March 18, 2008 - By definition, no. Stocks carry risk. If you don't want risk, put your money in treasury bills or under the mattress. But don't expect much of a return, if any. Having said that, certain stocks do have attributes that make them relatively, and I emphasize this word, relatively, safer investments than others.

They have a high return on equity or ROE. That's the return an investor receives for owning a stock. This is not what the price of the stock returns. Rather it's the amount the company makes and retains in earnings which become equity. Since stockholders own the earnings and equity, the higher this return is, the better the value of the company will be. It's not necessarily reflected in the stock price, especially in times of anxiety (like now), but in the long run, ROE is what matters. Examples of high ROE stocks: Coca-Cola, PepsiCo, Deluxe Corp., Dun & Bradstreet, Colgate-Palmolive.

Relatively safe stocks have good and solid dividends. Notice this doesn't say great dividends. Great dividends, meaning much higher than average, usually don't stay great. And they don't go to good from being great. They go to none. Stocks with dividends that are at or a little above the average for all stocks paying dividends tend to be the ones that keep paying. The way to tell if the dividend is safe is to see how much of earnings it takes to pay the dividend. If the company earns $1.00 a share and pays a dividend of 25 cents a share, then it pays out 25% of earnings. Anything below 40% is almost always a dividend that will continue being paid. Examples: 3M Corp., Cooper Industries, PPG Industries.

If you can find stocks that rate high in each category, you've got the odds much more in your favor. Of course, there are many other factors that influence the relative safety of your investment. Maybe most important is the management. It has the day to day responsibility of making and implementing decisions that affect earnings. But it's impossible to quantify management so don't look for that in the numbers, except for the fact that good management always makes profits, in good times and bad.

Remember, these guidelines will help you find stocks that are relatively more safe than others. It doesn't mean you can't lose money once you find these stocks. It does, however, give you the comfort that you're buying stocks that most sane investors will want to own in very difficult and volatile times.

- Ted Allrich