This month I am trying out a "Point" rating system to screen for dividend stocks. I start with David Fish's excellent spreadsheet of dividend paying stocks (which you can find here), and apply points for each criterion met. Here's how it works:
- One point is given for each criteria passed
- The greater number of points, the better the stock (in overall terms)
- Stocks are eliminated that don't meet a minimum "Chowder Rule" requirement
- The list is then ranked by sector; the stock with the highest points in each sector is the "pick" for this month
To reduce risk, I only use two of the lists provided by Mr. Fish, the "Dividend Champions" (stocks which have paid increasing dividends for 25+ years) and "Dividend Contenders" (stocks that have paid increasing dividends for 10+ years, though I only use stocks with 12+ years for an added measure of safety--their dividend would have survived three business cycles.)
Here are the seven criteria that points are awarded for:
- Equaling or exceeding the "Chowder Rule" requirement of 11% for "Dividend Champions" and 11.5% for "Dividend contenders. The "Chowder Rule" is simply the yield plus the average dividend growth for the past 5 years
- Dividend Yield must be above a minimum, which I have arbitrarily set at 2.5%, but it is recommended to be 1.5x the S&P 500's dividend yield, which is currently 1.96%. So the minimum recommended yield to meet the "Chowder Rule" recomendations is 2.94%
- Beta being less than 1.0, ie, less volatile than the market at large. Lower beta stocks perform better than higher beta stocks over time
- Dividend growth is accelerating, ie, the amount of dividends being paid as a percentage keeps increasing
- Payout ratio is less than 60%. When it's higher that 60%, the dividend isn't as secure and any fluctuation might affect dividend continuity
- Debt/Equity ratio is less than 0.5
- P/E Ratio is less than 20
Here are the Dividend Champion Picks from June, 2015:
Consumer Discretionary: Walmart WMT (5 of 7 points)
Consumer Staples: Archer Daniels Midland ADM (5 of 7 points)
Energy: Exxon Mobil XOM (7 of 7 points)
Financials: T. Rowe Price TROW (5 of 7 points)
Health Care: Becton Dickinson & Co. BDX (3 of 7 points)
Industrials: 3M Company MMM (5 of 7 points)
IT: Computer Services Inc. OTCQX:CSVI (4 of 7 points)
Utilities: Questar Corp. STR (5 of 7 points)
Here are the Dividend Contender Picks from June, 2015:
Consumer Discretionary: Meredith Corp MDP (4 of 7 points)
Consumer Staples: NuSking NUS (6 of 7 points)
Energy: Occidental Petroleum OXY (5 of 7 points)
Financials: Citizens Financial OTCPK:CZFS (6 of 7 points)
Health Care: Span-America Medical SPAN (4 of 7 points)
Industrials: Lincoln Electric LECO (5 of 7 points)
IT: Qualcomm QCOM (5 of 7 points)
Materials: Compass Minerals CMP (5 of 7 points)
Telecom: Atlantic Tele Network ATNI (X of 7 points)
Utilities: Next Era Energy NEE (5 of 7 points)
All of this really does it narrow down the field of potential candidates to a solid pool for further research. I can see many flaws with this process as it doesn't weed out negative EPS, take into account moats, etc. So next month I will improve the process to drill down further to eliminate the unworthy.
If you would like to download a PDF of the Champions, click here.
For the Contenders, click here.
Many thanks to David Fish for his great spreadsheet and to you in advance for your comments!
Disclosure: I am/we are long XOM, TROW, QCOM.
Additional disclosure: Stock picks are presented as a starting point for further research and are not investment recommendations.