I tried to create a high-yielding industrial stock portfolio that can outperform the market by a big margin. The following screen shows such promise. I have searched for industrial companies that pay very rich dividends with a low payout ratio. Those stocks also would have to show low debt. The screen's method requires all stocks to comply with all following demands:
- The market cap is greater than $100 million.
- Dividend yield is greater than 3%.
- The payout ratio is less than 100%.
- Total debt to equity ratio is less than 0.50.
- The eight stocks with the highest yield among all the stocks that complied with the first four demands.
I used the Portfolio123's powerful screener to perform the search and to run back-tests. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Portfolio123.
After running this screen on May 15, 2013, before the market open, I discovered the following eight stocks: Grupo Aeroportuario Del Pacifico SA (PAC), Courier Corp (CRRC), Ennis Inc (EBF), NL Industries Inc. (NL), Ampco-Pittsburgh Corp (AP), CDI Corp. (CDI), Miller Industries Inc/TN (MLR) and American Science and Engineering Inc. (ASEI).
The table below presents the eight companies, their last price, their market cap and their industry.
The table below presents the dividend yield, the payout ratio, the Trailing P/E, the price-to-book value, and the total debt-to-equity ratio for the eight companies.
In order to find out how such a screening formula would have performed during the last year, last 5 years and last 14 years, I ran the back-tests, which are available by the Portfolio123's screener.
The back-test takes into account running the screen every four weeks and replacing the stocks that no longer comply with the screening requirement with other stocks that comply with the requirement. The theoretical return is calculated in comparison to the benchmark (S&P 500), considering 0.25% slippage for each trade and 1.5% annual carry cost (broker cost). The back-tests results are shown in the charts and the tables below.
One year back-test
Just a matter of curiosity, the table below presents the eight companies originated by the screen formula one year before, on May 15, 2012.
Five years back-test
The table below presents the eight companies originated by the screen formula five years before, on May 15, 2008.
Fourteen years back-test
The table below presents the eight companies originated by the screen formula 14 years and four months before, on January 02, 1999.
The high-yielding industrial stock screen has given much better returns during the last year, the last five years and the last 14 years than the S&P 500 benchmark. The Sharpe ratio, which measures the ratio of reward to risk, was also much better in all the three tests. One year return of the screen was at 42.05% while the return of the S&P 500 index during the same period was at 23.33%. The difference between the high-yielding industrial stocks screen to the S&P 500 benchmark was much more noticeable in the 14 years back-test. The 14-year average annual return of the screen was at 18.50% while the average annual return of the S&P 500 index during the same period was only 2.07%. Although this screening system has given superior results, I recommend readers use this list of stocks as a basis for further research.