Stocks: In Search of Quality

S&P's latest list finds five names that have recently earned the highest score in its earnings and dividend ranking system

In the eight years since the bursting of the technology bubble in March, 2000, high-quality stocks (as measured by a proprietary Standard & Poor's system) have outperformed lower-quality issues. In the last 96 months high-quality stocks have put up an average monthly gain of 0.39%, while lower-quality issues have gained only 0.30%.

S&P's Quality Rankings have been provided for stocks since 1956. The quality ranking system measures the growth and stability of a company's earnings and dividends. A ranking of A+ is the highest, while B+ is average.

If a company pays a dividend, it is highly unlikely its stock will be ranked below B-, even if the company has incurred losses. However, companies that haven't paid any dividend over the past 10 years will likely receive a ranking no higher than A-. Companies in bankruptcy automatically receive a ranking of D. For performance measurements, S&P considers any stock with a quality ranking of A- or higher to be high quality.

In assessing quality rankings, S&P recognizes earnings and dividend performance is the result of a variety of factors, such as industry position, corporate resources, and financial policies. The rankings do not reflect all of the factors, tangible or intangible, that bear on a stock's quality.

Quality rankings are generated by a computerized system that analyzes per-share earnings and dividend records from the most recent 10-year period. We think this time frame is long enough to measure significant growth, encompass trend changes, and reflect the full range of a business cycle.

In this week's screen, we looked for stocks that were upgraded to A+ in the past four months. Five stocks made the cut:

Company Ticker
Exxon Mobil XOM
Oshkosh OSK
Stryker SYK
Suncor Energy SU
3M Co. MMM
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