1. S&P Qualitative Risk Assessment + S&P S&P Quality Ranking
My broker provides S&P reports on individual securities and most ETF/CEFs. As part of this report S&P includes a Qualitative Risk Assessment and Quality Ranking. They define these as such:
- Qualitative Risk Assessment: The S&P equity analyst's view of a given company's operational risk, or the risk of a firm's ability to continue as an ongoing concern. The Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS universe, and should be reflective of risk factors related to a company's operations, as opposed to risk and volatility measures associated with share prices. The rankings include Low, Medium and High.
- S&P Quality Ranking: Growth and stability of earnings and dividends are deemed key elements in establishing S&P's Quality Rankings for common stocks, which are designed to
capsulize the nature of this record in a single symbol. It should be noted, however, that the process also takes into consideration certain adjustments and modifications deemed desirable in establishing such rankings. The final score for each stock is measured against a scoring matrix determined by analysis of the scores of a large and representative sample of stocks. The range of scores in the array of this sample has been aligned with the following ladder of rankings from highest to lowest: A+, A, A, B+, B, B-, C, D and Not Ranked.
- General Electric (GE): B1
- U.S. Bancorp (USB): A3
- Johnson & Johnson (JNJ): A1
- United Technologies Corp (UTX): A1
- Procter & Gamble Co. (PG): A1
2. Current Dividend Yield and NPV of MMA Differential
All things being equal, higher risk stocks command a higher dividend yield. Consider these two extremes:
- Wal-Mart (WMT) - 1.81%
- CenturyTel (CTL) - 11.30%
When judging risk I like to look at current dividend yield in conjunction with
NPV of MMA Differential. A high yield and a high NPV of MMA Differential could indicate a risky stock. Here are some risky stocks and ETF/CEFs that I am holding based on a high current yield and NPV of MMA Differential:
- Alpine Total Dynamic Dividend Fund (AOD) - 29.8% yield - $1.9 Billion NPV of MMA Differential
- Eaton Vance Tax-Advantaged Global Dividend Opportunities Fund (ETO) - 17.3% yield - $115,498 NPV of MMA Differential
- CenturyTel (CTL) - 11.3% yield - $3,487,677 NPV of MMA Differential
- Paychex Inc (PAYX) - 4.94% yield - $531,399 NPV of MMA Differential
In addition, I also look at the current market price vs. my calculated Buy Below price. A large disparity indicates the market believes the stock will perform much differently in the future than it has in the past. As with any forward looking exercise, it is a mixture of art and science.
Full Disclosure: At the time of this writing, I was long in GE, USB, JNJ UTX, PG, WMT, AOD, ETO, CTL, PAYX
Tags: [AOD] [CTL] [ETO] [GE] [JNJ] [PAYX] [PG] [USB] [UTX] [WMT]