DFG Stock Screen v.2
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| Dividends grow like leaves on a tree. |
Why
Change
The last and only Dividend
Family Guy stock screen was posted when I had started writing this
blog. A lot of it still holds true but
like everything else it should be reviewed (annually for me) and adjusted. Always learning and growing is a good way to
become financially independent. I have
learned quite a bit in a year and some of that will be applied to version 2 of
my stock screen.
First
Change
My struggle continues
on whether or not to include all companies listed in Dave Fish's U.S Dividend
Champion's spreadsheet (All CCC
worksheet). Most of the companies with
the most potential for growth tend to be Challengers (5-9 years of dividend
growth). These are also the most likely
to cut dividends as it has not baked into the culture long enough. I am not saying this doesn't happen to the
kings (Diebold for example) but it is much rarer.
Building a solid core
first, then once it is established take some more risk seems to be an approach
much recommended by the broader dividend growth community. A core in my taxable account is non-existent. It is better in my IRA where most of my money
went to Champions (25+ years) who had a 4% yield at the time I opened the
account. These purchases were before I
was wiser. Those high yielders do grow
the dividend but the rate is mostly below inflation.
There is a middle
ground and that is the first change to my screen. Challengers are out. Now I will take a balanced approach to just
those companies that have raised dividends for 10 or more years. When I say balanced I am referring to a
ranking system that takes value, growth, quality and yield factors into
consideration and ranks companies on each.
Will this eliminate 10 baggers and other high growth
companies?
Second
Change
My next change to the
DFG screen will be a cap on yield. It
will be at 6% max on entry unless it is a REIT or MLP. I have yet to determine what the best range
is for those. Any input from you is always welcome. This change will help reduce risk of
purchasing a company who may cut the dividend in the near future.
The
Screen Simplified
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Pass
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Criteria
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1
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Dividend Champions
and Contenders
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2
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Rank each company on
value, growth, quality and yield
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3
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Rank each company
with overall ranking
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4
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From overall ranking
filter on dividend yield over 3%
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Once that list is
formed I usually research the top 10 who are less than 6% yield excluding REITs
and MLPs. Then another top 10 for just
REITs and MLPs.
At this point I am
leaving it at 3%. If there are not
enough opportunities at that level I will mostly likely drop the yield down to
2.5% but require a double digit dividend growth rate for the past 5 years with
no downtrend. What do you think? Is that
better than starting at 3%?
To make it easy for me
to find the DFG Screen I created a new page on my blog. That is it for now and there will be
changes. Always are. The key is to hold even as your entry
criteria changes over the years.
Happy reading,
DFG
I think that stratey is a good idea. If you're gonna drop the initial yield, it has to be made up for somewhere else i.e. in requiring a higher CAGR or whatever. Here in the UK, we have currently got slightly higher dividend yields on average, so I don't tend to have to look for higher growth rates.
ReplyDeleteCheers
Yeah I need to take a closer look at Dividend Life's list he has been working on. UK stocks might not be bad and are more tax efficient than other contries.
DeleteIt's always good to have a strategy. Takes the emotional side of investing out of it and you will know exactly why you bought a particular stock in the the future/past. I personally do not have a strategy to follow but I should get one.
ReplyDeleteI'm glad you wrote this post so I can look deeper into why I buy the things I do.
I didn't have a strategy either for some time. Led to many initial bad purchases on my part. Mostly they were chasing yield. Hopefully you learn from all of these blogs ( I sure did.)
DeleteThese are changes for good to me! Strategy is the key. However, there's always a part where I need to analyze facts myself and make decisions on them rather than on numbers only.
ReplyDeleteAgreed. I use the screen to narrow down the list. With my limited time I research as best I can and make buys based on my comfort level. Good luck with your purchases this year.
DeleteDFG
DFG,
ReplyDeleteThese are some good changes in my book as they're geared to reducing your risk and smoothening dividend income over time. Dropping high yield stocks is a good strategy as that often signifies an unstustainable dividend payout.
Looking forward to which stocks you'll be buying next.
Cheers,
NMW
Yeah it only takes getting burned once to ever want to chase high yields again. Thanks for the note.
DeleteDFG
PS I like the filters and auto update you have in the Google spreadsheet. Very nice.
DeleteHi DFG,
ReplyDeleteI like the changes. For the purposes of screening against the CCC list, you might want to put the yield a little lower than 3% since the yield column gets more and more out of date as the month progresses. So if a stock starts out high in a month with a low yield in the list, and then drops in price you might miss it.
I also use a 6% upper limit to stop myself from chasing yield or a 'too good to be true' stock although I'm willing to buy at the low end of 2.25% or higher. The overall S&P dividend average is currently around 1.9% right now so I set the low end to be a little higher than that.
I think your question about a 3% vs. 2.5% starting point largely depends on how many stocks survive the screening. The average yield for a 25-year Champion is 2.58% and a 3% screen will eliminate more than 60% of them. The Contender average is 2.75% and Challenger average is 3.15%, so the higher your minimum yield, the more you'll tilt towards shorter duration stocks.
Best wishes,
-DL
Thanks for the feedback DL. I still worry that dropping the challengers will limit my growth potential. Like you said the lower the duration the higher the average yield (and risk). But you never know. Some of them may be the companies that pay dividends for the next 25 years.
Delete