11-13-2013, 11:15 PM
Ok, don’t laugh, but here is a rough description of my system:
Dividend streak is worth a possible 20 points.
Current yield is worth a possible 20 points.
Payout ratio is worth a possible 15 points.
P/E ratio is worth a possible 15 points.
Earnings growth is worth a possible 10 points.
Dividend growth is worth a possible 10 points.
Simplicity of business model / Brand / Moat is worth a possible 10 points.
Within each category, I do some mumbo-jumbo to decide how many out of the total possible points it gets. For example, I use a blended P/E ratio (average of the current price divided by 2012 earnings, ttm earnings, and forecast 2013 earnings), and then have a scale for assigning points (zero points if P/E is over 20, a few points if P/E is between 16 and 20, and so on, with highest points going to P/Es in the 10 to 12 range). Similar schemes for the other metrics.
The last category is discretionary really. A company like KO gets 9 or 10, while banks and tech companies get much lower scores in that category.
I am planning to tweak the scoring system a bit – I think the most glaring problem with it is too much emphasis on current yield and not enough on dividend growth. But I am hesitant to change it because I like seeing how the companies rise and fall over time, and changing the scoring would require a reset. Still, I’ll probably do it at some point.
I said right up front that it is crude, but again, it is just a way for me to keep track of these companies and decide when a deeper dive is warranted. I would not invest on these metrics alone.
Dividend streak is worth a possible 20 points.
Current yield is worth a possible 20 points.
Payout ratio is worth a possible 15 points.
P/E ratio is worth a possible 15 points.
Earnings growth is worth a possible 10 points.
Dividend growth is worth a possible 10 points.
Simplicity of business model / Brand / Moat is worth a possible 10 points.
Within each category, I do some mumbo-jumbo to decide how many out of the total possible points it gets. For example, I use a blended P/E ratio (average of the current price divided by 2012 earnings, ttm earnings, and forecast 2013 earnings), and then have a scale for assigning points (zero points if P/E is over 20, a few points if P/E is between 16 and 20, and so on, with highest points going to P/Es in the 10 to 12 range). Similar schemes for the other metrics.
The last category is discretionary really. A company like KO gets 9 or 10, while banks and tech companies get much lower scores in that category.
I am planning to tweak the scoring system a bit – I think the most glaring problem with it is too much emphasis on current yield and not enough on dividend growth. But I am hesitant to change it because I like seeing how the companies rise and fall over time, and changing the scoring would require a reset. Still, I’ll probably do it at some point.
I said right up front that it is crude, but again, it is just a way for me to keep track of these companies and decide when a deeper dive is warranted. I would not invest on these metrics alone.