Hello class, nice to see you back.
To quickly recap our strategy from the last post:
a) dividend yield greater than current market rates (banks, CDs, etc.)
b) either stable or increasing dividend payout over the last 5 years
c) stock price between $20 (high) and $5 (low)
Which filter did you end up using? Have a favorite site you want to share with the class? Post them in the comments section below. One of my personal favorites is The Google Stock Screener : clean, relevant criteria and easy to use. Another one is Dividend Stock Screener . It is an advanced screener focusing on dividend paying operations out of the gate, with handy and straight forward criteria to quickly narrow down the field of possible contenders.
Find one that works for you and your information needs!
ok, running a number of filters still returns a relatively large field of players. Remember the previous conversation about Dividend Aristocrats? Taking a closer look at those contenders one more time may help us to whittle things down a bit.
Cannot say it often enough; as we are looking at those various lists, always remember that it is real money we are playing with. If you are not entirely comfortable with a possible worst case scenario of losing all the money set aside for this project, take a step back, breathe and re-consider.
On with the program then. Out of the possible players, are there any companies that strike your fancy right off the bat? Are there any industries you have some keen insight into, can that be parlayed into our stock picking endeavor? Any industry you just have to stay away from? Some individuals translate philosophy into stock picking, such as staying away from alcoholic beverage producers or tobacco companies on general principles.
The above should be understood as a very personal stock screener. No sense in investing some of your hard earned money if you do not support the business model or product being sold. Incidentally, this does also remove some of the possible players as well. Good for us!
Once the gut feeling has been catered to, let’s focus back on the actual hard and soul of stock picking: the financials. Despite our incoming basic criteria above, we still need to analyze our smaller universe for sound financial principles and operating margins. One of my personal ‘hybrid’ criteria is an annual dividend payout amount of $1 minimum / share. There is no scientific reason or empiric research that advocates this criteria; at least, I am not aware of it. Placed in relation to the share price, I find it to be a measure that simply speaks to me (yeah, I know, bring it on!)
Common financial lore recommends to stay away from stock with a double digit dividend yield, as it may indicate serious priority issues within company management, such as focusing on shareholder return too much neglecting investment opportunities. It could also point to a serious hike in debt level or the (in-)ability of servicing such. Again, we need to narrow down our contenders while still paying close attention to the financial benchmarks.
How small is your universe at this point? Manageable or still in excess of 100 stocks (Dividend Aristocrats and any contenders obtained through your favorite stock screener tool)?
Post your thoughts, status and questions below; would love to hear about your experiences on this journey.