We Are DIY Investors ... Just Like You
By way of background, Parsimony Investment Research is a group of Do-It-Yourself investors that whole-heartedly believe that individuals can and should educate themselves and manage their own money. That is, of course, if you are willing to dedicate the time and patience necessary to do so. In today's low interest rate environment, paying even modest fees to a financial advisor can significantly eat into your profits. At the end of the day, it's YOUR money and you alone are the best shepherd of your capital.
We started Parsimony to share our experiences, strategies and research with fellow DIY investors. At the end of the day, we are all in the same boat … so let's set sail and preserve and grow our wealth together!
Building A DIY Dividend Portfolio
Over the course of the next few weeks, we are going to continue highlighting our top-ranked dividend stocks within each of the sectors below (see links for previous articles):
- Part 1: Consumer Staples
- Part 1b: Consumer Staples "Buy Zones"
- Part 2: Utilities
- Part 2b: Utilities "Buy Zones"
- Part 3: Healthcare
- Part 3b: Healthcare "Buy Zones"
- Part 4: Consumer Discretionary
- Part 4b: Consumer Discretionary "Buy Zones"
- Part 5: Financials
- Part 5b: Financial "Buy Zones"
- Part 6: Technology
- Part 7: Industrials
- Part 8: Materials
- Part 9: Energy
Our goal is to provide fellow investors with a diversified pool of high-quality dividend stocks that we feel have the potential to be a core holding in your DIY Dividend Portfolio.
We use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them. For dividend stocks in particular, we have a proprietary rating system that ranks over 700 U.S. dividend stocks on a weekly basis.
Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories:
- Risk-Reward Profile (e.g., current yield, Calmar ratio)
- Financial Stability (e.g., sales and EPS growth, ROE, leverage)
- Dividend History (e.g., historical dividend stability and growth)
- Future Dividend Potential (e.g., payout ratio, EPS estimates)
- Relative Strength (e.g., 12-month total return and trends)
It should be noted that we also believe that patience is a virtue. Just because a stock has a high Parsimony composite rating, it doesn't necessarily mean that you should run out and purchase it that day. We scan the charts of our top-rated stocks daily looking for strong levels of support and resistance, which ultimately helps us determine a target "Buy Zone" for each stock. We believe that patiently waiting for a low-risk entry point for a given stock will drastically improve your long-term investment results.
Part 6: Technology
The chart below looks very similar to the Consumer Discretionary chart in Part 4 of the series. The Technology sector as a whole has performed relatively well over the past 5 years, with a total return of 17.8% (which is the 4th highest among the nine S&P 500 sectors). Of all the sectors, Technology has the highest correlation with the S&P 500 (0.93), in part due to the fact that the sector has the highest weighting (~20%) in the index. You can actually see the high correlation in full effect in the chart below. That said, the sector has consistently outperformed the broader market since troughing in early 2009.
Below is a list of our top-rated dividend stocks in the Technology sector. Note that our composite rating ranges from 0 (lowest) to 99 (highest).
As you can see, this list is made up of industry veterans, all of which who have been in business for over 30 years. Our minimum dividend yield is typically 2%, but we included International Business Machines (IBM) on this list due to its stellar 5-year total return and stable dividend history. In addition, we lumped Verizon Communications (VZ) into the Technology sector (even though you could argue that the stock trades more like a utility). Intel Corp (INTC) and Seagate Technology (STX) have the highest betas of the group, but the stocks still have an above average Risk-Reward sub rating.
Looking at the sub-ratings for the sector (see table above), these stocks generally have high ratings in Financial Stability, Dividend History , and Dividend Potential, which makes them good candidates for your DIY Dividend Portfolio.
Clearly, Seagate is the odd man on the list from a Dividend History perspective. Seagate had some issues during the recession and the Company was forced to cut its dividend. That said, the Company hired a new CEO in early 2009 and we believe that Seagate is back on track.
What About The 800 Pound Apple?
Even though Apple (AAPL) hasn't started paying a dividend yet, we plugged the stock into our model to see where the company would shake out among its soon-to-be dividend-paying peers. We wrote an article over the weekend titled "Will Apple Become The Greatest Dividend Growth Stock of All Time?" which highlights the results of our analysis.
Any DIY Dividend Portfolio should include several stocks from the Technology sector. As highlighted in this article, there are definitely some stable Technology sector veterans that offer investors a compelling investment opportunity.
Note to readers: We will detail our specific "Buy Zones" for these top-rated Technology stocks in a follow up article. Also, we will highlight our top-rated stocks in the Industrials sector in Part 7 of this series, so please make sure to "follow" us.