Thursday, 15 September 2016

A usefull checklist for the dividend investor

“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.”–John D.
Rockefeller. I Can't disagree with this saying from Rockefeller.


It is important to note, that with time, most investors will change this list or simply build their own, based on their own investing experience. The list below illustrates what has worked for me when managing my own portfolio and what I will continue to use this very day, and most likely will continue to use for many years to come.

General check.

– Make and follow your own list of rules
– Keep it simple! Only invest in companies where you understand their underlying business.
– Crunch the numbers to examine the company’s fundamentals.
– Always leave your emotions at the door and stick to the plan. So no Brexit panic here.
– Don’t buy on margin
– The market isn’t a casino, don’t play like it
– Don't chase high yield stocks, but stocks that can keep raising the dividend every year
– Short term investing leads to higher taxes. Any investment sold before 6 months of holding is subject to a capital gains tax in Belgium. Many other countries do have a familiar capital gains tax.

Sector checks

– I prefer companies with stable but growing revenu and profits. So I stay away from airlines, new technology and banking stocks.
– Will this company still be around for my grandchildren?
– Can this business be decimated by low-cost competition?
– Does the company has pricing power?

Company general checks

– Immoral management is a big liability . Just ask Enron and Lernhout&Hauspie how immorality broke their businesses. At the first sign of immorality from management, no matter how small, take the warning and run for cover
– High management bonuses aren’t investor friendly, usually
– Foreign stocks come with additional taxes
– Stock splits don’t mean anything about a company’s performance. Stock splits are done to try and attract more investors. A bad stock could split their shares just like a well performing one could. Just look at this Belgian example. The bank Dexia ( BB: DexB) did a reverse split with factor 1000.
– The management should be partial owners in the company’s stock.
– Does the company has a good moat

Company financial checks

– A large payout ratio is troubling. A payout ratio greater than 100% means that the company is paying more than it is making. This is unsustainable in the long run.
– Positive and growing earnings.
– Dependable Dividends, at least 20 years of a stable or growing dividend.
– Avoid a high earnings multiple.
– Predictable, sustainable cash flow.
– How much free cash flow per share does the company generate?
– High ROIC


When I give my friends financial advice I always tell them that a tree doesn’t grow overnight and that they need to have patience.

2 comments:

  1. It's always good to set up some parameters for any potential investment you make. For me, I look at the dividend history, payout ratios, yields and general cash flows to see if the dividend can continue to be paid and also grow. Of course, there are other factors to consider before making any investment but for me I focus mostly on the dividend stats. Thanks for sharing.

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  2. Hi Keith,

    I agree, if you set no parameters things could go wrong very quickly because of this.

    Cheers,
    Investor

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