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Cash Is Only King When Put to Work

This morning we joined the Surveillance team from 6 to 8 a.m. It was an early wake-up, but worth the effort. Filmmaker Ken Burns was on set, as was author and RBC Wealth Management CEO John Taft.

As we discussed capitalism from a uniquely historical perspective, John spoke about the benefit of investing in companies which deploy capital in three specific ways:

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John told us these companies tend to outperform the broad market by 200-300 basis points, so we tested the thesis by creating our own list of candidates. Specifically, we screened for companies in the S&P 500 index that reduced long-term debt to capital by at least 10 percent in 2013, increased dividends by 10 percent or more on average over three years, and are currently buying back stock.

Turns out, the 19 companies which met our criteria have performed even better than Mr. Taft had suggested:

We showed ten of the companies on-air, and we include the full list for the benefit of blog readers.

Capital One Financial (COF ), Comerica (CMA ), Dow Chemical (DOW ), Eastman Chemical (EMN ), Fifth Third Bank (FITB ), Franklin Resources (BEN ), Gap Inc (GPS ), General Dynamics (GD ), Hasbro (HAS ), Hess Corp (HES ), International Paper (IP ), Johnson Controls (JCI ), Lockheed Martin (LMT ), Mead Johnson (MJN ), MeadWestvaco (MWV ), Ross Stores (ROST ), TE Connectivity (TEL ), TJX Companies (TJX ) and Unim (UNM ).

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