Every few months I update my watch list for my dividend investment portfolio. I wish it is something I could do once a month or once a week, but it just takes too much time to screen through the 100+ companies that have increased their dividends for the past 25+ years. So every few months (last update was in February) I’ll take the Dividend Champion list which has 100+ members and start screening each company, by hand, for certain metrics.
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.
- This monthly update the Dividend Yield should be above 2.5% (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. Again this changes depending on how many stocks I have left after the first couple of steps. This monthly update I used the number 4.
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. This has the unintended consequence of eliminating a lot of well known companies since investors seem to build in a premium.
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. I want the companies I invest in to be more profitable than their peers. This way unless there is a huge problem with the industry they’d be less likely to stop doing something (i.e. paying increasing dividends) that they have been doing for the past 25 years.
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 2.5%. As stated, this is a moving target depending on how many stocks I have left to choose from. Sometimes I go for 2% sometimes 4%.
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. This has an unintended consequence of choosing stocks with a lot of tangible or financial assets on the books.
Remaining Dividend Aristocrats to Build Part II of My Dividend Investment Portfolio
For the next month or two I will be looking at the following stocks hoping some come near their 52 week low:
- 1st Source Corp. SRCE Banking
- AFLAC Inc. AFL Insurance
- Air Products & Chem. APD Chemical-Specialty
- AT&T Inc. T Telecommunications
- Atmos Energy ATO Utility-Gas
- Bemis Company BMS Packaging
- Black Hills Corp. BKH Utility-Electric
- Chevron Corp. CVX Oil & Gas
- Community Trust Banc. CTBI Banking
- Consolidated Edison ED Utility-Electric
- Emerson Electric EMR Industrial Equipment
- ExxonMobil Corp. XOM Oil & Gas
- HCP Inc. HCP REIT-Health Care
- Illinois Tool Works ITW Machinery
- Leggett & Platt Inc. LEG Furniture/Bldg. Prod.
- MGE Energy Inc. MGEE Utility-Electric/Gas
- National Fuel Gas NFG Utility-Gas
- Northwest Natural Gas NWN Utility-Gas
- Piedmont Natural Gas PNY Utility-Gas
- Procter & Gamble Co. PG Consumer Products
- Sonoco Products Co. SON Packaging
- Target Corp. TGT Retail-Discount
- United Bankshares Inc. UBSI Banking
- Vectren Corp. VVC Utility-Electric/Gas
- Weyco Group Inc. WEYS Footwear
- WGL Holdings Inc. WGL Utility-Gas
Any thoughts on my methods? The Watch List? Anything at all?