Tuesday, 20 February 2018

#84 Stock Screener

The first step on my road to dividend investing is to decide on how I want to screen for stocks. What fields and criteria will I use to filter for the companies that I want to invest in.

As I'm new to this I'm expecting to learn and adapt over time, but here's my starter for 10 which I'll use when I purchase my first 'Dividend Investing' share.

  1. Yield. 4%>
    • A fairly self explanatory criteria. I've settled (randomly picked) 4%> as my initial target. Primarily because it's slightly higher than current inflation. 
    • In the future I can see this having to adapt to different industries, or increase/decrease depending on other factors. But for now I thought I'd just keep it nice and simple.
  2. Dividend cover. 1.5>
    • "the ratio of a companies net profits to the total sum allotted to dividends"
    • From my reading I feel this could be an important indicator that a company can continue to pay a dividend even in a downturn in business generally. Here I'm settled on 1.5> which is slightly higher than a lot of the recommendations I've read online, but I figure if you start high as my understanding and tolerance moves forward this could be adapted. 
  3. Years increased dividend. 10>
    • I'm looking for companies which have not only paid dividends but that have consistently and over a decent period of years increased those dividends. 
    • I picked 10 years as that's just before the 2008 downturn, so I figure if a company continued through that period then.... should be ok right?!
  4. Price per earnings ratio. <15
    • Something I hadn't heard off before I started looking at potential criteria. The premise being that this ratio shows the price an investor is paying for each £1 of a companies profit and often used as a tool to identify potentially undervalued companies. 
    • I looked at the historical average of the FTSE100 and took the 15 from there.
  5. Payout ratio. <60%
    • Again something I wasn't aware off but makes alot of sense. This is the proportion of profit that a company is paying out in dividends. My assumption being that the lower the % the more headroom there is to increase dividends in the future.
    • I settled on <60% to start with but  in time this one I'll look to the general market and industries as this seems like it could have more room to fluctuate. Ie certain companies may have higher ratios but this is planned and repeatable.

Then the final thing I considered for my stock screener was what the inter relationships could be within these 5 criteria which could allow circumstances whereby a stock to adhere to them all. I settled on these 3 initially but, again, I'm looking to learn here going forward.

  • If 'years increased dividend' is very high could that negate the importance of the 'dividend cover'? The company has already proved itself and the premise behind the cover was to give an indication that the dividends continue.
  • If a company ticks all boxes expect for the PE ratio, does that matter? Ie if the PE ratio is used to identify if a stock is overvalued but the yield is still good enough even then, does it matter the value as long as it stacks up in the long term? 
  • and finally, if the 'dividend cover' and 'years increased dividend' are suitable does the Payout Ratio matter? This is one I'll be looking into as it's likely the stock within it's specific environment is able to continue to pay and grow dividends even though this is using up the majority of it's profits. I expect there will be mature companies which will demonstrate this.
Do I expect to get rich quick? No. Do I expect to learn alot and make some money whilst doing so? Yes. So, let the fun commence.

#83 Starting to be a dividend investor

I have read and am a firm believer in global index funds and trackers. I invest £100 per month into this and will continue to do so.

I believe we can afford to invest £300 per month. I see the Global Fund as the bread and butter for my wealth accumulation, it's got a decent head start. I'll then try out using £100 per month to begin a dividend invested portfolio. I think partly because I find it interesting and have already learnt quite a lot just from reading and following blogs.

I will build up my cash reserves with the remaining £100+ and any extra I am able to scrounge together.

This isn't going to make a giant wealth building snowball any time soon but it's a sensible start on the journey and the figures can be altered and updated as and when in the future.

So, for my dividend investing journey, where do I go from here? Well here's my plan.

  1. Stock screener. I want to have a series of attributes / data points for me to identify potential business. There's a lot of info out there, I favour something nice and simple like the Dividend Diplomats use over in the States. I see this as a starting point to identify potential businesses and likely as I learn this'll adapt and change over time.
  2. Updating stock watch in Google Docs. I want to have an excel in Google Docs which populates all the fields I'm looking to screen stocks for. I've found that =GOOGLEFINANCE does a pretty good job of accounting for most fields. I'm then using Dividend Max for annual dividend info and a few other criteria.
  3. Invest. I really want to learn on-the-job as it were so unlike the BTL approach I plan to get stuck in at the earliest opportunity - 02 March - and begin learning.
I'm pretty excited about this going forward and have largely got over the BTL disappointment for now -  I feel for me it was the right decision at the right time for the right reasons. 

Maybe I'm just excited as I like a spreadsheet though, who knows :)