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Royce & Associates Portfolio Manager Jay Kaplan on how investors should pick stocks for their portfolios.
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Show let me bring in another Smart -- But he says stop chasing the highest dividend yielding stocks.
Not a recipe for success.
We're looking for companies that can grow their dividends -- free cash flow companies we could chase MLP's utilities who reads.
All companies with a lot of leverage we don't -- leverage we could chase companies with high yields that are unsustainable because the companies are in trouble.
You don't wanna do that either until -- if you pick a dividend yield in stock yet the stock is plummeting.
For whatever reason corrective -- be careful here and figure out what's the best underlying story as well -- -- you want total return you want businesses that'll grow businesses that are healthy.
And pay a little bit along the way while -- wait.
-- now want to let people know be your one year performance here for here is beating the S&P 500 so what's important what we show people.
Who are guests are how they have performed so the S&P up 16% year over year.
And Jay Jay Saunders up 19% three years -- about 13% so let's look at.
Sort of the way you pick what the requirements for stocks it's not just hey this is a -- dividend yielding company.
Well first of all were always looking for really strong balance sheets who want -- that have financial stability number one number two we want really good businesses high returns on capital.
At three the price you pay is really important if you pay too much you know make a lot of money.
So valuation really really counts and then we want to look at the cash on the dividend paying ability.
And you also want to make sure that there's a sustainable dividend correct -- -- absolutely want companies that can grow.
Can grow their dividends free cash -- it's really what it's about and the use of free cash flow dividends being one of those -- uses small cap rally it continues.
To defy the odds year after year the Russell 2000 has done extraordinarily well how do you pick small caps.
-- -- like like I've talked about with the for those those three criteria but we're also looking for companies that are well managed with good management teams.
And industries that we like now for looking for contrary bargains like north towards finds.
Often there -- problems we have to figure out.
But the problem is temporary permanent what the solution is how long to solve the problem we're gonna get into names later on your screen at the top holdings here Federated Investors is one of them you also like new skin every -- Quite -- their different names here Kennametal.
Is -- a -- Of running theme through any of these.
Maybe not so much through those individual names one of the things we're doing today looking for the bargains are looking for companies that are cyclical.
That had both have overseas exposure can you justify -- for our viewers what you see it.
Well companies that move up and down with the business cycle the business -- kind of Sloan now so the market doesn't like companies that move around with the business cycle we think they're on sale.
Those in the companies were focused on today and what companies -- does.
At some don't even have dividends.
But he'll tell you why he really likes them --
