The Boring Investment Report uncovers, based on detailed financial statement analysis, the less than one percent of public companies capable of compounding, year after year, increased free cash flow without increasing debt. We’ve developed software that identifies these companies and sorts them a variety of ways, including financial strength, yield, yield security, improvement (or deterioration) in profitability, growth and value.

We also follow Dividend Aristocrats, looking for similar trends, with particular emphasis on dividend coverage and growth prospects. On a financial statement trend level, we follow about 200 companies quarterly — 150 compounders and 51 Dividend Aristocrats. On a more detailed level — reading SEC filings, articles and reports by other analysts, management investor presentations and transcripts, we follow about twenty companies — the compounders currently representing reasonable value, and the best and worst Aristocrats in terms of dividend coverage and growth.

One of the more interesting characteristics of true compounders is that they can be instantly identified by their free cash flow per share charts. We present this data in two charts. The first is on the Summary page of our six-page reports on each company. The grey line represents financial strength trend, and is made up of debt versus equity, interest coverage, return on assets by operating free cash flow and liquidity (which in turn is made up of cash versus all liabilities, and trends in inventory, receivables and payables versus revenue). A flat grey line, such as that of Ross Stores below, is typical of companies with exceptional financial strength and stability. The blue line represents ROST’s free cash flow per share growth. Again, excellent.

Tab four of our reports, Profitability, shows free cash flow per share, return on assets trend and net income per share trend. Having looked at thousands of these graphs, I can tell you that this combination of free cash flow growth and return on assets is rare.

More typical among exceptional companies is declining return on assets as the asset base grows, despite increasing free cash flow. Alphabet (Google – GOOG) is typical of even the most exceptional companies.

Finally, for comparison purposes, here are GE’s profitability charts over the last several years.