So after further reading here is v3 of my stock screen.:)
- Exclude stocks within industries I already have exposure too.
- Market Cap £1.5bn >
- Continuously paid dividend since 2000.
- I found this site which coupled with data from Dividend Max which allowed me to add data into my spreadsheet on whether a stock has continuously paid dividends since 2000. I prefer this over continuously raised dividends as a screen.
- Payout ratio <80%.
- I consider this an important criteria and generally are looking for <60%.
- Div Cover 1.5>
- PE Ratio <18
Now the main change... you may have noticed that I've excluded yield up until now. Well that's because the more I thought about how one years yield could be less valuable than a stock growing dividend at a faster rate. So, having looked around I found this site which has an in-depth look into 'is dividend growth better than yield?' and have come to the conclusion both are valuable and the best way to gauge a company is by comparing both yield and div growth.
So, running the screen through the FTSE 350 in my google doc and plotting the remaining stocks on a 'bubble' graph brings up this...
Next, I'm not sure yet about Investment Trusts. ie I don't really know how the annual charge works and so for the moment am going to exclude these which then gives an update graph...
Next I wanted to decide if I could find the minimum combination I am targeting for yield and/or growth. For now I've copied the approach used on the dividendlife and preferred his approach to returning of Capital. For this I've settled on a stock returning 99% of capital* within 18 years - granted this is an arbitrary number taking me up to 50 years of age - but it seems a good time to hold.
What that looks like is this...
*DividendLife assume no re-investment of divs. Simply because it's easier to work out.
Here's a good example of how this would change my view on a stock I had previously not considered because the yield was <4%.
LON:FXPO. This has a yield of only 1.5%. However, when you take into account the average div growth over the previous five years has been 11.46% it still gets into the 'green zone' above to deliver 99% return on capital within 18 years.
Does this rule out any high yielding stocks I was looking at previously? No.
What it does do is open up stocks which appear to be very strong and sensible but lack the required yield.
So, armed with this new approach I'll be reviewing stocks, creating a new shortlist and looking to add stock no.2 to my portfolio just as soon as Cheltenham racing finishes!
