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+--- Thread: Strategies for Building a DGI Portfolio (/showthread.php?tid=1812)
RE: Strategies for Building a DGI Portfolio - Otter - 02-25-2019
(02-25-2019, 06:32 AM)rayray Wrote:(02-22-2019, 11:56 AM)Otter Wrote: Credit rating is becoming an ever more important part of my portfolio strategy for selecting and keeping stocks. Companies with lousy credit don't have a lot of room to maneuver when times get tough. As I mentioned in the initial post, BBB+ and better is my preferred range for creditworthiness. KHC today (BBB rating) just reiterated that sentiment.
Perhaps no surprise that some of my worst-performing holdings have lousy credit ratings:
BT: BBB
CVS: BBB
F: BBB
GIS: BBB
SKT: BBB
T: BBB
Granted, I have some dogs with good credit (NGG, QCOM, WFC), but those downtrends tend to be from unique issues (regulatory, Brexit, lawsuits, etc.). Clean balance sheets will outperform in the next downturn.
Correct me if I'm wrong but I thought BBB/Baa2 credit ratings were acceptable, not the best obvious but not really considered lousy or bad credit ratings for a business...not to be funny but wouldn't they be better then say, "ok"....lol...I do love those commercials!
What site do you guys use to check CR, other then googling the ticker's CR? Fidelity doesn't make it easy unless I'm missing the CR on their site.
BBB is technically "investment grade," but that term relates to risk of default, and not risk to dividend. A company in financial distress will do everything to avoid default (legal obligations to bondholders and shareholders require it), and that includes cutting a dividend. The companies at the lowest tiers of "investment grade" carry the highest risk of cutting a dividend to preserve the company's financial health. That's why BBB+ and better is my personal threshold for picking DGI stocks to purchase.
I use FAST Graphs to get credit rating info, which draws its data from S&P Capital IQ
Edited to add - with REITs credit rating is also a key consideration. The debt levels they carry and the interest they have to service on that debt can have a major effect on their cost of equity capital. REITs with high debt loads are more likely to dilute your shareholding, suffer reduced/negative AFFO growth, or both. There's a reason REITs like O and FRT typically trade at a premium valuation to their peers.