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Uncovering Potential Dividend Stock Investment Ideas In Excel

With the recent release of Alpha Factor Library factor rankings in Excel, we have created a new Excel template that allows multifactor screening on any combination of our 550+ alpha factors across nearly 100 ranking universes. The template is intended to bring ‘new’ or overlooked companies that may have good investment potential to investors’ attention as a tool for idea generation. This particular screen is intended for investors looking for relatively low-valuation dividend-paying stocks.

The model (available here) seeks to identify high yielding, low payout companies with some dividend growth, and strong cash flows, possibly selling at a temporary discount. The two primary factors are dividend yield, based on the current indicated annual dividend rate, and payout ratio (past 12 months dividends / past 12 months earnings – the lower, the better). The model also includes a momentum ‘reversal’ factor (stocks that have been weakest over the past month), a dividend growth factor, an additional valuation factor (P/E ratio adjusted for growth), and three cash flow-related factors – cash flow accruals, cash flow return on invested capital, and capital acquisition (cash flows to capital expenditures).

Because of the number of factors in the model, it is possible that some of the stocks returned may have a modest yield or a relatively high payout ratio. We exclude information technology and telecommunications stocks due to evidence that a dividend yield strategy doesn't work well in these sectors.

We suggest using the screen as a list of stocks that may have good potential, for further fundamental research by the investor. To use the template you must have the S&P Capital IQ Excel Plug-In installed and macros enabled. Press the Generate Portfolio button (cell I13) to get the latest portfolio constituents. Stocks are listed on the Output page from highest model score to lowest, and the model only selects the top 20% of stocks by model score.

The template is an idea generation tool, bringing investors’ attention to ‘new’ or overlooked companies that may have good investment potential.

Below is a sample copy of the top 5% of stock generated by the model. The stocks in this screen have dividend yields ranging from 0.8% (Charles Schwab) to 7.1% (Greenhill & Co.), and payout ratios ranging from 13% (Tyson Foods, yield 1.4%) to 165% (Meredith Corp., yield 3.6%). Note that unusually high dividend yields may indicate that a company is distressed and that the dividend may be in danger of being reduced.

Table 1. Dividend Yield, Payout, and Growth with Cash Flow - Top 5% of Stocks by Model Score(1)(2)

Click below to enlarge the image.Multifactor Screen

1. Source: S&P Global Market Intelligence as of April 30, 2017.

2. The model score and factors are ranked from lowest to highest, i.e., a lower score is better than a higher score.

Want to learn more about the tools used to conduct this analysis? Identify new sources of alpha with our Alpha Factor Library.

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