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.
- 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.
- "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.
- 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?!
- 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.
- 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.