The only one stock survived my screen...
On Wednesday, I showed you a framework for how to quickly analyze Dividend Growth stocks.
Today, let’s make it more practical - I ran a screen based on the article.
Let’s show you the complete results, how I’d filter them out and what companies look the most interesting.
Screening Criteria
When I screen, I try to cast my net a bit wider than what I’m actually looking for.
If a great company has a Payout Ratio 3% higher than what I’m looking for, I still want to see it.
So I lowered the cutoffs we discussed on Wednesday.
Here’s what I used:
Market Cap: $500 million or greater
Revenue 10 year CAGR: 7% or greater
EPS 10 year CAGR: 9% or greater
5 year average ROIC: 8% or greater
5 year average Gross Profit Margin: 35% or greater
5 year average Net Profit Margin: 8% or greater
Dividend Yield: 2% or greater
Payout Ratio: 70% or lower
That gave us 39 companies to look at.
The Screener Results
This is a strong list to start from.
Let’s look at some basic info about this group of 39 companies.
Average 10 year Revenue growth: 15.3%
Average 10 year EPS growth: 21.7%
Average 5 year ROIC: 33.8%
Average Gross Margin: 66.0%
Average Net Margin: 31.5%
Average Dividend Yield: 3.5%
Average Payout Ratio: 42.0%
If you want a spreadsheet with all the results, you can get that here:
We have a great starting place, but doing a deep dive into 39 companies would still take a lot of time.
Let’s run through our framework from Wednesday and see if we can narrow the list down even further.
Look At The Company Description
There are some industries that I would rule out right away.
In this list, those include:
Metals and Mining - it’s too cyclical, and there’s no pricing power
Marine Transportation - also cyclical with limited pricing power
There are some other companies I can pretty quickly rule out as well:
Restaurant Brands International Limited Partnership - This is a subsidiary of Restaurant Brands International, I’d rather own the parent than a subsidiary
Coterra Energy - is a U.S. shale oil company, if I’m buying an oil producer I want very low cost, which isn’t shale oil
Marimekko Oyj - Finnish fashion is way outside my Circle of Competence
I can also rule out financially complex companies like WHSP Holdings Limited, or companies with lot of earnings from markets I don’t understand like Genpac Limited, who generate more than half their revenue from India.
After the first filter, I’m down to just 17 companies:
Look At The Profitability
We know the average margins of these companies meet our requirements.
But we need to look at how stable they are.
The most interesting companies when we look at the margins are:
Rightmove
Universal Display Corporation
RLI Corp.
Steadfast Group
Interparfums
AJ Bell
Goodwin PLC
Smartgroup
So in 2 steps, we’ve narrowed 39 companies down to 8.
Let’s keep going
Look At Capital Allocation
With 8 companies, we can use Fiscal.ai to chart the ROIC for these companies in one chart.
Let’s see how that looks:
Rightmove and AJ Bell are so high, they’re making the others difficult to see.
Let’s remove them and have a closer look at the remaining companies.
We can now see that RLI Group tends to consistently have low ROIC.
Steadfast Group had one very bad year in 2020, but otherwise meets our criteria.
Interparfums and Goodwin look like their numbers are improving.
Look For Proven Winners
Let’s see how these companies stocks have performed in the past 10 years.
Remember that winners tend to keep on winning.
We’re looking for companies that have compounded by at least 10% per year.
Out of the 39 companies we started with, only 3 passed the 'Proven Winner' test.
Unlock the rest of this article to see the 3 finalists, the deep dive into their growth, and the one company that survived the entire screen at an attractive price.
You can join us here:
One Dividend At A Time
-TJ
Used sources
Interactive Brokers: Portfolio data and executing all transactions
Fiscal.ai: Financial data
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