As I highlighted in my last post, I have taken a new approach to finding undervalued dividend stocks for the next few months. I am going to rely on the Aquirer’s Multiple technique to find undervalued US listed stocks and then I am going to cross reference those companies with those companies that have increased their dividend for over 20 years to come up with the watch list for this month (and the months going forward).
What is the Aquirer’s Multiple?
The Aquirer’s Multiple is a valuation method that attempts to find attractively priced companies that may be considered for take over. The specific formula is:
Enterprise Value / Operating Earnings
I used Screener.Co to create a screen for stocks that:
- Are listed in the US
- Have an Enterprise Value / EBIT of less than 10
- Have paid at least .01 in dividends in the trailing 12 months
After completing the project I noticed that I used EBIT vs Operating Earnings. This would actually be the equation for the Magic Formula. The magic formula is another value based idea, so I am not going to worry about it too much this month, but will fix the screen going forward.
This left me with about 500 stocks. The next thing I did was loaded up the dividend champion list (25+ years of increasing dividends) and part of the dividend contender’s list (20 – 24 years of dividend growth). Those combined lists provide with about 160 companies. So now to cross reference them.
I was shocked to find out that when I cross referenced the two lists I was left with only 10 companies!
The next step was to remove all those companies that have a payout ratio higher than 60%. This eliminated BEN (72%), MCY (183%) and UVV (192%).
May 2018 Dividend Growth Watch List
I will purchase a lot of one of the following companies:
I’d love to hear some thoughts about the companies or process.