Dividend Growth Process

Strategy Objectives:

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 yield 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.
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