To identify high quality companies who possess an attractive balance of current yield, dividend growth, and appreciation potential.
Detailed Step Breakdown
Step 01: Identify Investment Universe
- Must be members of the S&P 500
- Must have increased dividends every year for the last 25 years.
Step 02: Dividend Screening
- Dividend Yield
- Identify companies who meet our minimum yield requirements.
- We are seeking companies with at least a reasonable level of current income. We will favor higher yielding companies, but will entirely eliminate companies who do not meet our yeild requirements.
- Payout Ratio
- We are looking for companies who will be able to continue paying and increasing dividends as indicated by a reasonable payout ratio. We favor companies with lower payout ratios, but will eliminate any company with a payout ratio we deem to be excessive.
Step 03: Quality & Volatility Screening
- Long Term Debt/ Market Capitalization
- We favor companies who don't have excessive leverage.
- The LTD/MC metric is one criteria we use to identify companies with a strong balance sheet and reasonable debt.
- Return on Equity
- This is used to identify companies who are prudent stewards of shareholder capital and are using the money to generate profits.
- Stock Volatility
- We use multiple volatility metrics to help us identify the expected volatility of a stock. We tend to favor lower volatility stocks.
Step 04: Fundamental & Technical Analysis
- Fundamental Analysis
- This analysis is done with the goal of identifying companies we feel are undervalued, have strong cash flows and solid balance sheets. Even if a company meets all the screening criteria, it will not be included in the portfolio unless it is deemed a good investment based on our research.
- Technical Analysis
- While technical analysis is never the primary reason for purchasing a stock, we will favor companies that have a favorable technical profile based on our internal technical analysis and screen system.
Step 05: Portfolio Construction
- The portfolio will generally be constructed of 20-30 stocks
- Once companies are identified for purchase they are weighted in the portfolio based on dividend yield with a heavier weighting to companies with a higher dividend yield.
- To maintain sector diversification we generally limit any one sector exposure to a maximum of 30% at the time of purchase. Due to stock movement, individual sector exposures will increase or decrease over time.
- Portfolio will be continuously monitored and traded as often as necessary.