin-Williams would be closely tied to the dismal housing market. Don't be fooled by that superficial look, though, because the company also supplies paint and coatings to the automotive, boat, and aviation industries, which accounts for about a quarter of its revenue. For the second quarter, it reported record results, with 10% growth in revenue and a 21% jump in earnings. And management expressed cautious optimism for the rest of the year, indicating it expects to open 40 to 50 Paint Store locations during 2010. The dividend appears safe at a 35% payout ratio, and the company can more than handle its interest payments. Investing in this long-term grower should provide steady returns down the road.

Intel also reported a record quarter near the beginning of this earnings season. Despite that, share prices are essentially the same as they were just before it reported. In the past, a record quarter would have given investors reason to cheer. Today? I guess we're all just too worried to take advantage of a great situation. And when the world's biggest chip maker is trading at about 10.5 times FCF while paying a 3% dividend, I think that's a great situation. Considering that it has a net cash position of $16 billion, the company is not going away any time soon. I'm going to look closer at this one.

Do any of these deserve a spot in your portfolio? Only you can answer that question after checking into them further. But based on the quick looks above and their relatively cheap prices right now, they do deserve a second look.