If u had a list of 100 stocks, high quality that have been consistently increasing their dividends. How would you screen down to about 30? what kinds of things would you look for? Building a port of increasing div stocks is the goal.
Increasing leverage + increasing dividend = increasingly suspect. I want to see that my dividend grower isn’t growing its dividend through its balance sheet, all else equal.
Oooh nice. Thank you.
What does “constantly increasing dividends” mean? Like biggest YoY % change for X number of years? You can pull past dividend data into Excel and do some calculations there if you have Bloomberg API.
Yes was given a list of about 100 stocks, each pays at least 2% dividend and have been increasing their dividends consecutively for at least the past 5 years. They are expected to continue to increase their dividends over the next 3-5 years by approx 10% annualized. Was told to pick 30 and explain my rationale for picking those companies.
What about some sort of dividend coverage measure?
I also like div stocks and tend to look at them almost with a fixed income approach.
Ask yourself, if the company is likely to continue paying dividends in the future.
To make it simple, look at :
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the dividend history of the company in conjunction with its earnings history. How did that go in 2008/2009 ? How did that go in 2001 ?
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the cash generating ability of the business. Measure that in relation to dividends. For example FCF/Dividends. The higher the better, all else equal, when comparing companies.
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make sure that dividends are funded by the business’ operations. A company can fund dividends using its cash or by debt, but obviously that cannot go on forever and is unsustainable.
Payout ratio. Good measure. Be careful of accounting tricks, it’s non-GAAP as reported.
To summarize points that others have made plus a few of my own -
low debt/equity - don’t want increasing dividends at the expense of increasing leverage
no new share issuance - don’t dilute existing shareholders. Preferably does share buybacks
reasonable payout ratio
increasing earnings per share - to sustain increasing dividends
cherry on top: high RoA/E/S (pick your favorite) over multiple years - combined with others, shows somewhat of a moat
high free cash flow?
This is just one way to look at it but I would consider the payout rules for the dividend. Is it fixed? Is it variable with earnings? I am short a company that would probably be on your list or would be close if not on there. The company pays 50% of its earnings as a dividend or something like that, I’ve forgotten the exact number. That’s fine for now but the company’s sales and earnings are going to go down, which means the dividend will likely be slashed even though the balance sheet is in pretty good shape. Meanwhile, insiders have completely liquidated their holdings. It looks like a pretty cheap stock on trailing numbers but it actually selling for 50-60x normalized earnings with a dividend likely to decline. It also has an absurdly high trailing ROE that is going to decline as well.
Thanks for the great ideas.
IIRC the egg people (CALM) has a rule of paying out 2/3 (67%) of net income as dividend, variability be damned.
What would be considered good for 2008 and 2001?
^^
If they kept them constant in a recession and the couple of years after, then IMO it passes that aspect of the screen.
It shows a real commitment to the Div.
^ Would you prefer a company commited to a dividend, or commited to sustainable financing practices? I’d rather see a dividend cut to continue funding growth with FFO rather than floating a bond at historically sky high interest rates (like in 2008) that is unaffordable and sinks the firm in a few years just so I get a few more cents this quarter.
That’s because you aren’t a dividend investor. There are different types of shareholders. Someone owning the stock for the dividend will freak out if it gets cut.
^ Irrational behavior. They’ll really freak out in a few years when the stock goes to zero. Earnings are earnings, they all accrue to the shareholder.
I agree but there is a lot of irrational behavior in the stock market every day. People only want to buy AFTER the results improve? Whaaaa? People panic sell as soon as the growth drops from 30% a year to 20%? Seems legit. Temporary disruptions cause stocks to gap down 30%? Who are these people?