In this post, I will share the criteria for my stock selection. My approach has served me very well so far (touch wood), giving me double-digit annualised returns.
Most, if not all, of the stocks in my portfolio exhibit the following characteristics:
- entry prices near 52 week low
- dividend yield of at least 3%
- dividend payout ratio* between 25% to 75%
- dividend history of last 5 years uninterrupted payouts
- conservatively financed (debt-to-equity ratio less than 50%)
- total shareholders' equity prior to dividends show year on year increase of 5% or more
*formula is dividends divided by earnings. I am of the view a payout ratio not more than 75% is a comfortable range. Anything more I would worry if the business is leaving enough for growth, or if the current dividend levels are sustainable. Too little, I believe there is a potential misalignment of shareholder and management interests.
I ......