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    Last week, I gave as much detail as possible on my dividend growth model. The goal of this model is to build a ranking where all companies would be evaluated based upon several criteria. This leads to The Rock Solid Ranking available exclusively at Dividend Stocks Rock. But I also wanted to share a bit of this ranking with the top 20 most powerful dividend stocks to buy now for your portfolio.

     

    Since the ranking is based on fundamentals but also on the current stock value, the top 20 is definitely showing the most powerful dividend payers that are traded at an attractive price. They are not necessarily trading at a bargain price, but our model penalizes companies trading at premium. Since the difference between the top 20 and the next 50 is only a few points, I know these companies are high value dividend stocks.

     

    By sharing this post (just click on the image below), you will get see the top 20 most powerful dividend stocks to buy now:

     

     

    If You Want to Get This Ranking Updated Weekly Continue to Read

     

    As you know already, things are changing very fast on the stock market. Within a couple of months, this list will be outdated and won’t mean much. This is why we run our algorithm each week and provide a fresh ranking of all stocks in our universe; thats over 400 stocks included in our ranking. We also follow our results and keep improving our algorithm to create the most accurate ranking possible. We already take into consideration twelve metrics with different weights.

     

    The ranking is available at all time on my new site;  Dividend Stocks Rock where you can also find my 10 portfolio models, 8 dividend stock lists and my bi-weekly premium investing newsletter. This website is built to improve your portfolio management skills & productivity. We all know you should spend your Sunday afternoons looking at your investments, and we all know you don’t do it. Let us do it for you and enjoy the free time + the investment return with Dividend Stocks Rock. We are currently offering this service at the very low price of $149.95 for a 1 year membership.

     

    So, what do you think of the ranking? Any surprises?

     

    Check out the most powerful investing tool ever created for dividend investor:

    DSR logo

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    This week, I’ve wrote about how we calculate The Rock Solid Ranking. It was a teaser for next Monday’s post where I will publish the top 20 of our ranking.

     

    Good Read for the Weekend:

     

    I’ve shared my #1 investing advice in a compilation of 22 Dividend Bloggers sharing their investing advice @ Dividend Growth Stock Investing

     

    Dividend Growth Investor explains how to manage new cash from dividend payouts

     

    Using Dividend Stocks as an Emergency Fund? @ Dividend Mantra

     

    Dividend Income update @ My Own Advisor

     

    Captain Dividend sold Intel (INTC)

     

    Understanding Currency Hedging @ Passive Income Earner

     

    April Stock Market outlook @ Hello Suckers

     

    9 CEO’s showing confidence in their company @ Dividend Growth Stock

     

     

    Dividend stocks Analysis:

     

    ADP (ADP) @ Brick by Brick

    Aliant Energy (LNT) @ Dividend Engineering

    McDonald’s (MCD) @ Intelligent Speculator

    Tal International (TAL) @ Dividend Ladder

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    Following up on my recent “build an investment strategy” article series (you can read part #1 and part #2 here), I’m delving into the core topic: which metrics to use to select your dividend stocks.

     

    I have already shared metrics I look at and how I use them in a stock filter (read about my dividend growth model here). But we all know there is a lot more than a few ratios to choose a stock. One company can show awesome profit growth, but hide other problems in sales or debt for example. How do you weight each metric to find the right stock? It’s important to combine them and to find the “ultimate combination”. Even better than that, if you can combine all the important metrics, give them different weights and create a scoring method; what happens? You can generate a “buy list” where stocks are attractively valued at the moment you pull the list. This is our goal with the Rock Solid Ranking.

     

    The Rock Solid Ranking Provides a Buy List and a Sell List

     

    With the help of our ranking, we can rapidly identify stocks that show all the great fundamentals we are looking for. Those which score at the top of the line earns the “buy mention” while those who sit at the bottom of the ranking fall into the “sell mention”.

     

    If a company can’t keep up with a high ranking, it means its losing pace with one or more important metrics in our model. The more it loses ranking, the more it is closer to joining the sell list. On the other hand, a company improving its scores quarter after quarter definitely earns the buy mention as it shows it’s going towards the right direction. The Rock Solid Ranking goal is to provide an instant valuation of a stock according to our dividend growth investing model.

     

    I’m not going to disclose our calculation methods here but I’ll tell you which metrics we follow. This can help you build your own investing model. Total score of a company could technically reach 100% if it was perfect on all attributes. The score can also be negative as we give penalties for negative growth numbers.

     

    #1 SALES

     

    In my opinion, if you don’t sell, you can’t make money. If you can’t make money, you can’t pay dividends. If you can’t increase your sales, you can’t increase your profits and you can’t increase your dividend. This is why revenue growth is so important. The best way to measure if a company is making more money is by look at its revenue growth.

     

    A company can run through a tough year or show hectic revenue movements. This is why we take a look at both 1 yr and 5 yr revenue growth. The first metrics to be used in our model is:

     

    1 year Revenue Growth

    5 year Revenue Growth

     

    More weight is given to the 5 yr and penalties (negative score) are attributed to companies that show negative revenue growth. You can’t hope to increase your dividend consistently if your revenues decrease.

     

    #2 PROFITS

     

    Showing strong revenues is important, but it doesn’t guarantee you will get strong dividend payouts. Profits drive amounts to be paid through dividends. If you look at a company like Amazon (AMZN); revenues are huge but profit is thin. Therefore, they can’t hope to pay a dividend at this point in time (especially when your P/E is 574!).

     

    In order to make sure we don’t give a high score to a company that recently restructured its costs or sold an important asset to boost its profits, we also consider 1yr and 5yr Earnings Per Share (EPS) growth.

     

    1 year Earnings per Share (Diluted) Growth

    5 year Earnings per Share (Diluted) Growth

     

    Earnings and revenue growth combined together weigh a lot in our model. Both metrics combined together is the key for a sustainable business model. This is why so much weight (40%) is attributed to these 4 metrics.

     

    #3 DIVIDEND METRICS

     

    Once we have found companies with sales and profits, it’s time to take a look at what we are looking for the most: dividend growth potential! In order to find out if a stock is not only a good stock but a good dividend stock, we use 3+1 different metrics. The “+1” is because we look at both 1yr and 5yr dividend growth percentages:

     

    1 year Dividend Growth

    5 year Dividend Growth

    Dividend Payout Ratio

    Dividend Yield

     

    The 1 year dividend growth shows the company’s willingness (or capacity) to increase its dividend over a short period of time. The 5 year dividend growth confirms this willingness/capacity to keep increasing payments to shareholders.

     

    Then, the dividend payout ratio is also very important to us. We penalize companies paying over 120% of their earnings. We didn’t select 100% as we must always take into consideration that the payout is in $ and the profit is an accounting term (including amortization for example). This is why it’s important to give some room for high dividend payout ratio companies. We also give a smaller weight to companies with very low payout ratio (0-20%). This shows the company would rather keep its money in its bank account instead of sharing the wealth with stockholders.

     

    Finally, the dividend yield is also a debated topic. Some investors are looking at 5%+ dividend yield (I keep receiving tons of emails telling me I look for small dividend yield stocks). Some others (like me!) prefer sound businesses with dividend stocks around 3%. In the past four years, I’ve noticed that stocks paying over 4% are often showing shakier metrics than stocks with a lower yield. Dividend metrics combined together represent 40% of our ranking calculation.

     

    #4 DEBT LEVEL

     

    Another important data is the debt level of a company. The idea behind the choice of this fundamental is simple; debt payment requires cash flow, cash flow that could be used to pay dividends. You don’t want a company strangled by their debts and forced to make unfortunate decisions. This is why we use a debt ratio in our model:

     

    Debt to Equity ratio

     

    Here again, a high debt to equity ratio is penalized by negative points.

    #5 STOCK VALUATION

     

    Finally, the price you pay for a stock is also important. I’m the first one to pay a relatively high price for a great company. Still, if I can find a company that is relatively similar but traded at a cheaper price than another, I will definitely take a look at it.

    We have used the following metrics in our system to give points to each stock:

     

    P/E ratio PEG   

    Price to Book Value

     

    THIS GIVES THE ROCK SOLID RANKING

     

    We have built our scoring model to be able to select the best dividend stocks according to our investment beliefs. It is probably not perfect and it is surely not strong enough by itself to buy a stock solely based on the ranking (read here that the scoring is NOT a buy or sell recommendation). However, it gives you a strong indication of stocks you should have in or get rid of from your portfolio.

     

    The full ranking is published and updated weekly on our other site; Dividend Stocks Rock. By becoming a member, you get access to

    10 US & Canadian portfolios, (including growth and conservative models)

    8 Dividend stock lists, (including high yield, aristocrats, premium and dividend growth lists)

    Bi-weekly Premium Investing Newsletter

    And the complete Rock Solid Rankings

     

    What do You Think?

     

    We were able to give value to each metric and compile them to a scoring board. What do you think of such scoring method to buy or sell your stocks? Is this something you could use to build your investment strategy? Is there any other metrics you think should be part of our model?

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