Seeking Alpha

Arie Goren's  Instablog

Arie Goren
Send Message
Arie Goren has been, for many years, a global analyst for “Clal Finance Ltd.”, one of the biggest Israeli investment companies. He has many years of experience in the American Equity Market and in the Global Commodity Market. Goren has conducted much research on investment in equities and... More
  • My Dividend Portfolio That Can Outperform By A Big Margin 0 comments
    Jan 13, 2014 4:54 PM | about stocks: AGI, AGU, CVI, HFC, HP, RCKY, SQM, SWM, VMI

    Usually, my investment strategy is based on buying a stock only after studying the company and analyzing the future prospects of the company's business, but seven months ago I started to invest also in groups of stocks that I had discovered through screening and back-testing. After running many stocks screens, I had found two screens that have shown exceptionally returns after running back-tests and simulations during the last year, last 5 years and last 15 years. Although the past guarantees nothing, it does provide insight into how these screens have performed under various economic conditions over varying time frames. So far, the two portfolios have outperformed the market by a big margin.

    In this article, I describe one of these two screens, the screen is based on some principles taken from the work of the well-known investor Ben Graham.

    The screen's method requires all stocks to comply with all following demands:

    1. The stock does not trade over-the-counter (OTC).
    2. Market cap is greater than $75 million.
    3. Price is greater than 1.00.
    4. Average daily total amount traded for the past 10 days is greater than $300,000.
    5. Current ratio is at least 1.50.
    6. Long-term debt is less than 110% of working capital.
    7. Last 4 quarters of EPS above breakeven.
    8. Last 5 years of EPS above breakeven.
    9. Annual EPS grew over past year and past 5 years.
    10. Company has paid dividends within past year.
    11. The ten stocks with the best ranking according to Graham principles among all the stocks that complied with the first ten demands (the ranking system is available on Portfolio123's All-Stars list).

    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 Yahoo Finance, Portfolio123 and finviz.com.

    After running this screen on January 12, 2014, I discovered the following ten stocks:

    Rank

    Ticker

    Name

    Last Price

    Market Cap $million

    Industry

    1

    (NYSE:AGI)

    Alamos Gold Inc

    12.18

    1,556

    Metals & Mining

    2

    (NYSE:HFC)

    HollyFrontier Corp

    49.79

    9,930

    Oil, Gas & Consumable Fuels

    3

    (NYSE:CVI)

    CVR Energy Inc

    42.57

    3,696

    Oil, Gas & Consumable Fuels

    4

    (NASDAQ:RCKY)

    Rocky Brands Inc

    15.28

    115

    Textiles, Apparel & Luxury Goods

    5

    (NYSE:SWM)

    Schweitzer-Mauduit Intl Inc

    46.63

    1,464

    Paper & Forest Products

    6

    (NYSE:SQM)

    Sociedad Quimica y Minera de Chile SA Soqimich

    25.77

    6,783

    Chemicals

    7

    (NYSE:AGU)

    Agrium Inc.

    91.56

    13,459

    Chemicals

    8

    (NYSE:VMI)

    Valmont Industries Inc

    153.03

    4,099

    Machinery

    9

    (NYSE:WMK)

    Weis Markets Inc.

    51.64

    1,389

    Food & Staples Retailing

    10

    (NYSE:HP)

    Helmerich & Payne Inc.

    85.55

    9,130

    Energy Equipment & Services

    The table below presents the dividend yield, the payout ratio, the trailing P/E ratio and the debt to equity for the ten companies.

    (click to enlarge)

    The small difference between my current personal holdings and the screen are due to the fact that my portfolio was last rebalanced on January 06, and I ran the screen for this article on January 12.

    Sector allocation

    (click to enlarge)

    The current screen is showing a bias towards the basic materials sector, four stocks of the ten stocks in the screen. Surprisingly there is not any technology stock in the screen. Does it mean that technology stocks are not recommended right now? Not at all, the screen is rebalanced every four weeks, and the sector allocation is changing every time. Running the screen one year ago showed entirely different sector allocation, with twenty percent technology stocks, as shown in the charts below. By the way, personally I believe in tech stocks, and most of my investments are in this sector.

    Screening results for January 12, 2013

    (click to enlarge)

    (click to enlarge)

    Back-testing

    In order to find out how such a screening formula would have performed during the last year, last 5 years and last 15 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.

    Since some readers could not get the same results that I got in some of my previous posts, I am giving, in the charts below, the Portfolio123 exact codes which I used for building this screen and the back-tests. The number of stocks left after each demand can also be seen in the chart. I am also giving a table which readers can use to copy and paste codes directly into the Portfolio123's screener.

    (click to enlarge)

    (click to enlarge)

    Universe(NOOTC)=TRUE

    MktCap > 75

    Close(0) > 1

    AvgDailyTot(10)> 300000

    CurRatioQ>=1.5

    DbtLTQ<=(CurAstQ- CurLiabQ)*1.10

    EPSExclXor(0,qtr)>0 and EPSExclXor(1,qtr)>0 and EPSExclXor(2,qtr)>0 and EPSExclXor(3,qtr)>0

    EPSExclXor(0,ann)>0 and EPSExclXor(1,ann)>0 and EPSExclXor(2,ann)>0 and EPSExclXor(3,ann)>0 and EPSExclXor(4,ann)>0

    EPSExclXor(0,ann)>EPSExclXor(1,ann) and EPSExclXor(0,ann)>EPSExclXor(4,ann)

    DivPSTTM>0

    One year back-test

    (click to enlarge)

    Five years back-test

    (click to enlarge)

    Fifteen years back-test

    (click to enlarge)

    Summary

    My dividend screen has given much better returns during the last year, the last five years and the last fifteen 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 very high at 44.75%, while the return of the S&P 500 index during the same period was at 25.10%.

    The difference between the dividend screen to the benchmark was even more noticeable in the 15 years back-test. The 15-year average annual return of the screen was very high at 25.84%, while the average annual return of the S&P 500 index during the same period was only 2.72%.

    Although this screening system has given superior results, and I am using it for my own investments, I recommend readers use this list of stocks as a basis for further research.

    Disclosure: I am long AGI, AGU, CVI, HFC, HP, RCKY, SQM, WMK. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Back To Arie Goren's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

  • Although $BRSS stock is already up 35.7% year-to-date, in my opinion, the stock still has more room to grow, and it is a Buy right now.
    Jun 17, 2015
  • Best S&P 500 Energy Stocks According To Graham Principles: ConocoPhillips $COP http://seekingalpha.com/a/1ng4v
    Dec 22, 2014
  • Symantec: A Long-Term Investment Opportunity In An Attractive Tech Stock $SYMC http://seekingalpha.com/a/1ncqn
    Dec 19, 2014
More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.