Wednesday, January 23, 2008

* Pre-Screening Dividend Stocks - Part II

This post has been updated. Click here for the newer version.

As I have mentioned before, my entire financial existence is contained in two massive spreadsheets. From these spreadsheets, I have extracted the portion that I use for pre-screening dividend stocks. It is linked on the tools page as D4L-PreScreen.xls. The file contains the following tabs:

  • Screen: Is where you enter information about a stock and a recommendation is generated.
  • Database: Over time I keep "rediscovering" the same stocks. The database tab allows me to keep up with what stocks I have previously screened, the results of the screen and when the stock is eligible to be screened again.
The Screen tab is divided the following five sections:

I. Input: All cells requiring your input are shaded yellow. They include:
  • Symbol: Enter the stock's symbol here.
  • Year: Enter the last year in which annual dividend data is available.
  • Current Yield: Enter the stock's dividend yield.
  • Calc. Div. Growth: This field calculates the stock's dividend growth [NOT AN INPUT]
  • MMA Yield: Enter what you can earn on a money market account.
  • Max Div. Growth: Enter here the cap (maximum) for Calc. Div. Growth.
  • Override Div. Gro: Enter here an override rate for Calc. Div. Growth.
  • Annual Dividend/Share: Enter here historic annual dividend information.
II. Projected Information: This section calculates 20 years of balances for two hypothetical $1,000 investments; one in a MMA earning the yield input above, and another in the stock entered above. Both the dividends and interest are reinvested. The MMA differential is the difference between the two investments. Proj. Yield on Cost is the projected yield on cost based on the stock's dividend growing at Calc. Div. Growth or Override Div. Gro. above and the stock's original cost.

III. Interpretative Analysis: Calculates several relevant pieces of information and allows you to set a minimum threshold on certain items. The items calculated are:
  • NPV of MMA Differential: This is the net present value of the MMA Differential calculated in the projected information section above. You can enter the minimum acceptable level in column C.
  • Sum of MMA Differential: This is a simple sum of the annual values calculated in the projected information section above.
  • Metrics 1-5: Are specifically defined within the worksheet. Metrics 2 and 3 allow you to enter the minimum acceptable level in column C.
IV. Recommended Action: Based on the information entered above this section provides you with one of two possible recommendations 1.) This security should not be purchased or 2.) This security is worthy of additional consideration. Additional commentary is provided in this section along with a recommend year for reevaluation if the recommendation is to not purchase.

V. Disclaimer: Too many attorneys with not enough work for my liking....

The Database tab allows you to keep up with what stocks have been pre-screened along with the results of the of the screening and the recommended year for the next screening. I have it divided into three sections:
  1. Stocks To Consider (green): These are stocks that you currently own or would consider buying in the future.
  2. Reconsider Later (gray): These are stocks that have previously failed the pre-screen. They are listed here to let you know that they have been screened before and when they are due to be screened again.
  3. Never Consider (red): If you are opposed to stock and know you will never consider owning it, listing it in this section ensures it will always be rejected.
For each stock there are three fields of information:
  1. The stock symbol (column A): The ticker symbol is used to look up information that is stored on the Database tab, but is displayed on the Screen tab.
  2. Flag (column B): A "X" in this column will flag the stock as rejected and display the comment on the Screen tab in cell D7.
  3. Comment: Whatever you want to say about the stock. As noted above, the comment is displayed on the Screen tab in cell D7 when there is an "X" in the Flag field.
Disclaimer: This model is for illustrative and educational purposes only. The author and Dividends4Life makes no claims or assertions as to the model's accuracy, completeness, appropriateness of use, or any other claim or assertion. You should not rely on this model or base any financial decisions on it.

In Part III tomorrow, I will walk you through several examples and point out things to look for.

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