We are living in the era of the lowest interest rates in recent history. Not since the 1950’s have interest rates been so low. Investing for income has become a challenge for many so we thought we would demonstrate a tool that we use to help us find attractive companies with high dividends. Back in the early 1900’s investors referred to safe, dividend paying stocks as “widow’s and orphan’s stocks” because bonds paid so little then, as they do today. Investing for income is important to some people who are looking for ways to increase the cash flow from their investments, but one must be careful because high dividends may not be sustainable for some companies. What we are attempting here is to find potential candidates for income and then we will dig deeper in their financials to see if we think the dividend is sustainable.
Our starting point begins here with this initial screen:
- US Only Companies
- Yield > 3%
- Market Capitalization > $3 billion
- Funds % Increase > 0%
- Return on Equity > 10%
- Current Ratio > 1.1
- Price vs 50 Day Moving Average >5%
That screen, in plain English means this:
- I am looking for companies based in the United States
- Dividend yield greater than 3%
- Total market value for the company is greater than $3 billion
- Funds % increase > 0% means I want to see that funds and professionals are not cutting the stock from their portfolios
- Return on equity greater than 10%. Return on equity is a measure of how effectively management is using a company’s assets to create profits.
- I want a financially strong company with a current ratio of 1.1. That means that the company has 110% more in current assets compared to current liabilities.
- The stock needs to be 5% higher than its 50-day moving average stock price. Professional investors tend to avoid stocks below their 50-day moving average because that indicate stock price weakness.
When we run the screen with these parameters, we get this list:
This material is of a general nature and intended for educational purposes only. This information should not be construed as investment advice.
You may have heard of some of these companies because dividend paying companies tend to be older, more established companies. This list is not a “buy list” and is not meant as recommendations by any means. The list is simply a starting point for us to learn more about these companies and find out if they are possible investment candidates. The next step in our process is for us to complete a fundamental analysis where we review the balance sheet, income statement and the statement of cash flows.
Investing today requires a customized financial plan integrated with a well thought out investment approach. If you have questions about how to invest or which investments may make sense for you, schedule an appointment by clicking this link or contact us today at firstname.lastname@example.org or 678-894-0697.