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How To Screen Dividend Stock Investments

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Finding key stocks to purchase at the right time can be a challenge for do-it-yourself investors since we don’t have teams working for us and we rely on information publicly available and not always from the same source. I am not advocating to time the markets but more often than not, we can’t buy all the stocks we want at the same time and we are faced with the choice of picking one amongst many. What factors are going to influence your decision? Let’s say you want to purchase a Canadian Bank, how do you make your decisions to pick one over the other?

Finding The Stocks To Track

One of the first questions I ask when someone tell me about a stock that seem like an interesting investment is ‘how did you find out about the company?’. There are so many companies on the stock exchanges, finding the ones to track can be a challenge and having good reliable sources can prove worthwhile for your portfolio.

I have stumbled on a few different filtering tools such as the ones below:

… And what they all provide is one snapshot in time to find a stock that may fit your criteria. I want to go a step further and do comparative analysis on the stock I track. It’s not because a stock doesn’t match my yield today that it is not worth tracking or investing.

Being primarily a Canadian investor, I like to listen to BNN (Business News Network) to get information and views on companies.

All the tools I mentioned, although screening tools, aren’t really tools for investors to rely on and inform them on future purchases. I would not wake up one morning with money to invest and simply use one of those tools to pick my next investment. What they allow me (and possibly you) is a way to find stocks with potential for an investment. My next step is to enter it in my spreadsheet and let my math do the work! My math is what allows me to filter on better opportunities and that’s why I have put it together. Math and math tutoring can really help you when it comes to playing the market since so much forecasting involves mathematics.

Tracking The Technicals

Having a list of stocks is the first step in screening your future purchases. The last thing you want  is just blindly throw your money at the markets and buy the stock flavor of the day. To narrow down your list, or screen your future options, you need to track the information that matters to you.

Some time ago, you would have had to go through all the documents from the companies or listen to their conference calls to get the information you needed but now, you can automate the retrieval of most information. I happen to use Google Finance functions within Google Spreadsheet to retrieve my data. Here is the non computed information I track.

  • Ticker
  • Company Name
  • Quote
  • 52-Week Ratio
  • 52 Week Low
  • 52-Week High
  • P/E
  • EPS
  • Beta
  • Liability-to-Equity Ratio
  • Dividends
  • Yield (Computed from dividends and quote)
  • Payout Ratio (Computed from dividends and EPS)

Dividend Screener Table

Reviewing Opportunities From Technicals

Not all technicals are equal. You’ll notice that I am not looking at moving averages or other extremely technical analysis, I am simply tracking the simple data from each companies to assess value from a technical perspective rather than momentum trading. Here is what I am tracking and why.

  • Range Value: This is simply the ratio of the 52-Week Range. I use it to highlight the stock position for possible growth and come back. Prive drop may offer purchase opportunity but you must understand why the stock value retracted to avoid picking a stock that is simply going down.
  • P/E Value: I simply divide by my fixed value of 15 by the company’s P/E. I could use the sector average but I have not so far but it’s always a possibility.
  • Yield Value: I divide the yield by 3% to define my ratio and I cap the company’s yield at 6% to ensure high yields don’t have too much weight. I consider 3% my target so anything above is more incentive as long as the other metrics add up.
  • Payout Value: This is the payout ratio value based on a 60% target. I have not done it but I could define the target based on the sector target. It may be a good addition since the payout target for banks is different than the utilities for example.
  • Value Metric: This is my total value which is simply an addition of all the columns at the moment. Anything above 5 or near 5 is worth looking further into.

Depending on the list you have, you may want to add more metrics. I don’t have many companies that aren’t in the mid to large cap but a market capitalization ratio could be a good addition as it would remove risks from larger companies compared with smaller ones that pay high yields. I am currently trying to add Liabilities-to-Equity Ratio and it’s a manual process. I can’t just select and drag in the spreadsheet. I am also not sure if it will add value until I try it.

Dividend Value Table

Good To Have Data

The following is yet again more information I track that can influence my choice between company A or B. As you probably know, I like to have my money work for me so I always look at how I can DRIP shares.

  • $ to DRIP 1 Share: It tells me how much money I need to invest to DRIP at least 1 share.
  • Shares to DRIP: From the previous value, it defines how many shares I would need to buy.
  • 2.5K$ Scenario: It’s the reverse here and I get to know how much I earn with $2.5K.
  • DRIPP: From the above income, I get to know how many shares I can buy.

Obviously, the numbers can be changed to match your investment amount. $5,000 is the maximum amount we can deposit in a TFSA account each year and I used that to identify if I should invest in 1, 2 or more companies. As you can see, it may influence my decision when there are many investments matching my criterias in the Value Metric.

Dividend DRIP Table

Readers: Is there anything you do that could benefit my formula? Any issues with it?

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17 Responses to "How To Screen Dividend Stock Investments"

  1. Moneycone says:

    Isn’t it amazing how much data the individual investor has at his finger tips these days! My favorite is the screener from Google Finance – not the most powerful, but very easy to use.

  2. I use google finance as well, cause it is great for tracking stock price in real time, but I find excel a much more robust program. I have a template I use, that has multiple sheets, and when I go back through 10 years of financials, I just enter the data and all the math is done for me!

    Then, when the next years financials come out, I just copy and paste the data, and only have to look at 1 year of financial statements (assuming no stock split).

    • The Passive Income Earner says:

      Hi Dividend Pig.

      Do you have a template? Are you calculating anything specific that you don’t mind to share?

      Thanks!

  3. gibor says:

    @PIE, I just don’t understand how you calculate 52 weeks range and Range value. I was thinking you divide current price to 52 weeks high, but i got completely different numbers than you

    • The Passive Income Earner says:

      Hi Gibor,

      Here is my formula: =(1-$D10)/$O$4 where $O$4 is 50% for range ratio. $D10 is =1-((F5-C5)/(F5-E5)) where E5 is 52-low, F5 is 52-high and C5 is current price.

      I am going to share my template soon.

  4. Good post!

    You’ve got a lot more going on than I do with your data, but for the most part, we are certainly aligned with the key metrics.

    Cool stuff and thanks for sharing.

    Mark

  5. Michael says:

    How did you get the dividends to show in your Google Spreadsheet? Or did you enter it manually?

    Thanks,

    Michael.

  6. gibor says:

    Oh oh, your reply on my question magically dissappear

  7. Passive Income Earner,

    Just came across your article and really enjoyed it. I included it in my weekend reading if you don’t mind. Thanks again,

    DivPartisan

  8. turban says:

    Hey There. I found your weblog the usage of msn. This is an extremely well written article. I’ll be sure to bookmark it and come back to learn extra of your helpful information. Thanks for the post. I’ll certainly comeback.

  9. Mike says:

    Is your Payout Value number giving preference to banks that have a lower Payout Ratio (the less they give compared to your 60% baseline, the higher you rank them)?

    Is that because you lean towards sustainable ratios? Instead of preferring banks that distribute more of their earnings as dividends?

    • The Passive Income Earner says:

      @Mike

      That’s correct, the lower the better and you are also correct that it promotes sustainable payouts. With that said, it’s really a guideline to filter out good value stocks as oppose to pure empirical measurement. The banks actually rank really well consistently due to their consistent payout ratio and higher than average yield. My value metric is actually color coded based on ranges and it allows me to easily spot the good value stocks.

  10. Yao says:

    @Passive Income Earner,
    Where did you find Dividend function in Google spreadsheet? I don’t find one so I have to use importdata() from Yahoo Finance.

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