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Market Beating Selection Strategy Applied To Dividend Stocks

Around 15 years ago, Joseph Piotroski, an accounting professor at University of Chicago, formulated a strategy for pinpointing value-priced stocks likely to outperform the overall market.

In a nutshell, Piotroski's strategy involved defining a universe of cheap stocks, based on price to book ratios. From that universe, he pinpointed those with the best track records of improving fundamentals, which he defined as increasing profitability while at the same time cutting debt. Over the years, stocks meeting Piotroski's requirements have been shown to outperform other value-based strategies, as well as the overall market.

I've been experimenting with adapting Piotroski's principals to high-dividend payers, but not necessarily value-priced stocks. I've maintained Piotroski's basic strategy, but tinkered with the details, particularly, putting more emphasis on cash flow growth.

My version, which I creatively dubbed, High-Dividend Payers with Improving Fundamentals," has produced promising results over a variety of time periods. However, as you've heard; historical results don't necessarily predict the future. So, with that caveat, here's my current list.

Name

Recent Price

Dividend Yield

AGL Resources (NYSE:GAS)

50.07

4.1%

Comtech Telecommunications (NASDAQ:CMTL)

35.25

3.4%

Costamare (NYSE:CMRE)

19.60

5.7%

DineEquity (NYSE:DIN)

104.49

3.4%

Douglas Dynamics (NYSE:PLOW)

21.90

4.0%

Duke Energy (NYSE:DUK)

79.84

4.0%

Entergy (NYSE:ETR)

79.12

4.2%

Schnitzer Steel Industries (NASDAQ:SCHN)

17.19

4.4%

Targa Resources (NYSE:TRGP)

93.93

3.3%

Waddell & Reed Financial (NYSE:WDR)

49.94

3.4%

Wi-LAN (WILN)

2.71

6.1%

As is the case with the results produced by any screen, consider these stocks to be research candidates, not a buy list. My testing has found good results for holding periods as short as four weeks. So, I'll revisit the list in a month and report on the results

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Disclosure: The author is long CMTL, CMRE, TRGP.