I am on the hunt for businesses that have consistently generated high returns on capital over a long period of time, produced good cash flow, paid decent dividends, and are valued cheaply. Thus, I ran a screen for finding such businesses that have consistently generated return on equity of at least 15% in each of the past five years, had a free cash flow yield of at least 5%, and offered investors a dividend yield of at least 3.50%. Here are the top three companies: Strayer Education Inc (NASDAQ:STRA), PetMed Express Inc (NASDAQ:PETS), and Raytheon Company (NYSE:RTN).
Strayer Education – high returns and juicy dividend yield
Strayer Education Inc (NASDAQ:STRA), founded in 1892, is the provider of post-secondary education services, through both traditional classrooms and online courses, via its subsidiary Strayer University. In the past 17 years, the company has expanded the number of campuses from 8 to 100 in around 24 states in the U.S. Most of its students, or 54% of the total students, are enrolled in the Bachelor’s program, while the number of students enrolled in Master’s and Associate Program represent 32% and 13% of the total number of students, respectively.
In the past five years, Strayer Education Inc (NASDAQ:STRA) has delivered extremely high returns on equity, fluctuating in the range of 44.33% to 158.33%. In 2012, its ROE stayed at 158.33%, while the return on invested capital was also in double digits at 38.76%. The company is also a cash cow, with $82 million in operating cash flow and $57 million in free cash flow in 2012.
At $45.40 per share, Strayer Education is worth $491 million on the market. The market values Strayer at only 4.46 times EV/EBITDA. The free cash flow yield is also quite high at 11.6%. At its current trading price, Strayer Education Inc (NASDAQ:STRA) offers quite a juicy dividend yield of 6.6%.
This pet pharmacy is consistent and cheap
PetMed Express is a leader in pet pharmacy in the U.S., providing a diverse range of dogs and cats pharmacy products under several famous brands, including Advantage II, Interceptor, and Frontline Plus. Most of its revenue, 59%, was from the non-prescription medications segment, whereas prescription medications accounted for around 40% of the total revenue in 2012. In the previous fiscal year, the company generated nearly $227.9 million in revenue while net income rose 3% to $17.17 million, or $0.86 per share.
What really impresses me is the consistent double-digit return on equity that PetMed has delivered in the past five years. Since 2008, its return on equity has fluctuated in the range of 18.70% to 32.36%. In fiscal year ended March 2013, its return on equity was 26.80%. The company just reported that it generated $13.29 billion in operating cash flow, with the free cash flow of around $12.7 million. At $12 per share, PetMed is worth around $240 million. The company is valued at 7.66 times EV/EBITDA. At its current trading price, its free cash flow yield stayed at around 5.30% while the dividend yield is quite juicy at 4%.
The defense stock with a decent yield
Image: Raytheon Company (NYSE:RTN)
Since 2008, Raytheon has generated consistent double-digit return on equity, fluctuating in the range of 15.46% to 23.30%. In 2012, its ROE was 23.30%. Over the decade, Raytheon Company (NYSE:RTN) has been a cash cow for its shareholders, producing consistent positive operating cash flow and free cash flow. In 2012, its operating cash flow was $1.96 billion while free cash flow was a bit lower at $1.54 billion. At $63 per share, Raytheon Company (NYSE:RTN) is worth around $21 billion on the market. The market values Raytheon at only 6.34 times EV/EBITDA. The dividend yield and the free cash flow yield are at 3.5% and 7.5%, respectively.
My Foolish take
Investors need to dig deeper into each business to find out the suitable stock for their own portfolios. With nice dividend yields, income investors should also consider all three stocks for their long-term income portfolios.
The article 3 Companies With 3 Great Characteristics for Your Portfolio originally appeared on Fool.com and is written by Anh HOANG.
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