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INTRODUCTION

Back on November 5th, I explored what a dividend portfolio comprised of stocks with the highest Piotroski F-Score would look like (click here to see the article). One of the comments stated that large cap stocks in particular have F-Scores that change frequently. It appears that this statement is spot on! Here is an update on the F-Score Dividend Portfolio.

F-SCORE DIVIDEND PORTFOLIO

Let's quickly review what is the Piotroski F-Score. Piotroski started by selecting the top 20% of book-to-market or lowest price-to-book stocks. The nine variables that constitute the F-Score evaluate the financial strength of a stock by using simple accounting based variables. Here are the nine variables used to calculate the F-Score. Each variable gets scored a one (1) if the condition is met.

  1. Positive (+) net income in the current year.
  2. Positive (+) cash flow from operations in the current year.
  3. Return on Assets [ROA] is higher in the current period compared to the previous year.
  4. Cash flow from operations exceeds net income before extraordinary items.
  5. Lower ratio of long-term debt to assets in the current period compared to the previous year.
  6. Higher current ratio this year compared to the previous year.
  7. Company did not issue new shares/equity in the preceding year.
  8. Higher gross margin compared to the previous year.
  9. Higher asset turnover ratio year on year.

Piotroski only selected stocks that scored 7 or above (maximum of 9). Now this is a dividend focused portfolio. Therefore, I added some additional criteria to help screen the stocks for this portfolio.

  1. Minimum dividend yield of 1.9%
  2. F-Score between 7 and 9
  3. Minimum of one (1) year in paying a dividend
  4. Must be included in the CCC lists prepared by David Fish, otherwise, have increased the dividend annually for as long as the company has paid a dividend (essentially, the company has not frozen or cut their dividend)

The following Table shows the first stocks included in this portfolio, the change in capital appreciation and F-Score among other things.

 

 

Symbol

Company Name

# Shares

Purchase Price

Market Price*

Difference

Original F-Score

Current F-Score

Quarterly Dividend

Ex-Div. Date

(NYSE:MSA)

Mine Safety Appliances

102

$48.65

$49.82

$119.34

8

6

$0.30

08/11/2013

(NYSE:BMS)

Bemis Co Inc.

125

$39.83

$39.03

($100.00)

8

8

$0.26

15/11/2013

(NYSE:SJR)

Shaw Communications, Inc.

208

$23.95

$23.27

($141.44)

8

7

$0.09

11/12/2013

(NYSE:OHI)

Omega Healthcare Investors

152

$32.76

$32.69

($10.64)

8

7

$0.48

29/10/2013

(NYSE:WMT)

Wal-Mart Stores Inc.

64

$77.07

$81.01

$252.16

8

6

$0.47

04/12/2013

(NYSE:PEP)

PepsiCo Inc.

59

$84.56

$84.46

($5.90)

7

9

$0.57

04/12/2013

(NYSE:PG)

Procter & Gamble Co.

51

$81.15

$84.22

$156.57

7

7

$0.60

16/10/2013

(NYSE:ODC)

Oil-Dri Corporation of America

141

$35.32

$40.22

$690.90

7

8

$0.19

13/11/2013

(NYSE:SXL)

Sunoco Logistics Partners

71

$69.97

$70.78

$57.51

7

7

$0.63

06/11/2013

(NYSE:KMB)

Kimberly-Clark Corporation

46

$108.01

$109.16

$52.90

7

6

$0.81

04/12/2013

(NYSE:PSA)

Public Storage

29

$168.99

$152.70

($472.41)

7

7

$1.40

11/12/2013

(NYSE:ESS)

Essex Property Trust

30

$163.89

$151.81

($362.40)

7

5

$1.21

26/09/2013

(NYSE:O)

Realty Income Corporation

119

$41.95

$38.11

($456.96)

7

7

$0.18

27/11/2013

(NYSE:UNP)

Union Pacific Corp.

32

$152.77

$162.04

$296.64

7

8

$0.79

29/11/2013

(NYSE:AWR)

American States Water Co.

178

$27.94

$29.18

$220.72

7

6

$0.20

13/11/2013

(NASDAQ:CA)

CA, Inc.

157

$31.73

$33.00

$199.39

7

6

$0.25

19/11/2013

(NASDAQ:MSEX)

Middlesex Water Company

239

$20.85

$21.98

$270.07

7

6

$0.19

13/11/2013

(NYSE:CWT)

California Water Service Group

233

$21.37

$22.86

$347.17

7

5

$0.16

07/11/2013

(NASDAQ:WEYS)

Weyco Group, Inc.

174

$28.73

$29.35

$107.88

7

7

$0.18

06/12/2013

(NYSE:WMB)

Williams Companies Inc.

140

$35.52

$35.22

($42.00)

7

6

$0.38

11/12/2013

(NYSE:WTR)

Aqua America Inc.

199

$25.12

$24.07

($208.95)

7

5

$0.15

14/11/2013

(NASDAQ:ATNI)

Atlantic Tele-Network, Inc.

92

$54.12

$56.07

$179.40

7

7

$0.27

26/09/2013

(NYSE:JNJ)

Johnson & Johnson

53

$93.97

$94.66

$36.57

7

8

$0.66

22/11/2013

Portfolio Value

$113,424.33

$114,610.85

$1,186.52

November Div.

$403.69

-

Cash on Hand

-

$1,575.67

-

TOTAL

-

$116,590.21

-

*Market price as of end of day November 29th, 2013. Values in brackets in the differences column denotes a negative value.

I did not mention it in the first article however the portfolio has a dividend yield of 3.01% with about $813.20 in quarterly dividend income (or $3,252.80 in annual dividend income without any increases).

In less than one month, the portfolio has a capital gain of $1,186.52 or 1.05% with $403.69 in dividends that will be paid out (for a combined gain of $1,590.21 or 1.40%) It is clear from the table above that the REIT sector really hurt the portfolio, combining for a net loss of $1,302.41. There was also a great deal of changes in the F-Scores of the stocks in the portfolio. Overall, of the 23 stocks, 12 had their F-Score decrease while 4 have had their F-Score increase. For instance, we have our first stock with an F-Score of 9 in PepsiCo. There are now many stocks that fall below an F-Score of 7 (n = 10). This represents quite a turnover in the portfolio since I said that any stock that falls below 7 would be sold. This means that MSA, WMT, KMB, ESS, AWR, CA, MSEX, CWT, WMB, and WTR will be removed. The removal of these stocks means that we will have a cashed in on $486.00 in capital gains.

CHANGES TO THE PORTFOLIO

That also means we are now in the search of new stocks to add to this portfolio. Given how many stocks rotated out of the portfolio in such a short period of time, I am going to modify the screening criteria by changing the F-Score range from 7-9 to 8-9 thus eliminating some stocks already on the fringes of the selling point as well as attempt to capture a better value and reduce the turnover in the portfolio. At least, we will see how that works out. The screen also initially yielded 151 stocks meeting the criteria but the majority of these stocks had an F-Score of 7.

The following stocks were screened into in the portfolio. These stocks will be "bought" as of Monday December 2nd using the same $5,000 limit as before.

Symbol

Company Name

Sector

F-Score

Yield

Div. Growth Rate (1 Year)

Mrkt. Cap.

(OTC:ABSSF)

Airboss of America

Consumer Goods

8

2.78%

35.71%

160.22 Mil

(NYSE:BIN)

Progressive Waste Solutions Ltd

Industrials

8

2.14%

12.00%

2.98 Bil

(NYSE:EMR)

Emerson Electric Co.

Industrials

8

2.44%

12.20%

47.16 Bil

(NYSEMKT:FRS)

Frisch's Restaurants, Inc.

Consumer Goods

8

2.76%

1.58%

119.64 Mil

(NYSE:HCP)

HCP Inc

REIT

8

5.49%

4.20%

16.78 Bil

(NYSE:NVE)

NV Energy Inc

Utilities

8

3.11%

15.63%

5.57 Bil

(NYSE:SJM)

J.M. Smucker Co.

Consumer Goods

8

2.10%

8.70%

10.96 Bil

(NYSEMKT:TIS)

Orchids Paper Products Company

Basic Materials

8

3.85%

47.06%

263.11 Mil

(NYSE:TU)

TELUS Corp

Services

8

3.65%

8.62%

22.06 Bil

(NYSE:WSM)

Williams-Sonoma, Inc.

Consumer Goods

8

1.90%

30.68%

5.66 Bil

There have been several companies here that have increased their dividends nicely over the last year. This time around, more small-cap and mid-cap stocks have been screened in. This fits better with one of the F-Score's considerations.

The following table shows the stocks that now make up the F-Score Dividend Portfolio. It also shows how many shares were purchased in each stock up to a maximum of $5,000.

 

 

Symbol

Company Name

# Shares

Purchase Price

Book Value

F-Score

Ex-Div. Date

PEP

PepsiCo Inc.

59

$84.56

$4,989.04

9

04/12/2013

ABSSF

Airboss of America

710

$7.04

$4,998.40

8

27/12/2013

BIN

Progressive Waste Solutions Ltd

193

$25.88

$4,994.84

8

27/12/2013

BMS

Bemis Co Inc.

125

$39.83

$4,978.75

8

15/11/2013

EMR

Emerson Electric Co.

74

$66.99

$4,957.26

8

13/11/2013

FRS

Frisch's Restaurants, Inc.

212

$23.55

$4,992.60

8

24/09/2013

HCP

HCP Inc

135

$36.77

$4,963.95

8

31/10/2013

JNJ

Johnson & Johnson

53

$93.97

$4,980.41

8

22/11/2013

NVE

NV Energy Inc

211

$23.65

$4,990.15

8

29/11/2013

ODC

Oil-Dri Corporation of America

141

$35.32

$4,980.12

8

13/11/2013

SJM

J.M. Smucker Co.

47

$104.24

$4,899.28

8

13/11/2013

TIS

Orchids Paper Products Company

152

$32.74

$4,976.48

8

27/11/2013

TU

TELUS Corp

141

$35.39

$4,989.99

8

09/12/2013

UNP

Union Pacific Corp.

32

$152.77

$4,888.64

8

29/11/2013

WSM

Williams-Sonoma, Inc.

84

$59.12

$4,966.08

8

23/10/2013

ATNI

Atlantic Tele-Network, Inc.

92

$54.12

$4,979.04

7

26/09/2013

O

Realty Income Corporation

119

$41.95

$4,992.05

7

27/11/2013

OHI

Omega Healthcare Investors

152

$32.76

$4,979.52

7

29/10/2013

PG

Procter & Gamble Co.

61

$81.15

$4,950.15

7

16/10/2013

PSA

Public Storage

29

$168.99

$4,900.71

7

11/12/2013

SJR

Shaw Communications, Inc.

208

$23.95

$4,981.60

7

11/12/2013

SXL

Sunoco Logistics Partners

71

$69.97

$4,967.87

7

06/11/2013

WEYS

Weyco Group, Inc.

174

$28.73

$4,999.02

7

06/12/2013

Portfolio Value

$114,295.95

-

Cash

$2,061.67

-

Dividends to Date

$403.69

-

Portfolio TOTAL

$116,761.31

-

The portfolio now yields 3.21% which is a welcomed improvement. The portfolio still holds 23 stocks in total. Also, with the loss of several stocks that paid dividends in November, several of the new stocks go ex-dividend in December therefore contributing to our dividend income.

Figure 1 below shows the diversification of the stocks of the portfolio by sector.

(click to enlarge)

This portfolio is heavy on Consumer Goods and REITs. I am nervous on the REITs at the moment and hoping that they will stay in the portfolio over the long term in order to regain some of the principal that has been lost. Thankfully is this is fictional money!

CONCLUSION

There have been a number of changes in the stocks held in the F-Score Dividend Portfolio. Many of the large-cap foundational stocks have dropped below an F-Score of 7 denoting that they are no longer a value stock. There are several stocks that I am now quite interested in exploring further for consideration in my personal dividend portfolio including ODC, ABSSF and BIN.

My first impression with the portfolio is that I am surprised. There was no consideration given in the entry point and there was no further analysis in the stocks other than the F-Score itself. With additional analysis, the portfolio may perform better if we are patient for a price pullback. On the other hand, these stocks should be considered a "value" which would mean that the price that the stock should be trading lower to its intrinsic value. The difficulty being, and this will be of interest in future articles, is how correlated the price of the stocks are with their F-Score. Meaning, if a stock is at a 9 or an 8 and drops down to 7 or 6 or 5, would we not expect that the price of the stock would have increased and we would take in some capital gains? This is pretty simplistic but worth looking into as time goes on. Stock price is also influenced by other market news and conditions therefore it wouldn't be as clear cut as that (e.g. Taper fears and the impact on REITs).

This portfolio has had a good start in that it is making money and it will be interesting to see how the new stocks perform in the coming weeks.

Source: The Piotroski F-Score Dividend Portfolio: How Things Can Change Quickly