Our Portfolio Characteristics

In order to produce the pattern of results that we strive for, competitive results during the rising periods and strong relative results during difficult periods, we believe the following characteristics are necessary.

Dividends:

• The portfolio will have an above average dividend yield.
• Payout ratios that allow for increases during flat earnings periods.
• Companies that tend to increase their dividends at least annually.
• Dividend growth that is superior to that of the S&P 500.

Earnings:

• We focus on companies that grow earnings, and cash flow all the time.
• Earnings growth that will be better than S&P 500 earnings growth.

Valuation:

• P/E tends to be lower than that of the S&P 500.
• P/E to sustainable growth will be less than the S&P 500.
• Beta will be less than 1.0.

Profitability and Balance Sheet Strength:

• ROE and ROC that compare favorably to the S&P 500.
• We focus on underleveraged balance sheets.
• We prefer companies that generate meaningful free cash flow.
• We have a bias to companies that buy back their stock when the price is attractive.
• Strong S&P stock ratings.

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