Monday, April 16

The Dividend Project - Info for analyzing candidates

Well, after stressing out about my first tour things can now return to normal (more or less). And I am back on the topic of dividend stocks again. For those who missed them, links to previous posts are at the bottom of this post. But today, we are on to the interesting question of how to analyze candidates.

I have put together a list of information to gather for a potential dividend stock candidate based on what I've read at a number of sources. There is a lot of good information available. So the good stuff is probably due to others guidance while any mistakes are mine alone. :)

Now, I am assuming that the decision to invest for dividend income has already been made. If not, you may need to return to asset allocation school, which is something that I intend to cover down the road but not today. Therefore, we can identify the characteristics of good dividend stocks and create a checklist for future use.

1. Dividend History
Obvious, but worth saying. It should have a proven history of paying dividends for at least 5 years but 10 is even better.

2. Dividend Growth
Not many stocks increase their dividend every single time, but some of them never go down. This is a very good sign, especially if it goes with a long history. To get pickier, you may prefer those that show larger percentage increases and more frequent increases.

***If the stock fails after #1 and #2 then stop wasting your time. It won't ever be a contender***

3. Dividend Yield
Here is our first hard one. There are no rules for what is a good yield. So first, find out what the historic range is over at least the last five years. This will help us see when it is historically cheap or expensive. Also, compare to other stocks in the same industry to see where it falls compared to its peers. Finally, remember that high yield may indicate higher risk. Nothing is black and white!

4. Other Indicators of Value
We only want to buy when prices are cheap. But for each stock that could be a very different number. The yield info in #3 will help, but P/E (price to earnings) ratio and Price/Book ratio are also good tools. For now, just look the numbers up. We will talk about how ot interpret them later.

5. Timing Considerations
You need to know when the last dividend was and when the next dividend is going to be (if it has been announced). There are a few different dates and I don't quite understand them all yet so we will need to come back to this point too.

We are going to use this list to decide if we like a stock enough to watch it and to determine at what price it becomes a good buy.

I don't have good or easy ways to get some of this info, especially the historical stuff. For now, we can use the Mergent Canadian Dividend Acheivers list and assume that stocks on this list have passed #1 and #2. But if I find another way to do that part, I will be sure to post it.

We will talk about sectors and then move on to individual stocks in each sector. Then we will pull together the answers to #3,4 and 5 for a few stocks to see if we can identify a buy price. Later on we should talk about taxes and other boring stuff like that.

Previous articles in The Dividend Project series:
1. Learn with me!
2. Resources


mOOm said...

On dividend yield, you should look at the stock chart for the last few years. If the yield went up because the price of ths stock went down, that is a very bad sign and those type of high yield stocks should be avoided.

Yahoo has info on historic dividends for US stocks. A companies websites often have links to past annual reports that have the info. You could always e-mail the investor relations person if there is no other way to find it.

the money diva said...

Thanks moom,
The sources for US stocks are SO MUCH better than what we have for Canadian ones that it is rather depressing!
I agree with you on the yield comment. I will be sure to bring this point up in a post as well in case people don't notice it in the comments.

Gwaine said...

I go to "Corporate Information" (
) to see the historical dividends of Canadian companies for the last 5 years. Unfortunately, it's only a small chart of the numbers and the numbers are hard to read, but it's pretty easy to see the trends for earnings, dividends, and stock prices.

Try entering the stock symbol RY, click on the Ticker, and click on the Get button.

Hope this helps! :)

the money diva said...

Thanks for the tip. I will be sure to check it out and add it to the resources section. I was hoping that someone would come along with another source!