Do Your Stocks Make Money?

Profits are what drive stock prices up. If your company doesn't make money year after year them why continue to be a shareholder? This is why you hear a lot of talk around earnings season. Investors are waiting in the weeds in anticipation of company results from quarter to quarter. They are hoping that the company beats earnings and reports higher profits.

Some of the most profitable companies in Canada according to the latest Globe and Mail survey of top 1000 companies, continue to include;

Royal Bank (RY)
Teck Resources (TECK.A)
Air Canada (AC)
Canadian Tire (CTC.A)
West Fraser Timber (WFT)
Linamar Corp (LNR)
Cascades Inc. (CAS)
Methanex Corp. (MX)
Canfor Corp. (CFP)
BRP Inc. (DOO)
First National Financial (FN)

I've further screened these companies choosing those with a 5 Star G&M rating. I personally only own RY from this list but will add all these stocks to my watchlist for further consideration when my cash builds up to buy more stocks.

If I just use those listed by profit in order of dollars then the list would be;
RY, TD, BNS, CNR, FEC, CM, SU, TRI, CVE, ONEX and TRP.

As you can see the list changes dramatically to include a lot more financial stocks and dividend growth companies. You can pick and choose as you wish. You could do no worse building a portfolio from any combination of these very profitable publicly traded companies in Canada.

Apple continues to be the top profitable company in the world.

"Corporate profit is what's left over after the company pays it's expenses." 
- Investopedia 

Why It's Important

Looking at and analyzing a company's profits will tell you whether the company is making money or not. Good signs to look for are;

• growth in retained earnings
• increased dividend payments

I always enjoy reading the earnings report that shows increasing profits (also called a beat) followed by an announcement of a dividend increase. Usually a good time to buy.

Did you know that Canadian Utilities (CU) has increased it's dividend for 43 straight years.

Investors deserve to be paid something for taking on some risk by investing their hard earned money in a company. This is why I love dividend investing for income.

Dividends and the growth it generates will end up making up 90% of our long term gains. Now, that's impressive!

Other Factors to Consider

Of course corporate profits aren't the only things to consider when making a buying decision. You might find it helpful to look at;

• is the stock cheap? (price/earnings ratio)
• yield
• what stock in a sector yields the highest
• payout ratio
• recurring revenues

Some other questions to ask yourself before putting your capital at risk include;

• what are my long term investment objectives?
• what personal preferences do I have?
• what is my risk appetite for individual stocks?
• what are my thoughts on diversification?
• how much should I expect my return to be?
• when do I need the money? (time horizon)
• what are my income needs? (now and for retirement)

I don't personally invest my money in anything cyclical. When you look at some of the top companies listed above you can see a lot of them are in the materials or energy sector. 

It's not just the fact they make money, it's when they are out of favour you  don't know how long they will be down or how far they will drop. I can't afford to wait for the cycle to turn in my favour.

Cyclical stocks will interrupt your sleep pattern. It does for me so I stay away.

Always invest in profitable dividend growth companies and hold on for the long term ride. In the short term you won't see them doing much.

What do you look at to make sure the companies you buy are making money?

Related Post: Dividend Stocks-The Gift That Keeps on Giving

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