Thursday, September 11, 2014

Screener: Dividend Yield

People favor certain stocks over others. We select stocks to make money, not to support a cause. We're not day traders, and do not want to spend hours every week chasing the latest growth story. Instead, we select stocks based on several criteria. Stocks are ranked based on their Active Passive Number, a score that combines the different criteria. One of the criteria is dividend yield. Since one of our goals is to generate passive income, we actively look for good dividend stocks.

Much has been written about dividend stocks. We could chase the highest yielders, but they usually cannot sustain the yield with growing their business. We could look at lower yield, but a better dividend growth story. We could look at who cuts their dividend payouts when there's an economic downturn, and who's isolated from that.  And we will look at all those items.

For now, we score based on yield. Yield must be high enough to make it worth our while. Even if the stock is a good dividend growth story, we will want to start above CD or Savings rates. At the same time, if yield it too high the company likely cannot sustain it, and we have to keep watching it. High yielders are even more unlikely to further raise their dividend. We believe there is maybe a short term play where we keep the stock for up to a year, and sell when it drops and/or cuts dividends.

The sweet spot for yield right now is between 3.25% and 7%. These values will change when market conditions such as interest rates change. We try to improve our average yield, which means we have to aim quite high. We will lower the entry point of the range when no solid stocks can be found.

The stocks with the highest AP Number are COP and CVX, yielding 3.54% and 3.33%. So we certainly can add to our portfolio at the low end of the yield range.

Disclosure: Long COP.

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