November 2018 Undervalued Dividend Growth Screen and Purchase

///November 2018 Undervalued Dividend Growth Screen and Purchase

November 2018 Undervalued Dividend Growth Screen and Purchase

Every month I screen and share for possibly undervalued dividend growth companies.  The process is descibed in much deeper detail below, but basically this account is hopefully going to provide me with a future stream of income so I am building the base of it on companies that have paid an increasing divided for at least 20 years (with the hope that they’ll continue to do so for decades to come since it is built into their DNA).

Thoughts prior to the screen: October was  TERRIBLE for the market. Specifically,

The broader S&P 500 lost nearly 7% in October, its worst month since September 2011. And despite the Dow’s 241-point rally on Wednesday, the index shed 1,300 points, or 5% this month. That hasn’t happened since January 2016.

The market is damaged. Sometimes it takes time to get the damage undone,” said Michael Block, market strategist at Third Seven Advisors, a private wealth management firm.

The pain spread to overseas markets, which were already slumping because of weaker economic growth and concerns about trade and politics.

Hong Kong’s Hang Seng tumbled 10%. China’s Shanghai Composite lost 8% in October, sinking deeper into a bear market. Italy’s benchmark, dogged by political headaches, shed 8% as well. The MSCI EAFE, an index of stocks in 21 developed markets excluding the United States and Canada, dropped 9%.

My hope is to find a company that I haven’t seen before because they go particularly smashed when the market took a tumble.

My Screening Method for Under Valued Dividend Growth Stocks

I used to use metrics based on the price of the stock (P/E, P/B, Yield, etc.), however, earlier this year, I finished Tobias Carlisle’s book, The Acquirers Multiple, and decided to give the valuation method a chance.  The method was very different than what I had been previously doing for the past couple of years.  It focuses a lot less on using price as the main metric and more on the balance sheet and earnings.  Despite really enjoying the book, I decided to use a slightly different formula, the Magic Formula by famed hedge fund manager Joel Greenblatt.  The reason I made that decision was not because I believed one guru over the other it was simply because of what I could obtain in a free screen.

What is the Magic Formula

The Magic Formula,

is a quant screen…that identifies great companies selling at a discount. The process is simple. To identify great companies Greenblatt screens for companies with a high return on invested capital (ROIC). And to identify companies that are “cheap” Greenblatt uses the company’s earnings yield.

The formula is basically Enterprise Value/EBIT.  Enterprise Value is,

a measure of a company’s total value, often used as a more comprehensive alternative to equity market capitalization. Enterprise value is calculated as the market capitalization plus debt, minority interest and preferred shares, minus total cash and cash equivalents

is an indicator of a company’s profitability, calculated as revenue minus expenses, excluding tax and interest. EBIT is calculated as:

EBIT = Revenue – Operating Expenses (OPEX)


EBIT  = Net Income + Interest + Taxes

EBIT is also referred to as Operating Earnings, Operating Profit, and Profit Before Interest and Taxes (PBIT).

How Did I Screen for the Magic Formula?

After way longer than I’d like to admit I found an amazing, free site to easily screen for EV/EBITDA (rather than EBIT).  The site is called FinBox and I would highly recommend it for anyone that is trying to screen for almost anything.  The EV/EBIT is a premium feature on the site, and I may opt to sign up for the service in the future, but right now, I am just learning about this method of valuing companies.

My November 20108 Dividend Growth Watch List and Purchase

First thing I did was create a screen for those companies with a magic formula of less than 10, a dividend yield of at least 1.5% and a P/E under 20.  This gave me a list of 389 companies (347 last month – my guess is that the pull back threw some companies under a P/E of 20).

At the same time I wanted companies that have increased their dividends at least 20 years, so I turned to the dividend champion and part of the dividend contender list which provided 165 companies.  Cross referencing the two left me with the following 27 companies (18 last month):

ADMArcher-Daniels-Midland Company
TAT&T Inc.
CSLCarlisle Companies Incorporated
CVXChevron Corporation
CBUCommunity Bank System, Inc.
EDConsolidated Edison Inc
EVEaton Vance Corporation
XOMExxon Mobil Corporation
BENFranklin Resources, Inc.
JW.AJohn Wiley & Sons, Inc.
MGRCMcGrath RentCorp
NCNACCO Industries, Inc.
NFGNational Fuel Gas Company
NUENucor Corporation
PHParker-Hannifin Corporation
PNRPentair plc.
TROWT. Rowe Price Group, Inc.
TGTTarget Corporation
TDSTelephone and Data Systems, Inc.
UGIUGI Corporation
UTXUnited Technologies Corporation
UVVUniversal Corporation
WEYSWeyco Group, Inc.
IBMInternational Business Machines Corporation
BPLBuckeye Partners L.P.
ENBEnbridge Inc

Next I removed those companies I have a position in, or are in the energy/utility sectors as they are generally removed under the magic formula.  With this I am left with the following companies:

CSLCarlisle Companies Incorporated
JW.AJohn Wiley & Sons, Inc.
PHParker-Hannifin Corporation
PNRPentair plc.
TDSTelephone and Data Systems, Inc.
UGIUGI Corporation
UVVUniversal Corporation
IBMInternational Business Machines Corporation

Carlisle immediately jumped out at me with a P/E of under 10! I then took at the 1 month chart and it has dropped about 15%, so taking a further look it seems that they missed estimates but still grew year over year.  The only real problem is that they are only paying a 1.6% dividend which is much lower than what I usually buy but with a 23% pay out ratio they have plenty of room to grow.

My November Purchase

The Carlisle Companies Incorporated,

manufactures construction materials. Its products include insulation materials, rubber, thermoplastic polyolefin, and polyvinyl chloride roofing membranes used predominantly on non-residential low-sloped roofs.

Carlisle Companies Inc is a holding company, which through its subsidiaries, manufactures and sells a variety of rubber and plastic products. The company organizes itself into five segments based on product type. The construction materials segment, which generates the majority of revenue, sells roofing systems and insulation. The interconnect technologies segment sells wires, cables, and connectors used to transfer power and data. The fluid technologies segment sells liquid finishing products used for vehicles and building construction. The brake and friction segment sells braking systems for aircraft and other industrial applications. The food service products segment sells commercial food service and janitorial products. The majority of revenue comes from the United States.

Fantastic! A boring company that produces a ton of different things across many industries.  Sounds like my position in UTX actually.  I bought 8 shares of CSL at $99.16/share. 

By |2018-11-02T15:53:21-04:00November 2nd, 2018|Dividend Investment Portfolio|0 Comments

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Evan is the owner of My Journey to Millions which was started to track his journey from a broke debt ridden law school graduate to building a positive balance. Need more Evan? Follow him on Twitter, Contact him or get new posts directly to your email

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