2015 Four Dividend Machine Criteria
In 2015 I am adding stocks that pay at least a 3.5% dividend yield. Last four quarter earnings per share must be greater than the last four quarter dividends per share. Dividend increases must have averaged 4% or more per year over the past 5 years. The last of my four criteria is D/E ratio; this is debt to equity ratio which is one measure of financial health.
So far this year, each time I sit down to find a new stock pick for the 2015 model portfolio, the stocks that pass these four hurdles have been mostly in the energy sector. My 2015 Dividend Machine project uses no other criteria than the four outlined above which is why this portfolio is energy heavy.
Not Looking for Diversification
Diversify, diversify, diversify is what I was taught and what I practice in real life. The purpose of the model portfolio work I do, however, is to use only my four criteria to pick a stock and see how we do.
In 2011 and 2012, the portfolios are quite impressive. But who hasn’t made money in stocks since then.
Notice in 2015 the portfolio has good dividend yield and dividend growth but capital losses are conspicuous.
I am adding to the 2015 portfolio and I did not pick the Dividend Machine I am profiling today based on trying to find more diversification; I used only the four criteria defined above and the first stock I found that met all of these is Waddell and Reed, a mutual fund company, symbol WDR.
Notice that I am not recommending investing in a mutual fund. Rather I am adding the stock of the mutual fund management company to the 2015 Dividend Machine Portfolio.
Waddell and Reed, WDR Dividend Machine Fundamentals are discussed below.
EPS greater than Dividends per Share
My very first investment was in a Waddell and Reed mutual fund. My college roommate’s father sold these and I invested $25 per month. This was many, many years ago. Waddell and Reed has been a consistent stock. WDR earnings per share have been positive for many quarters. Over the past four quarters, EPS have been $3.46. WDR is also a consistent payer of dividends. Over the past four quarters, dividends have been $1.72.
Today, September 28, 2015 WDR is trading at about $34.00 Their forward dividend yield at that price is 5.05%.
September 29, 2010 WDR paid a quarterly dividend of $.19. WDR will be ex-dividend on October 7, 2015 and will pay a quarterly dividend of $.43. This folks, is an average annual dividend increase of 25% over the past five years. History is not always a perfect predictor of the future but it is a good guide. I use the Nasdaq.com website for EPS and dividend data. You can always go to the company’s website and find the data there.
As you know, I use D/E ratio which is debt to equity ratio. D/E ratio is calculated by dividing total liabilities by shareholder equity. You can find the D/E ratio already calculated for you at YCharts or MSN Money. WDR’s D/E ratio is .35. By any measure this is a solid number. I look for stocks with a D/E of 1 or less or within industry standard. WDR’s industry standard is higher at about .43.
See the table below to examine WDR’s Dividend Machine bona fides.
Consider Waddell and Reed, symbol WDR for the income producing portion of your portfolio.
Disclosure: No position in WDR but may initiate soon.