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
Raytheon Company (NYSE:RTN) is one of the leading providers of electronics mission systems integration, which are used in defense and other government markets around the world. The company operates in six main business segments: Integrated Defense Systems, Intelligence and Information Systems, Missile Systems, Network Centric Systems, Space Airborne Systems, and Technical Services. Raytheon Company (NYSE:RTN) derived most of its revenue, $17.9 billion, or 73% of total 2012 revenue, from sales to U.S. Government customers, including the DoD, Intelligence Community agencies, State and Energy, NASA, etc.
Image: Raytheon Company (NYSE:RTN)