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Growth and income
The 'tried and true' choices sustained better-than-average earnings growth.
By David Stires, FORTUNE writer

NEW YORK (FORTUNE) - Here we look for what Jeremy Siegel calls "corporate El Dorados" - those titans that rack up long stretches of solid profitability. In his latest book, The Future for Investors (Random House, 2005), the Wharton finance professor shows how companies that have marketed "tried-and-true" products for decades in slow-growth or even declining industries have superior returns to firms that develop "the bold and the new."

Overall, our 2005 growth-and-income choices trailed the market last year, returning an average of 5 percent. The laggard was Pfizer, which tumbled 12 percent. Pfizer (Research) failed to make the cut on this year's screen because its profits are no longer projected to grow faster than the average company's, one of our key requirements.

The FORTUNE 40
Picks to help you weather the market's wild swings.
Retirement investing the easy way: diversified choices for long-term growth. (more)

But we still like the seven others and are including them again. Among them: Colgate-Palmolive (Research), whose stock climbed 22 percent since we recommended it. Its four-year restructuring effort kicked off last year and has started to pay off. The consumer products giant delivered an impressive first quarter, setting revenue and earnings records. The company has grabbed market share in China, Latin America, and most of Central Europe.

It also bought Tom's of Maine, a natural-products company, marking Colgate's entrance into a fast-growing segment of the market. Smart product innovation, increased ad spending, and additional cost cuts stemming from the restructuring should keep Colgate on a steady double-digit growth path for some time. The stock sells for 22 times earnings and yields 2.1 percent.

The stocks

  • Tried and true companies with strong established brands tend to out perform flashier, faster-growing ones over time.
  • It can be worth paying a slight P/E premium for companies that have the potential to sustain better-than-average earnings growth.
  • Along with providing income, a generous dividend payout will deliver a significant boost to your total return in the long run.
 Top of page

Growth and income «click a ticker for latest data»
Company Price
(6/2)
52-wk
lo-hi
Mkt cap
(billions)
P/E
(ttm)
Earnings
grth est*
Dividend
yield
Why we like it
Abbott Labs (ABT) $43 $38-$50 $65.80 17 10% 2.70% Three key units - drugs, devices and nutritionals - offer strong growth.
Altria Group (MO) $73 $64-$77 $152.10 14 8% 4.40% Tobacco and food titan delivers steady profits and rich dividend yield.
Coca-Cola (KO) $44 $40-$45 $103.40 20 9% 2.80% New products and emerging markets are improving the beverage giant's growth.
Colgate Palmolive (CL) $60 $49-$61 $31.00 22 10% 2.10% Restructuring is boosting profits at this dominant oral-care company.
General Mills (GIS) $52 $45-$52 $18.50 17 9% 2.60% Commanding brands such as Cheerios and Betty Crocker deliver fat margins.
Johnson & Johnson (JNJ) $61 $56-$67 $179.90 17 10% 2.50% Maker of Band-Aids and shampoo also has robust new-drug pipeline.
Procter & Gamble (PG) $54 $52-$62 $177.00 20 11% 2.30% Company has 22 brands that generate more than $1 billion in annual revenue sales.
Wyeth (WYE) $45 $41-$50 $61.20 15 8% 2.20% Has promising new drugs to go with leading brands from Advil to Chapstick.
Criteria include long-term earnings growth equal to or greater than the S&P 500's estimated 8% rate, dividend yield greater than the S&P 500's 1.8%, and P/E ratios below 27. *Wall Street estimates for the next three to five years.

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