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The signals I use come from my portfolio business plan. For the non-speculative portion of the portfolio:
- Stocks must pay a dividend and should have been paid at a higher annual rate for more than 5 years. Use the CCC list as a primary source for investment ideas.
- The P/E ratio for the trailing 4 quarters should not exceed 20. Additionally, it is preferable that the P/E ratio be less than or equal to the average P/E over the last 5 years. No more than 1 outlier may be excluded when calculating the average P/E. Be aware of non-cash charges to earnings when calculating the trailing 4 quarters earnings. These could be impairment charges or discontinued operations where little or no cash is involved with the expense. Add the non-cash charges back to reported GAAP earnings to get a better picture of profitability.
- Dividend yield at time of investment > 2.5% or 125% of the S&P 500 yield (whichever is higher). This excludes the Special Situation portion mentioned in the Tactics section.
- Dividend growth rate > 4% for the lesser of the 3, 5 or 10 year periods. Using the lowest rate of the three time frames should be a conservative estimate of future dividend growth.
- Payout ratio < 70% of free cash flow (EPS + depreciation – capital expenditures) for public corporations. For some investments, such as REITs and MLPs, a higher payout ratio may be allowed provided other financial factors are deemed adequate.
- Current ratio should be > 1.0 and the higher the better. Some companies have operated for years with a current ratio less than 1.0. This should be taken into account when analyzing a company's finances. Investigate cash flow, free cash flow and interest coverage to ensure the company can pay its bills and the dividend.
- Earnings Per Share (EPS), or Funds From Operations (FFO) in a REIT, increasing at a Compound Annual Growth Rate (CAGR) > 3% over the last 5 years.
- Debt/Total Capitalization < 50%. Utilities, REITs and MLPs may exceed this due to the nature of the business. In this case, Debt/Total Capitalization can be up to 100% but do investigate debt maturity dates to ensure they're spread out over the long term.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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When I have the cash available, I usually put in a limit order just a little below where it's been trading at and wait. I don't have any interest in technical analysis as I don't intend to trade around a position.
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“While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.” - earthtodan
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TA is all voodoo to me. Are you associated with wisestocktrader, Marty?
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I don't believe TA is at all accurate.
Fundamentals are the only sound reasons to buy a stock/
