Avoid industries and companies that face formidable political, social or economic problems. Most important of all, invest in companies that appear to be well managed. Look for a high percent return on equity capital, steady growth in sales and earnings, a capital structure that is not overloaded with debt, a management that acts primarily in the shareholder's interest rather than management's interests, and a reputation for good ethics building for the future. Avoid the fast buck artists and those who fudge their communications with shareholders with less than forthright, candid whole truth. Read past annual reports and see if management follows through on plans to deal with problems, improve profitability and produce growth.
Good managers do what they say they are going to do.
A major source of growth for a company is the reinvestment of income in it at a high rate of return on equity capital. Dominion Resources is reported to have good management. However, growth of demand for electric utility service is somewhat less than modest. The rate of return on equity capital is about 10 percent to 11 percent, essentially too low to generate rapid growth of earnings. The dividend payout is 80 percent to 90 percent, leaving very little to plow back into the company to finance future growth.