HOW I SCREEN FOR STOCKS

How do I pick from the thousands of companies to choose from to invest in?  

I keep it fairly simple with 7 parameters that companies need to meet in order to make.   I use four of them to formulate my list of companies to watch.  Once there, I then use 3 more to narrow the field.  

BTW,  here's a cute bunny....

Ok, back to the subject at hand...  Here are the 4 main things companies have to do to make muster.

A TRACK RECORD OF DIVIDEND INCREASES

 
      This is the most important requirement to be a dividend growth investor.  Duh...  I look for a company with a track record of a few solid years of increasing their dividend.  Sharing profits with owners of the company is the whole reason I invest.  Well, that and retiring someday thanks to the effect of compounding dividends.

The ones with the longest track record are the S&P 500 "Dividend Aristocrats".  These companies have increased their dividend payout for 25 or more consecutive years and have a market capitalization of $3 billion or more.  right now there are 57 companies that have made the list.

But there are many, many more companies that have a solid track record of increasing dividends.

Here's a list of  Dividend Champions, Contenders, and Contenders    Pick from this list.

Another thing to consider is to see if their increases surpass the current inflation rate.

A LOW P/E RATIO

A look into the Price to Earnings ratio is a good way to see if the stock is under or overvalued.   It's the ratio of the share price to the companies' earnings per share.  It's the price of expecting a profit in the future.  The S&P 500 is around 22X as of October 2019.   It also varies within sector and industry.

I look to find companies that are under about 19.  I also look to see how they compare with their competition in the industry they are in.

A LOW DIVIDEND PAYOUT RATIO

Can a company sustain their dividend and have room to raise it?   A company that is paying out a large majority or all of their profits have a hard time keeping up their dividend in the long run.  Ive been burned by some of them in the past few years and now pay close attention to this.

I look for companies that are under 60% or so.  The lower the better, as long as they pass the other parameters.   For example, Apple is around 26% at the time of this writing.  This means they have lots of free cash flow (as long as their debts are low) and have plenty of room to grow that dividend.

A MARKET CAPITALIZATION OF $3 BILLION OR MORE

I prefer companies with scale and a size advantage.  Small cap companies are more risky.   This is why I started with large cap companies.  Once I grew a nice buffer of 50 companies, I then began looking for smaller companies.

Once a company meets these 4 categories (or at least 3 and real close on the 4th), I will start looking at some other parameters.

AN EARNINGS PER SHARE GROWTH OF 5% OR MORE

I am hesitant of a company that is stagnant and has difficulties growing.  Of course there are exceptions to this, like with AT&T.   It's a challenge for them to grow at fast clips unless they assimilate another company like a Borg.

A LOW PRICE TO EARNINGS GROWH

Ideally at 1%. This is a measure of the price of growth.  I would rather not overpay for a company becasue they are growing at a good clip.   In bull markets, this is more of a challenge, but can be found.

A LONG TERM TRACK RECORD OF EPS GROWTH

If a company has a long track record of growth, I believe that the odds of keeping up that growth is better than companies that do not have a tack record.

After all of this, I look at other things

I may look at  which month of the quarter they pay the dividend in an attempt to balance out my earnings.

Or I may look at how much of their industry I already own (exactly why I still do not own Smuckers or Walgreens)


Of course, this is just a guide.

PLEASE DO YOUR OWN RESEARCH.  I AM NOT RECOMMENDING ANY COMPANY WHATSOEVER OR TO  FOLLOW MY RESEARCH METHODS.

This is just how I narrow a list from thousands of companies to a small handful.