Consistent growth is the Holy Grail for inves-tors, yet few companies are able to achieve it. To increase profits year after year after year is not impossible; it’s just that the probability of doing so is low.

Many academic studies make this point. A recent survey says only 15% of companies were able to increase earnings for five successive years. Over 10 years, that figure dropped to 1%.

We have looked at the results over the past five fiscal years for 202 Canadian companies, using data provided by www.adviceforinves-tors.com, and found 17 that managed to increase per-share earnings each year. That is 8% of the sample.

Another 12 companies had consecutive annual earnings increases in the past four fiscal years. This year, when all results are counted, they will make the magic five in a row if their earnings rise again. Even though it is late in fiscal 2007 for most companies, we’re not counting chickens until they’re hatched.

When you compare some basic analytical ratios for these companies, several common traits appear:

> almost all have above-average returns on equity, ranging from the mid-teens to much higher;

> they have strong balance sheets, shown by shareholders’ equity approximating half of total assets or more;

> blindingly brilliant growth rates are good to have, but are not always necessary to create year after year of profit growth.

Industry characteristics limit generalizations. Financial services companies and utilities have low shareholders’ equity as a proportion of total assets. Industrials tend to have a high ratio of sales to assets, a measure of efficiency. They also have strong cash flow coverage of debt, a measure of risk. This measure doesn’t really apply to banks, however.

These are obvious features to look for when assessing stocks for a portfolio in which a long-term buy-and-hold strategy is intended.

High growth rates are common among the companies identified in this survey, but the rates vary when measured by both earnings and book value. (A couple of companies with consecutive earnings gains actually had drops in book value from Year 1 to Year 5.)

Some companies produce high ROE thanks to high leverage with debt — that is, a weak balance sheet. This survey shows a strong balance sheet goes with consistent growth.

Note the ratio of shareholders’ equity to total assets. For most companies — utilities and financial businesses excepted — equity is about half of assets, or more. It indicates lesser reliance on debt.

Most companies do have long-term debt. A few companies listed in the table have none and a couple more — Research in Motion Ltd., for instance — have so little debt their cash flow/debt ratio is irrelevant and meaningless.

The matter of long-term consecutive growth being unusual has been explored before in articles citing the work of U.S. academic Robert Haugen, who discovered: “The long term is shorter than you think.”

Years ago, U.S. investment management firm Investment Counsel Inc. reported that at any time only about 15% of companies are making real progress in growth.

Arithmetic emphasizes how difficult it is to attain consecutive years of growth. If the odds of a company increasing its earnings next year are 50/50, then the odds of doing this for the next five years are about three in 100. Even assuming a company has a 75% chance of increasing earnings in a given year, the likelihood of five consecutive future increases is only about 24%.

The results suggest investors should assume any company being considered for a buy-and-hold strategy will have down years, even if it is a “growth” stock. IE