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Dividend Analysis Framework

Dividend Analysis Framework Using INVRS


Passive Income
A dividend investing framework for creating passive income.


A complete dividend analysis can be easily conducted in INVRS.  Some set up is required, but once complete you can run the analysis at will, with only small tweaks necessary to reflect your personal preferences and changing market conditions.


1. Canadian Analysis:  Use INVRS to calculate the current dividend yield of the TSX 60 (average dividend yield of the 60 member stocks).  US analysis: Use INVRS to calculate the average dividend yield of the 500 member stocks.

More details:
  1. Create a portfolio of the 60 Canadian companies and/or a portfolio of the 500 US Companies.  
  2. Create a template using the dividend yield metric of your choice.  Options are Dividend Yield Daily (dividends per share / most recent last close price), Forward Dividend Yield (this is a calculation you create - choose the Dividend Rate (most recent dividend multiplied by the number of times the company pays a dividend) and divide by the Current Price,Dividend  Yield Fiscal or Dividend Yield Security (latter two are calculated using the fiscal period end price).  I like Dividend Yield Daily.
  3. Click "Add/Update Formula" and write avg(A), which will give you the average dividend yield of all the stocks in the portfolio.
  4. Run the portfolio against the template to get the average.
2. Create a screen to identify all Canadian or US companies in the following dividend yield range:
  • Floor: 1 to 1.5 x the average dividend yield
  • Ceiling: 5 x the average dividend yield
More details:
Add two separate filters.  The first greater than 1.5 x the average dividend yield and the other less than 5 x the average dividend yield.  You may wish to use the same dividend yield as you used for the market average.

 3. Run the screen and add the candidates to a portfolio.  

4.  The portfolio is further screened to exclude securities that have not experienced at least 5 consecutive years of dividend growth.

More details:
Create a template with five years (Y to Y-5) of dividends per share data.  Write five "if" formulea that assigns the value "1" if the dividends per share is greater than the year previous to it and "0" otherwise (eg. if(A>B,1,0)).  Sum the score of the five "if" statements and if the sum is less than five remove the stock from the portfolio.

5. From this group, the following characteristics are examined:
  • Dividend coverage - calculated as the quotient of dividends per share and free cash flow per share, the sweet spot is greater than zero and less than 75%.
  • Forward dividend yield is greater than the five year average.  This is our valuation proxy and can be calculated by dividing the forward dividend yield by the five year average dividend yield.  If is greater than one, then the it qualifies.
  • Total yield - calculated as the sum of the forward dividend yield and the five year growth rate, however look also at the growth trend.  Is it declining, constant or accelerating?  If it is declining significantly, the 5 year growth rate might not be appropriate.  The total yield number is a matter of preference.  The highest total yield possible might not be ideal, as very high yields indicate greater risk.  The sweet spot may be between 9% and 16%.
You are looking for companies that check the boxes on all three characteristics.  If they do, they are good options for your dividend portfolio.

Acknowledgement

I wish to thank David Solyomi, author, economist and dividend investor.  His website is The Falcon Method.   I learned these concepts from him, any errors in interpretation are my own.

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