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Discussion Starter #1
I'm working through some excellent if not slightly overwhelming reading on how to analyze dividend stocks.

So

I was wondering how you guys go about picking your dividend stocks and what you use to determine whether the price is OK.

Some examples of the things I have read about are:

P/E ratio, Dividend Yield, Dividend Growth Rate, Gordon Growth Model etc...
 

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I like to look at the payout ratio. It tells me how easy it will be for the dividend to be paid. Also I usually like to see the company keep some money for growth. I like 0.2x to 0.8x. Less than 0.2x implies that the dividend is only a token amount and it is not really a dividend stock. More than 0.8x implies that the company has little room for growth - maybe it has occupied its space, or maybe it will have trouble meeting its dividend commitment in the near future.

I also like P/(5 year average earnings) from the Financial Post reports and P/(1 year forward earnings).
 

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Before looking at the ratios, I look at what the hell this company does.
What products/services it sells, how much income/margin they make, the price elasticity of their products/services and what my opinion about that product/service moving forward is.
That tells me how "safe" the dividend may be.
Actually, I do the same when looking for bonds, too.
I know bonds are superior to dividends when it comes to payouts, but I like to be assured that the company has a relatively safe, regular and predictable income stream.
 

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My stocks not only have to pay dividends, but they need a demonstrated history of solid dividend growth.

I look for non cyclical companies that sell "stuff" to people, preferably non reuseable (think soap, razor blades, toilet paper, electricity, natural gas(pipelines), and also some non essential things that people will always buy (McDonalds, coke, booze, ciggarettes, etc) Throw in a good healthcare type company like JNJ.

My purchase MUST have had a recent dividend increase within the last year.
While not perfect, nor guaranteed, a dividend increase to me is a sign of strength.
In 2009 when "it" happened, any company that raised the dividend while hell broke loose scored extra points.

I really only follow about 12-15 companies, and i try to buy them at a reasonable price.

Valuation is anyone's guess. Personally I dont guess what markets will do.

The best time to invest is when I have the money, I see a recent dividend increase, AND when I feel the stock is value priced.

This "guesstimate" is not perfect, and everyone has their own way of doing it.

I use current yield against average 5 year yield as a primary tool.
The stocks I follow tend to yield between higher and lower than average yield. If it is trading below average yield i dont buy, and I wait until it dips down and the yield shoots up.

I also look for a lower PE, and a low payout ratio.

I also calculate the graham price which is what you "should" pay for a stock. If it is way above the graham I dont buy. If it is close to or lower than , I will buy, provided everything else .

Sometimes you get lucky and see a May 6th, "diaper drop" panic, or even better, a March 2009 world is ending situation.

IF you have the stomach (I did BUT while I can talk the talk, I almost couldn't walk the walk.....very difficult to do) buy your dividends on sale, or at firesale prices.
 

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I forgot to add, dividendgrowth.ca has some great info on dividend investing.

Morningstar's book on dividend investing is good.

IMO the best book on dividend growth investing is:

"The Single Best Investment" by Lowell Miller. Dont even borrow this book from the library, you must buy it and keep it forever.
It will keep you on track, and provides a nice framework to evaluate, design, and implement a dividend growth strategy.
 

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Discussion Starter #7
I'm currently reading the Morning star book - its damn good actually. Not bad for a chance pickup at the library.

I also think dividendgrowth.ca is the **** too.

As your recommendations follow closely with my own thoughts ill buy The Single Best Investment too :p
 

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I take more of a macro look at the company in relation to the current/future economy. Depending upon where I think things are/going at any given time. Such as what they do, where they do it, and how they could make money if something in the market where to change.

I too follow only about 30 companies really closely (give or take). I also track monthly prices, looking at ranges.

www.dripinvesting.org has a good site to discuss dividend paying stocks, CDN and US.

I would recommend Little Book of Big Dividends for a little US exposure of some stocks, Lazy Investor for a simple CDN how to, and Cemil Otar's Commission Free Investing if you want to get more into DRIPs.
 

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Discussion Starter #12
I was playing around with criteria for screening for dividend yielding stocks, i.e. if you fed in 50 stocks it would rank them. Then I could run the graham value to figure out their intrinsic value and using relative graham value see whether they are a good buy.

Here is the formula I made for comparing stocks.

Rank = (t * (y + g))/pe

Where t is the number of consecutive years a company has risen its dividend. Y is the dividend yield, g is the dividend growth and pe is the price to earnings ratio.

The logic going that the years of consecutive increases being the primary factor, and price to earnings ratio shows you the relative strength of your slice of the pie in the company to the cost of the share.

I wouldn't mind factoring in the payout ratio too.
 
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