Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock and then decide whether Dover (NYSE: DOV) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that a company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Moneymaking opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Dover.


What We Want to See


Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 6.8% Fail
  1-Year Revenue Growth > 12% 23.5% Pass
Margins Gross Margin > 35% 38.3% Pass
  Net Margin > 15% 9.8% Fail
Balance Sheet Debt to Equity < 50% 40.0% Pass
  Current Ratio > 1.3 2.73 Pass
Opportunities Return on Equity > 15% 16.4% Pass
Valuation Normalized P/E < 20 21.19 Fail
Dividends Current Yield > 2% 1.7% Fail
  5-Year Dividend Growth > 10% 10.1% Pass
  Total Score   6 out of 10

Source: Capital IQ, a division of Standard & Poor's. Total score = number of passes.

Dover comes in with a score of 6. The company isn't a household name, but it has one of the strongest records of paying consistent dividends.

Dover is a diversified corporation with subsidiaries in a wide array of industries, ranging from industrial products and engineered systems to fluid management and electronic technologies. Competing against companies such as Cooper Industries (NYSE: CBE) and Ingersoll-Rand (NYSE: IR), Dover manages better returns on equity while still maintaining a cheaper earnings valuation.

But Dover is best known for its long streak of dividend payments, which extended to 55 years in 2010. Diebold (NYSE: DBD) has a longer streak, but Dover's consistency still puts it in the top ranks of elite dividend payers.

Dover isn't standing still. It recently agreed to buy out NXP Semiconductors (Nasdaq: NXPI), allowing it expand to into NXP's niche of producing speakers and receivers for mobile phones and other electronic devices. The company just announced that its deal would be delayed because of antitrust scrutiny, but it still expects that the NXP buyout will happen in the second quarter.

With a big jump in its share price, Dover no longer has a dividend yield above the 2% level. But given enough time, investors can count on rising dividends to push yields back up. Dover isn't perfect, but it may look that way to dividend-focused investors.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Add Dover to My Watchlist, which will find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. NXP Semiconductors is a Motley Fool Rule Breakers recommendation. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.