As of the end of 2017 there were 3,492 stocks actively traded in the major United States exchanges.  Even if less than half of those pay dividends, it’s still far too many stocks for an individual investor to track and analyze.  So, how does an individual investor watch the market and make good, timely decisions?  Well, you develop an investment philosophy and use it to build a screen of the stocks that match your strategy and goals.

My own investment philosophy focuses on tried-and-true companies that pay above average-dividends.  I have been heavily influenced by Kelley Wright (of Investment Quality Trends) and his book, Dividends Still Don’t Lie.  I’m also a fan of Jeremy Siegel (professor at the Wharton School) and his two books, Stocks for the Long Run and The Future for Investors.  A couple dozen additional books informed my own investment philosophy (including classics by John Bogle and Benjamin Graham), but Wright and Siegel are the closest to where I ended up.

Once you have a philosophy, then you need a way to implement it.  That is, you have to find or build a screen that reflects that philosophy. There are lots of online screener applications and most brokerages also provide them, but none provide the historical dividend data essential to my strategy. So, I built my own screener using Google Sheets (which I will explain a bit later).

So, without further ado, here is how I screen stocks.

First, I built a list of all the US companies that had a record of 20 or more years of consistent dividend growth.  The late great David Fish maintained lists of stocks with consistent dividend growth (called dividend champions) at his website until he passed this year and I will be forever indebted to his work.

I then went through all the top dividend ETFs (SCHD, SPHD, etc.) and reviewed their list of holdings.  I did the same for the top REIT ETFs (VNQ, IYR, etc.).  I scoured Seeking Alpha and similar websites for the portfolios of dividend-focused investors.  I also used stock screeners from ETrade, Schwab, and free websites to locate additional possible candidates.

That made an enormous list of stocks, so I started whittling it down.  Anything with a dividend cut in the last decade was off the list (that meant deleting anyone who cut their dividend in the recession).  Anything that had grown its dividend at a rate of less than 2% per year over the last 5 years was off the list (dividend growth must keep up with inflation).  Anything that was exceedingly speculative or risky came off the list.  Anything with a history of only offering a very low yield came off the list.  Foreign stocks that would be costly to hold in a 401k or IRA also came off the list (this required learning the complex rules about taxation of foreign stocks in such accounts).

I then looked the dividend yield history for each stock since 2008 and established what I call an “ideal yield” and an “exit yield.” The ideal yield is a yield very rarely reached by that stock since the post-recession recovery began.  If I buy the stock at that yield or higher, I can rest assured that I am buying in at a yield point very high relative to the stock’s average and its historical range.  The exit yield is the inverse – it’s in a disproportionately low yield for that stock and if I sell at that yield, I feel confident I am selling at a yield far below market norm for that stock.  So, for example, I set Coca-Cola at an ideal yield of 3.7% and an exit yield of 2.4%.  Kraft Heinz, on the other hand, has an ideal yield of 4.4% and an exit yield of 2.25%.

I also graded each stock’s dividend growth history from F to A, with anything below a D being deleted from the list (and most D grade stocks also being deleted).  Coca-Cola got a B, Kraft Heinz I gave a C, AT&T is a D, etc.  This took a crapton of time to do for each stock, but was essential to my screener.

I have now been working on this list for about two years and am still refining, updating ideal and exist yields as stocks hit new highs and lows, and every once in awhile adding a stock or deleting a stock as new information comes my way.  Right now, my screener monitors 190 stocks, mostly US large-cap and mid-cap stocks with a few foreign stocks (UK and Canada primarily), all paying solid dividends, and the majority of which are companies over 50 years old (longevity matters, as I will discuss in a forthcoming post).

And now the magic of Google Sheets…

I monitor these 190 stocks through a Google Sheet I created. The spreadsheet automatically pulls current price, EPS, and 52-week low.  I manually input the current annual dividend amount for each stock (I do this monthly as habit and again whenever I have new funds to invest) and the spreadsheet automatically calculates the yield, P/E ratio, payout rate, and median yield of all stocks on my list (which I use as a minimum entry point for most stocks).

The screener then assigns to each stock one of six ratings:

  • Excellent Yield = At the very high end of its historical yield levels
  • Good Yield = At the higher end of its historical yield levels but below excellent.
  • Low Yield = At the lower end of its historical yield levels.
  • Very Low Yield = Near the bottom of its historical yield levels.
  • Below Average Yield = Between the low yield and good yield thresholds but still below the median yield for all the stocks on my watch list.
  • Fair Yield = Between the low yield and good yield thresholds and above the median yield for all the stocks on my watch list.

I will only consider purchasing a stock when it is in the Excellent Yield or Good Yield categories.  I only consider selling a stock when it is in the Low Yield or Very Low Yield category.

This is what my screener looks like in action:

As of market close on July 3, 2018 the following stocks are marked by my screener as “Excellent Yield:”

  • Cummins (CMI): 3.3% yield, which equals my ideal yield for CMI.
  • General Mills (GIS): 4.5% yield. My ideal yield for GIS is 4.6%.
  • IBM (IBM): 4.5% yield, equal to my ideal for IBM.
  • Johnson & Johnson (JNJ): 2.93% yield. My ideal for JNJ is 2.9%.
  • Principal Financial Group (PFG): 3.91 yield. My ideal for PFG is 3.9%.
  • Prudential (PRU): 3.83% yield. My ideal for PRU is 3.8%.
  • Whirlpool (WHR): 3.15% yield. My ideal for WHR is 3.2%.

Of course, some of these are more attractive than others and they each carry different risks.  And my screener has a lot more stocks currently marked as “Good” but not yet “Excellent” (including AbbVie, AT&T, Compass Minerals, CVS, Dominion Energy, Exxon, Fastenal, International Paper, Coca-Cola, Kimberly Clark, Kraft Heinz, Qualcomm, Southside Bancshares, UPS, and others).

A Screener is Only a Beginning.

Which one I will invest in on any given day (when I have new money to invest) will start with the list of “Excellent” and “Good” stocks from my screener, but that list is just the beginning.  I then look at payout ratios, P/E ratios, return on equity, debt, Piotroski-F scores, dividend growth prospects, and the general news/story about each stock before choosing which ones get my money that day.  That’s my “due diligence” process and really a topic for another day.

Nonetheless, a screener like this allows me to track 190 stocks on at any given time and see which ones on my list are offering the best deals on their dividend payouts.  It also alerts me when a stock I hold is reaching a position where I might be better off selling and buying something else.  In short, it helps me buy dividend income when it’s on sale and it alerts me when I can get a better deal by selling.