The Dividend Family Guy Stock Screen

Time is Short

As a busy family man I have about an hour each night to get things done like this blog, paying bills and other things I choose not to do while my kids are awake.  While they are awake I try to spend as much time with them as possible.

I did not realize how much time it takes to write a good blog.  My writing skills are no where near what they should be.  I hope to improve upon that by sharing with you several times a month. I applaud all of the well written blogs I read.  Maybe it comes naturally or maybe it takes them allot of time.  All I can say is they do a good job and I hope to be like them one day.

However being on a time crunch I have to develop investment strategies that take the least amount of time.  One of them involves my monthly screen.  After I developed my initial spreadsheet with calculations I can put it together in about fifteen minutes.  After that it is about researching the top overall stock picks.  


What is Overall?

I have 4 categories I rank stocks on, Value, Growth, Quality and Yield.  Then I combine all 4 and create an overall ranking.  This provides me with a list of the top stocks across all 4 categories.  Currently I do not weight any category.


Value

By definition a value stock is one that trades at a lower price relative to it's fundamentals.  It is undervalued by investors  You could use several characteristics to help in determining a value stock.  Some of the more common ones are low price-to-earnings (PE) ratios, low price-to-book ratio (P/Book) or a high dividend yield.  I tend to look at these ratios over time using the most recent quarter (MRQ) or the trailing twelve months (TTM).  Using these timelines smooths things out a bit so I see allot of repeat stocks each month.  I may look to alter this in the future.


Growth

These types of stock by name grow fast.  In other words the companies are growing quickly and hopefully that translates into higher stock price or faster rates of dividend growth.  Some key metrics for these stocks are earnings per share (EPS), price-to-earnings (PEG) ratio and their growth rate.


Quality

This one I found interesting when I first learned about it.  Is the company well run?  Does it make good or bad decisions around managing debt?  There are some characteristics to look for to help guide you on this one.  Things like the quick ratio or various debt ratios will show you if they have enough cash to cover liabilities or short term debt.  A history of dividend growth may also fall undo quality.  Management that is able to increase dividends for years or even decades has proven themselves to the shareholders.


Yield

Who doesn't like a high yield?  Well that is a trick question.  If you can give me one and their is plenty of free cash flow (dividend coverage ratio or payout ratio) and all of the 3 categories above rank high I am sold.  However that is not always the case.  High yield may be an indicator of a falling stock price or involve other types of stock like REITs or MLPs.  There are many reasons why the price is dropping so you have to do your research and look at other metrics to help guide you on making a good decision.


Dividend Family Guy Screen

Here is one thing I look at in each category.  I look at some others but I won't share all my secrets yet.

Value - Low price-to-earnings ratio (< 20)
Growth - High 5 year growth rate (double digits are nice)
Quality - Low debt-to-equity ratio
Yield - Dividend Yield (Well I do like dividend$)

Even with that there are still to many stocks to look through them all.  I will share another thing I do when I show some of the results for the July screen in my next post.

Am I looking at the right things?  Let me know your thoughts.

Image courtesy of nongpimmy / FreeDigitalPhotos.net

Comments

  1. Those are some good filters. Do you have any stocks on your radar that fit the screener?

    Cheers,
    Henry

    ReplyDelete
    Replies
    1. Now that I have run the screen for July I will take a look at few of the top dogs and post my thoughts shortly. We will see if I can get the research done before I go on vacation.

      Delete
  2. Hi DFG,
    I like your approach and it's definitely wise to focus on more than just valuation.

    I do something similar when I'm considering my next purchase although I must admit I tend to look at P/E relative to the industry and its trend over time. If it's always been higher than the S&P for the last ten years then I'm not as worried about its absolute value now. Morningstar has a chart on its valuation page showing the 10 year history.

    I'm starting to plot the dividend yield over the last 5 years to look at trends and help form a valuation opinion too - it's interesting to see which stocks tend to decline on yield over time even despite dividend increases, and which stocks increase their yield.

    And I reduce my selection to companies that have increased dividends for the last 5 years. They get to stand in the corner if they cut or freeze their dividends :)

    Thanks for posting your strategy - I enjoy reading your posts so I think you're doing something right!
    Best wishes,
    - DL

    ReplyDelete
    Replies
    1. I will have to check Morningstar out and see if I can find it. My goal is to do this with the little time I have so the less calculating I have to do the better. I agree with you that you have to look at a stock for allot of metrics relative to the industry it is in.
      Thanks for reading!
      -DFG

      Delete

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This webpage is provided for general information only and nothing contained in the material constitutes a recommendation for the purchase or sale of any security. If you have any questions please feel free to contact me at dividendfamilyguy at gmail dot com.