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.




    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.




    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.



    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




    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?

    Post Comment   |   Read more >
  • I’m taking a quick pause in my new investing series about how to build an investment strategy (read part 1 and part2) to publish my stock pick returns as at March 31st and the usual TSX60 dividend yield and ex-dividend date chart. After a full quarter, I’m already taking a step ahead of both US and CDN benchmarks. Lets check how I beat both benchmarks by more than 1%.

    PSST! If you are curious to know how I keep beating the market with dividend stocks for the past 3 years, check out my new website!


    Best 2014 Dividend Stock Pick Returns


    I started this “tradition” on my blog in 2012. The goal is to pick 20 US and 10 CDN dividend stocks that I think will outperform their peers. This is the reason why I use VIG and XDV as benchmarks. I keep track of my results for accountability purposes. I find that too many analysts and blogs just drop the ball on their picks when they are not so great. By posting monthly results, I have no other choice but to face my performance and explain it. You can look at my previous picks and returns:

    Best Dividend Stock Picks 2012 (-1.47% vs VIG (US dividend ETF), + 8.32% vs XDV (CDN dividend ETF)

    Best Dividend Stock Picks 2013 (+11.07% vs VIG, + 0.77% vs XDV)


    You can also buy my 2014 Best Dividend Stock Picks for Kindle ( on Amazon) to get the full analysis:


    2014 book cover


    2014 Best US Dividend Stocks: +2.76% vs -0.01% (VIG)

    top US dividend stocks

    13 stocks out of 20 beat my benchmark. This is a 65% ratio… not bad, but not incredible either. However, I have 4 stocks (ALF, APPL, XOM, WMT) that could easily come back to life with some good news. After a quarter, I’m adding almost 3% to the benchmark which is a pretty solid performance.  My portfolio dividend yield is also 1% higher than VIG.


    What I can see is that consumer (staple or discretionary) stocks like Clorox (CLX), Mattel (MAT), Philip Morris (PM) and Wal-Mart (WMT) have had a rough start this year. In fact, if I look closer at my portfolio, I can also add that PepsiCo (PEP), McDonald’s (MCD), Hasbro (HAS) are beating the benchmark, but lagging the overall stock market. They show a YTD performance of 0.68%, 1.03% and 1.11% respectively.


    Its only normal that dividend stocks lag a bull market. Last year, dividend stocks were almost entering bubble territory since the market was hungry for revenue. The year-end results weren’t as high as expected by the market and this is why dividend stocks were penalized more than other stocks. Nonetheless, the overall return including dividends is still pretty good, even compared to the global market.


    2014 Best CDN Dividend Stocks: +2.66% vs 1.23% (XDV)

    top canadian dividend stocks

    I’m offering another solid performance in the Canadian market by adding 1.43% in value to the benchmark. For this portfolio, only 50% of my stocks beat the benchmark. This is not exactly a good batting average as this could have resulted in lagging behind the index. I was *lucky* to pick Black Diamond Group (BDI) and Gluskin Sheff (GS) boosting my results through the roof with a +14.16% and +24.23% YTD performance.


    I was expecting a more solid performance from Chorus that is evolving in a profitable market and shows strong fundamentals. Banks (BNS and RY) are not rising quickly during the first quarter and ScotiaBank has been hit by bad results from its Latin American branch results. I made another bet on consumers again with Dorel (DII.B) and North West Company (NWC) but they are also lagging due to deceiving results. Lassonde (LAS.A) is saving the consumer group with a good performance so far… but the dividend yield is anemic.


    Still, I was able to beat both benchmarks after three months and looking forward to the next quarter with enthusiasm!


    TSX60 Ex-Dividend Date & Dividend Yield


    Dividend Yield
    Payout Ratio
    Ex-DVD Date
    CPGCrescent Point Energy Corp40.356.84746.544/28/2014
    PWTPenn West Petroleum Ltd9.246.06N/A6/25/2014
    COSCanadian Oil Sands Ltd23.196.0481.295/21/2014
    TATransAlta Corp12.845.61N/A5/28/2014
    BCEBCE Inc47.625.1991.526/13/2014
    ERFEnerplus Corp22.14.89452.0341674
    SJR/BShaw Communications Inc26.44.1761.5841947
    NANational Bank of Canada44.34.1538.366/24/2014
    CMCanadian Imperial Bank of Commerce/Canada95.254.1244.496/25/2014
    BMOBank of Montreal73.964.1146.864/29/2014
    FTSFortis Inc/Canada31.524.0678.385/14/2014
    BNSBank of Nova Scotia64.03446.0641736
    RCI/BRogers Communications Inc45.813.9953.6941949
    ARXARC Resources Ltd30.453.94155.384/28/2014
    RYRoyal Bank of Canada72.893.945.24/22/2014
    TRIThomson Reuters Corp37.793.88848.035/23/2014
    POTPotash Corp of Saskatchewan Inc39.993.8764.4241855
    POWPower Corp of Canada30.223.8464.1841796
    TRPTransCanada Corp50.253.8275.996/27/2014
    TCK/BTeck Resources Ltd23.863.77N/A41949
    SLFSun Life Financial Inc38.283.7650.865/26/2014
    TTELUS Corp39.633.6367.2641735
    TDToronto-Dominion Bank/The51.833.6346.7241643
    HSEHusky Energy Inc33.163.6264.965/20/2014
    CVECenovus Energy Inc31.973.33110.5741949
    AGUAgrium Inc107.733.0834.016/27/2014
    ENBEnbridge Inc50.212.79234.165/13/2014
    TLMTalisman Energy Inc11.022.69N/A41765
    GGoldcorp Inc26.972.47N/A4/15/2014
    BBD/BBombardier Inc4.112.4732.5241949
    MFCManulife Financial Corp21.322.4431.9641887
    SUSuncor Energy Inc38.612.3828.025/29/2014
    CNQCanadian Natural Resources Ltd42.372.1227.5841949
    THITim Hortons Inc61.142.0936.85/22/2014
    LLoblaw Cos Ltd46.92.0541.9441949
    WNGeorge Weston Ltd82.342.0236.2541949
    SNCSNC-Lavalin Group Inc48.341.99389.785/16/2014
    BAM/ABrookfield Asset Management Inc45.031.9818.384/29/2014
    SCShoppers Drug Mart Corp60.831.8728.66/25/2014
    MRUMetro Inc64.91.8512.945/14/2014
    YRIYamana Gold Inc9.681.71N/A6/25/2014
    CTC/ACanadian Tire Corp Ltd104.231.6821.384/28/2014
    SAPSaputo Inc55.691.6533.5441919
    CNRCanadian National Railway Co62.111.6127.7241735
    MGMagna International Inc106.281.5918.195/28/2014
    CCOCameco Corp25.311.5849.666/25/2014
    ECAEncana Corp23.611.32209.3241949
    SLWSilver Wheaton Corp25.081.2342.6141674
    ABXBarrick Gold Corp19.681.13N/A5/28/2014
    AEMAgnico Eagle Mines Ltd33.471.0656.185/28/2014
    IMOImperial Oil Ltd51.481.0114.675/28/2014
    FMFirst Quantum Minerals Ltd20.430.9121.1341916
    GILGildan Activewear Inc55.710.8513.665/13/2014
    CPCanadian Pacific Railway Ltd165.650.8528.116/25/2014
    ELDEldorado Gold Corp6.150.3333.8541981
    VRXValeant Pharmaceuticals International Inc145.4400N/A
    KKinross Gold Corp4.57009/17/2014
    BBBlackBerry Ltd8.9500N/A
    CCTCatamaran Corp49.4600N/A
    GIB/ACGI Group Inc34.1300N/A
    1 Comment   |   Read more >


    I’ve worked very hard this week to finish the Rock Solid Ranking. This will be a scoring system for dividend stocks. Checkout The Dividend Guy Blog next week as I’ll explain my dividend growth model.


    Here what is interesting to read this Weekend:


    Tax treatment on a non-qualified annuity @ Annuity Rates HQ – There is a huge advantage to buy a non-qualified annuity vs a qualified annuity tax wise.

    Top 100 Dividend Stocks @ Intelligent Speculator

    5 Attractive Dividend Growth Stocks @ Dividend Yield – I own CVX, JNJ, picked GPC and PG on my watch list!

    The Roots of a Wallet Engineer @ Passive Income Pursuit

    When to Buy Dividend Paying Stocks? @ Dividend Growth Investor – my answer is TODAY!

    Dividend Income Update @ Dividend Mantra – Man, this guy just made over $700 in a single month from his portfolio!

    6 Stocks Raising Their Dividend @ Dividend Growth Investing



    Dividend Stocks Analysis


    United Technologies (UTX) @ Dividend Growth Stocks

    2 Comments   |   Read more >
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