10 Dividend Stock Purchase Criteria

Every investor has their own goals, personality and investment style. Many dividend investors agree on selecting solid companies that will grow dividends for years to come. Still there are unique risk strategies among dividend growth investors as well. I've highlighted some ways that I feel I'm different. For one, I'm not opposed to selecting a few higher yield stocks as a booster to get a portfolio going. Further, my main goal is not to retire early, but instead to augment my income to support my life style and allow me to enjoy certain things in life before retirement.

As such everyone has their own entry and exit criteria for stocks. I enjoy reading how others go about their decisions. Here are the things I look at right now. This collective screener will evolve -- I'm actively tuning it, adding more criteria to look at, and adjusting the values. These are not buy recommendations, merely a starting point for further research. 

I look at the following:

• Yield
• P/E Ratio
• Payout Ratio
• 1 year dividend growth
• 5 year dividend growth
• Consecutive years of div payouts
• Consecutive years of div raises
• Number of years since last raise
• Number of years since last cut
• Percentage below 52-week high

Each criteria has its sweet spot, which can change over time. A depressed market will see higher yields in general, a poor economy may see div growth slow a bit. The idea is to pick out the companies that can weather poor economic conditions, and other set backs. Their business model is robust and they make dividend payments a priority. 

I assign each of these criteria a score -- 0 if it's no good, 1 if it's pretty good, and 2 if it is right inside my target zone. This means that a stock with mediocre yield but good growth can score just as well as a higher yielding stock with lower growth. High growth but high payout ratio will offset each other, just like having one recent good year won't make up for cutting dividend in 2008 when things went sour in the market.

Each stock gets scored, totals added and we get a nice list of stocks to investigate further. I've been posting these from time to time, and plan to elaborate with more details behind each stock and their score.

At the moment these are equality weighted, although I think there's room for improvement there -- growth should weigh more heavily than the percent from high so we're not as subject to market fluctuations. Also I want to add some more criteria like how does the EPS growth compare to the dividend growth. Growing div faster than earnings is not sustainable and will eat into the payout ratio. I'm actively tuning this.