Dividend Investing Analysis - continuation

This article is the continuation of Dividend Investing Analysis. I'll elaborate a little about other ways to research companies that can prove quite useful.

Research in Seeking Alpha

Seeking Alpha is a great website for investor research. The free account does not provide access to many reports, some of which are actually very good. We’ll stick to the free account for now. Let me bring back up the list of stocks we were reviewing (consider that this list was compiled a couple weeks ago so metrics or fundamentals may have changed since—the purpose is to illustrate the process):

So now, same as we did with Simply Wall St, let's create a list before exploring the figures:

You may notice I've already sorted the list descending by "Payout ratio". This is a very important metric that we didn't have in our original dataset (R scraping action point here). Payout ratio is the quotient between dividend per share (DPS) and earnings per share (EPS), and it's an extremely important number in order to evaluate the amount of financial resources the company is keeping (retained earnings) for re-invest into the business. For non-REIT stocks I generally try so stay away from companies paying:

• over 80-85% for high yield stocks, and

• over 60% for dividend growth stocks

It's also important to compare not just the actual payout ratio but also the 4 years average, as any significant change in trend can be important. In case economic conditions are worsening but the dividend stays flat (or increases) the actual payout ratio will increase in a relative basis compared to the 4 years average. If such supposed worse economic conditions are not short term, there could be high chances of a dividend cut, which would make the investment relatively riskier. Example:

Sysco Corp. has a 4 year average payout ratio of 52% but an actual of 100%. We would need to find out if this much higher value is due to a one off impact on the P&L or if it's due to decreased revenue before taking any conclusion. We also have to consider if the sector or the market as a whole is under similar situation or if it's the company that is under performing in relative terms. Let's look at Growth:

So according to these numbers both revenue and EBITDA are significantly down not just for the year but also 3 year average. Free cash flow is also down for the last 3 years. I would guess it's overdue a dividend cut so I would take it out of the list.

Some other details I don't like much from our stock list are:

• Linde Plc (LIN) seems a bit overpriced based on earnings (P/E of 59, P/E FWD of 32)

• Medtronic Plc (MDT) seems also expensive to me on the P/CF side (18). P/E maybe wouldn't be excessive if it had good growth, but in Growth page we can see it apparently hasn't (3 years growth of -1%)

• Franklin Resources, Caterpillar and PPG Industries have declining revenue for 5 years and for last 3 years. Franklin R. and PPG Ind. have also negative EBITDA

We should also check the debt (Long Term Debt to Total Capital, Debt to FCF and Quick Ratio). Some of these companies operate on a much higher debt basis due to the nature of the industry (check Industrials like CAT or GD, or REITs like FRT) so we have to make sure we compare apples to apples.

Based on this exercise then, plus the research we made on Simply Wall St, I'd cut down the list to the following alternatives:

We could go on reviewing other reports and news about these companies in order to find which ones may be taken out of the list, this exercise can be very time consuming if you want to be thorough. I'll skip that part as you probably got the idea already. So at this point my suggestion is to spread the amount of cash available for investing at this moment on 4-6 picks, each of of them from a different sector. My picks would be: Prudential Financial (PRU, insurance), Albemarle Corp. (ALB, materials [specially important, lithium]), Federal Realty (FRT, retail REIT), General Dynamics (GD, industrials-defense) and Verizon (VZ, communication services) for a total of 20% total funds each. These group would average 4% dividend yield, 7,07% estimated dividend growth, a minimum of 11 years rising dividends, a maximum payout ratio of 51,60% excluding REITs (FRT) and a mixed P/E ratio of 15 (P/CF for FRT) which is quite low (the current P/E ratio of the S&P500 is 29).

In case of already having significant exposure to any of these stocks, some potential replacements could be Omnicron (OMN), National Health Investors (NHI) or T. Rowe (TROW).

Research in other financial sites

At this point we probably have plenty of information to make a small investment. Providing we repeat the process every other month (6 investments per year) or even after every paycheck (once a month) we should be spreading the risk reasonably good. If still someone feels like needing other sources of information to complete the research, some other good alternatives are Zacks, Yahoo Finance and Market Watch. These sites have similar features to Seeking Alpha so pick the one you like the most.

Also, other sites for lots of financial information and news to keep up with the markets are George Gammon, the YouTube channels Economics Explained, Ken McElroy and Graham Stephan, Sharp Trader (free online courses), The Berkshire Hathaway portfolio and 7 investing principles. Finally, a couple useful tools for portfolio modelling: S&P500 return calculator, Portfolio Visualizer and Rent vs. Buy Calculator.

This is it for now. In my next article I'll share some useful guidance regarding investing in precious metals (particularly gold & silver) and cryptocurrencies. These topics are trending now due to investors looking for leverage against high inflation, so it will probably be interesting for everyone like myself is looking for alternatives to get exposed to such assets.

AMC

Disclosure: I am no financial adviser nor an investing professional, and this article reflects my own opinions. I have no business relationship with any of the websites mentioned here nor I receive any compensation from them.