I would venture to guess that most people that follow their finances and investments closely have a favorite account or investment account. Mine would have to be my dividend investment account made up of companies that have raised their dividends every year for the past twenty-five years. As such, every few months I update the watch list using various statistics outlined below. I build the watch list then of course of a few months or so I’ll purchase lots of $500+ of companies that are close to their 52 week low.
My Dividend Investment Portfolio
My dividend portfolio used to be made up of two parts:
- Three ETFs that do not have a fee to purchase and
- Timed purchases of “the watch list” which is created using metrics to determine if a stock is undervalued
Part 1: Income Based ETFs in my Dividend Investment Portfolio
I used to invest in three ETFs monthly but decided that starting this year, 2013, I am going to drop this part of the portfolio. I have a lot of that broad market exposure happening within my 401(k) and The Wife’s Roth IRA.
Part II: February 2013 Dividend Champion Personal Stock Screener
The starting point for the watch list is the dividend champion list.
My Dividend Investment Portfolio Screening Criteria
- They have to actually be on the Dividend Champion list – Updated monthly
- The stock has to have a Price to Earning that is lower than their industry average
- Their Operating Margin has to be in line with the particular stock’s industry average
- Dividend Yield should be above 2% (changes whenever I update the list depending how many stocks I have left after the first 3 steps)
- Price to Book Value Should be Reasonable (under 3)
You may notice that some of the stocks aren’t eliminated if they fail a metric test. This is because I don’t want to eliminate a stock that is within a range that eyeball since I am taking a snapshot.
Definitions of Metrics Used for my Dividend Investment Portfolio
All definitions are taken from Investopedia:
- Dividend Champions are those dividend paying American companies that have increased their dividend for the past 25 years. Unlike the Dividend Aristocrat list they do not have to be part of the S&P500.
- P/E is Price is “a valuation ratio of a company’s current share price compared to its per-share Earnings.”
- Operating margin is “a measurement of what proportion of a company’s revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.”
- Dividend Yield a “Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated by dividing Annual Dividends per Share by Price Per Share”
- Price to book is a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.
Dividend Champion Price to Earnings by Stock’s Industry
The first Stocks I their eliminated were those whose Price to Earnings Ratios were out of line with their industry average
Dividend Champion Operating Margin by Stock’s Industry
Next I eliminated those stocks whose operating margin was not better than its peers in the industry (or only marginally better).
Dividend Champion Dividend Yield
While I am not ‘chasing yields’ I am attempting to create a dividend portfolio, so the next elimination step was to remove any stocks with a dividend yield of less than 2%. As stated, this is a moving target depending on how many stocks I have left to choose from.
Dividend Aristocrat Price to Book
Lastly, I was looking for those stocks whose price to book value is low as to further evidence that it is undervalued.
Remaining Dividend Aristocrats to Build Part II of My Dividend Investment Portfolio
The remaining stocks that I will be investing for the next couple months are:
- 1st Source Corp. SRCE
- 3M Company MMM
- AFLAC Inc. AFL
- Air Products & Chem. APD
- Atmos Energy ATO
- Bemis Company BMS
- Chevron Corp. CVX
- Chubb Corp. CB
- Commerce Bancshares CBSH
- Community Trust Banc. CTBI
- Consolidated Edison ED
- ExxonMobil Corp. XOM
- Illinois Tool Works ITW
- Leggett & Platt Inc. LEG
- Medtronic Inc. MDT
- Mercury General Corp. MCY
- MGE Energy Inc. MGEE
- National Fuel Gas NFG
- Northwest Natural Gas NWN
- Piedmont Natural Gas PNY
- Questar Corp. STR
- Sonoco Products Co. SON
- Sysco Corp. SYY
- Target Corp. TGT
- Vectren Corp. VVC
- VF Corp. VFC
- Walgreen Company WAG
- Wal-Mart Stores Inc. WMT
I spend a lot of time on these portfolio updates, but I am not providing investment advice rather I want to hear what EVERYONE thinks about it!
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