The Dividend Guy Investment Process Part 5: Initial Dividend Stock Screening

There are literally thousands of stocks available to choose from. Not all pay dividends and not all are good investments (not by a long shot!). When building a portfolio and looking for stocks to further analyze, there are a couple of places I believe dividend investors can look to get started. These are the resources and tools that I use to screen for dividend stocks in my investment process.

Dividend Screen #1

The first place I look for dividend stock ideas is the place to find the cream of the crop in terms of companies that consistently increase their dividends. It is the S&P Dividend Aristocrats list of companies. However, rather than just starting there, I like to also look at the S&P High Yield Dividend Aristocrats list. Both of these lists contain companies that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. However, I like the high yield list as it simply provides higher dividend payments among the companies that consistently increase their dividends. Might as well go for some more yield if you can! This list includes companies such as Coca-Cola, General Electric, and Procter & Gamble.

Dividend Screen #2

The second screen I use also looks at the number of years of dividend increases, but is not as stringent as the S&P list. Mergent’s Dividend Achievers includes companies that have increased their dividends for at least 10 consecutive years. The number of companies on this list is much larger than the S&P list so it certain provides more options for further analysis.

To see more of my articles about Dividend Aristocrats and Dividend Achievers, please see my post, High Dividend Achievers vs. High Dividend Aristocrats.

Dividend Screen #3

Another tool I use to identify dividend stocks for further analysis is the MSN Money Investment Toolbox. This is a stock screener that allows investors to input reams of criteria to come up with a list of stocks that I do further analysis on. Here is the criteria I use to filter stocks (as presented in this post):

1. 5-Year Dividend Growth greater than or equal to 10
2. Current Dividend Yield greater than or equal to 1
3. Current Dividend Yield greater than or equal to Div. Yield: 5-Year Avg.
4. Annual EPS Growth Rate greater than or equal to 10
5. P/E Ratio: Current less than or equal to S&P 500 Average P/E Ratio: Current
6. Debt to Equity Ratio less than or equal to 0.5
7. S&P Index Membership equal to S&P 500

These are the three resources I goto to come up with a list of stocks to complete further analysis on. However, I do not simply buy off the lists. I do further fundamental analysis on each and every stock I consider buying. In Part 6 of my process series, I am going to start describing how I complete fundamental analysis on stocks I buy.