Tuesday, July 28, 2015

My 3 Questions

Dividend Growth Stock Blog
Hello,

With some many companies out there, sometimes it is a little difficult to find good quality Dividend Growth Stocks to invest in. This is especially the case when the market gores on a roller coaster ride and you hear recommendations from analysts and experts.
Even if you have a good strategy, the technical ratios, eg ROE, FCF, FFO can drive you nuts.
You need to filter out the noise.
Based on my approach on dividends stock investing, I ask myself the following 3 fundamental questions:





1) Am I looking at a quality company?
2) Are the dividends any good?
3) Is this a good time to invest in the company?
Then, I use my set of criteria based on these 3 questions.
Criteria List
Area
Criteria
Quality Company
Dividend Growth
>5 years
ROE/Op Margin
Stable
Long term Avg Growth
Stable
FCF over Dividends
Yes
M* Moat
Wide Moat
M* & S&P
Credit Rating
> BBB+
Cash to Debt & Interest Coverage, Debt to Equity
Cash Debt >1 or Interest Coverage > 5
M* & S&P Stars
> 3 Stars for both
Payout Ratio
<60%
Dividend Growth
& Yield
Dividend Yield
>3%
Dividend Growth
>5%
Chowder
>12%
Valuation
Yield/Avg Yield
>1.1
Dividend Yield Theory Mid Point
Below Mid Point
P/E
Below Mid Point
DRRM
~10%
M* Estimate
<M* est
S&P Estimate
< S&P cap IQ est

You can build your own criteria list using web scraping or use David Fish's CCC list and filter accordingly. For me, I chose to build my own.
Ultimately, I want to get to this equation (based on SBI book) for Dividend Growth Stocks:

Good quality + high yield + high growth

And with time & patience - especially if we get a good valuation and if we keep the costs low, and the companies continue to pay then I should be a happy camper.

Lastly, don't please don't take my advice here. Formulate your own strategy based on your own fundamental questions and go with it.

Do you have and use any fundamental questions for your investments?
D4s

4 comments:

  1. As much as we would all love to own a company with a combination of those three features, I think its a bit of a unicorn.
    A good quality company almost always trades at a premium - such as JNJ or 3M, and so the yield will be a bit muted.
    It is extremely rare to see a high yielding company that is also growing at a rapid pace. The only companies that pop into mind that fit that profile are something like KMI or OHI - which have a great starting yield and there is enough growth from the FCF to fuel dividend growth.

    Its a good goal to have...and good to have a shortlist of companies that fit that profile if there is a correction.

    Thanks for sharing your thoughts
    R2R

    ReplyDelete
    Replies
    1. R2R,
      Good points. Normally, I don't require my criteria to be met in order to make a purchase. If most the items are met, then this is probably a good indication to buy. You're right - I would be snapping up a company if it is a unicorn.
      D4S

      Delete
  2. DS,

    I've heard a lot about the Chowder rule but never explained. What is it and why do you use it?

    ReplyDelete
    Replies
    1. See - http://seekingalpha.com/instablog/728729-chowder/2360292-the-chowder-rule

      D4s

      Delete