Welcome back to the second portion of session two. This section is one of the most important portions of this course, which is basically about filtering, ranking and selecting dividend companies. As serious dividend investors, all of us seek to pick the right dividend stocks to add to our portfolio. But what do the words right dividend stock mean? Well, dividend investors are interested in two main categories of the right kinds of dividend stock, which are dg and DS stocks. The first category is called dividend growth in short Digi or Digi companies.

Digi companies are sought after by investors because their dividend per share is expected to grow in the near future, which is 123 years time. This growth in dividends could be due to reasons like selling off a business at a profit and the management deciding to reward shareholders with a one off Special dividends, or it could be that the company has done well over the years and the potential for a big payout is imminent. Whatever the reason, Digi refers to companies with the potential to grow their dividends. The following are the 11 conditions under its mandate to screen for big companies. One, there must at least be dividend growth. Don't worry about the words extra assurance in the parentheses, we will come back to them later to there must be positive revenue cumulative average growth rate over five years period three, there must not be significant drop in revenue the previous year.

For the EBIT margins average over five years must be positive five. Likewise, the current EBIT margin must at least be positive six epds average growth over five years Yours busty positive seven. The most recent years EP s amount must at least be positive eight. The most recent years current ratio must be more than one, nine, the five year average return on equity must be positive and decently fair 10 the latest year's payout ratio must not be overly generous. And lastly 11 check for PE, which should not be say really more than the industry or 52 week average. Next, we'll look at the second kind of dividend companies that investors like which is called dividend sustainability in short DS or d s companies.

Ds companies, as the name implies, are companies with the ability and the means to sustain dividends for the coming years. If you're a long term dividend investor, DS companies should be your focus over companies. So in order to screen for DS companies, these are the 13 conditions under its mandate, one proven track record of paying out dividends to show to how stable positive operating or EBIT margin. Three shown to have stable positive net margin average for earnings per share over the years must show to be positive for most of the observed years. Five must have a healthy interest coverage ratio. Six must not have too many debt burdens on its balance sheet.

Seven current ratio must be more than one eight must have positive fcf to cover debt interest and dividend payment reasonably nine the five year average return on equity must be positive and decently fair 10 if the company fails, To meet mandate number nine check for the existence of net cash per share. 11 must have a reasonable dividend payout and show itself to have practiced and applied reasonable dividend payout. 12 have a decent financial health score and 13 pe consideration. Allow me to quickly explain each of them. condition number one is the most objective observation. Because we want sustainable dividends.

We then should screen for companies that have proven to give out dividends consistently. Conditions number two and three. Their purpose is to ensure that the dividend company's economic moat is sustainable. condition number four is ensuring that the company can manage its cost such that there are enough leftovers for dividend distribution to shareholders. Conditions number five and six are about debt management, ensuring we don't invest in overload leverage dividend companies. Conditions number seven and eight are about working capital management, the management's ability to keep operating efficiently.

It covers inventory health ability to collect back receivables for example. condition number nine is about free cash flow. We don't want to invest in companies that have weak cash flows or cash flows that don't flow back to investors. condition number 10 is about reasonable dividend policies. Yes, we all want dividends The more the merrier. But the logic here is, the higher the payout, the less the company has available to reinvest.

In addition, having looked at these conditions, you might have questions as to why I use certain numbers. For example, why use five years not three or four? What do you mean by decently fair and stable? And how do you quantify something as vague as these two terms now, I could spend the next two hours explaining why I use certain numbers and measurements. But for the sake of being concise and getting to the point as promised in the course description, I'll have to table such queries on a one on one basis. Alternatively, you could post your questions in the forum and I will answer them accordingly.

But rest assured the conditions under both mandates dg and DS have been considered quite thoroughly and they have been back tested many many times. So having said all that, I will now show you how to use these ratios to screen for companies under the dg and DS mandates the screeners, I start the investment selection process with a stock filter. For myself, I usually conduct my screening via Bloomberg or fin biz for reads, and I rank my dg and DS companies, but because they understand that Many investors do not have access to Bloomberg due to its heavy monthly fees. I had to find a screener that is at the very least priced fairly for you and comprehensive enough to conduct proper dividend investing. And that screener is none other than uncle stock. Uncle stock screener is available for free for a short period of time for the first time user.

But if you find it useful and want to use it for more than a few weeks, feel free to sign up for the screener at a discounted rate via this link. This link will be in the attached so now I'll head over to Uncle stock calm. You can practice along with me. just pause the video if I'm going too fast. Now click on the website and sign on with your email or your Facebook. Click on Search stocks over here.

You will see a few important things pop up Choose the market which you are familiar with. I'll start with the USA which is in the drop down menu for North America and uncheck the rest of the regions. At the bottom of markets, click to open the first drop down menu and select exclude OTC from the options over to your right under sectors and industries. I usually leave it all checked, but my other dividend investing friends tend to leave out industries like oil and gas and technology. You can follow suit if you feel that you don't understand certain industries very well. Once you have done that, look over here.

And under search topic based on type in dividend dot one why growth word for word. To the right of that field, click on the rightmost drop down menu and set it at eight results. The more results you set it out The longer it takes for the system to filter the stocks, select best on top long. And here comes the important portion, the filter conditions type in the following revenue dot five why CAGR more than zero percent? revenue dot one why growth more than negative 15%? Very quickly The reason I set the five year revenue growth at zero percent is because there are companies willing to increase dividend even with stable revenue.

So I don't want to filter those companies out. One year revenue growth cannot suffer a significant drop and a drop of 15% or more is significant to me, hence the numbers. Alright, next, EBIT margin dot five why average more than or equal to 7% click on the plus sign added more conditions EBIT margin dot percent likewise more than or equal to 7% Ep s dot five wide growth more than zero percent. Remember EP s must at least be positive. then likewise as EBS dot POS percent refers to the most recent EBS figure, it must be positive as well. Therefore, more than zero percent current ratio dot b slash on y r must be more than one r RO e dot five y A BG must be more than or equal to 10% then type in payout ratio dot p slash o n y are less than or equal to 60%.

Doing this screens out dividend traps followed by dividend yield dot percent of more than 1% And last but not least, typing the growth score and set it to be above 50%. The growth score is only available in uncle stock. That's what I like about this filter platform. The growth score consists of rather complex math formula combined with various ratios to measure how good a company is in terms of efficiency and potential for continued growth. I combine this growth score with the rest of my other metrics as an extra level of assurance and filtering out growth companies. Once that is done, make sure the exclude button at the bottom is activated and exclude stocks not traded in over two months.

Doing this screens out the illiquid dividend companies. Click on Search at the bottom right and wait for the results. It will take a while for the system to diligently filter the stocks for us. Once the filtering is done, you will see something like this. Take your time to understand each column in each cell, it might look very dense at first, but to a serious dividend investor, this screen is a goldmine of useful information. hover over each column category and there'll be a brief explanation of what each ratio does.

If you look over here, in the top left corner, you will see a set of numbers which are one slash eight slash 115. In the example below, one refers to the black box selection, the position of the stock on the list. So if I click on Nike, it shows the number three and so forth. The number eight here refers to the number of stocks in the list and 115 shows the total number of US stocks that fulfilled or conditions typed in earlier. Now click on the square over here and make sure it is under the dividend label. To access more stocks, you simply need to click on the More stocks button.

Let's click until it reaches over 50 stocks. All right. Now click on the gray ish dividend yield column tab over here. Doing so we'll sort the dividend stocks from lowest yield to the highest yield. After doing so, click on the small Excel icon at the top right over here. select Export condition metrics and press export.

Let me just save this file to avoid confusion. Let's save under the name Digi stocks USA batch 188 open it in Microsoft Excel and use Save As to convert the file type to excel 97 dash 2003 workbook You can manage to follow me this far well done. We are almost done with Digi stock filtering. The dividend growth mandate will probably capture cyclical and project centric companies. So looking at the dg stock Excel file, convert it into a table format, press Ctrl A on your keyboard, click on the Home tab and then format as table. Now depending on how many dividend growth stocks you can handle, I usually select the top five yielding Digi companies as highlighted over here.

The reason I do this is because we are not only interested in the potential of each of the company's dividend growth, but also in having that level of decent yields to start off with, hence the reason why I saw the difference In yields from highest to lowest. Right? We are 90% done for Digi stocks. The last 10% is double checking the extra assurance part in the parentheses you saw earlier. For these five Digi socks, I will double check a few things before investing in them. For example, the Booz Allen Hamilton holding corporation is in my top five.

I will go to dividend COMM And check firstly the company's latest payout ratio. If it's less than 70% then it's a pass for me. For dgx stocks in Singapore go to dividend.sg. And last but not least before I place Booz Allen Hamilton holding into my side dividend holdings, I will check for its latest PE which can be easily found by googling the company's latest share price NAEP more than 30 Or more than the industry average would make me hesitate and delay my purchase until an opportunity arises. Just a side note, if you look back at the uncle stock platform, you actually can back test this dg strategy by pressing the back testing button over here. Once you do that, you will see options for yearly renew and buy and hold or historical return.

Click on buy and hold and you will see this report. Scroll to the right and you will get a rough picture of this strategies performance, which yields pretty decent results if you asked me. dividend sustainability, we have gone through quite a bit of material on comprehensive screening for Digi companies. We can now move on to DS companies. under this category investors place high emphasis on the company's ability to keep producing dividends for the long run. similarly to how we screen for Digi stocks, we have to rely on uncle stock screener to do so, again, the same instructions apply to markets to sectors and industries.

There are no changes in those sections ensure that OTC is excluded at the bottom left. Looking at the top right, everything remains the same, only the filter conditions must change. Type in what you see here accordingly. The EBIT and net margins five year average are 10 and 7% respectively. To some experienced investors, these conditions can be quite restrictive as they filter out companies with lower than 10% EBIT margins. As such, they will input a lower number perhaps more than 7% instead of 10% for EBIT and more than 5% Instead of 7% for net margins to be more inclusive, because after all, a company with low margins can still pay out dividend consistently if they hold some kind of monopolistic advantage over their competitors, but for now, let's stick with 10 and 7% Ep s POS will be more than 70% interest coverage ratio more than three times and so forth.

Once all these conditions are key in, click on the search button, and you will see this, press more stocks to generate all 28 stocks. Press the dividend yield column to sort highest to lowest yield. Then extract the Excel file and select Export condition metrics. So similar actions are required when you open the Excel file. hit Ctrl A to select all the necessary data. Tap home and format the data as a table to Make it neater, select the top five or 10 highest yields and conduct assurance tests on the following mandates number one and number 11.

These are the notions of checking for a proven track record of paying dividend consistently and maintaining a reasonable dividend payout. Use dividend calm to look at the history of dividends for Singapore investors use dividend comm.sg all the answers can be found on those websites. Remember, the intent behind mandates one and 11 is this that if a company's payout ratio is too high, such that the payout is 80 to 100%. There is little to no margin for error respectively. Unless they are in a net cash position. Companies with such high payout will lack buffer and if profit slips, dividends will be the first to go.

Thus, there is an ideal range where the payout ratio is general to shareholders, but not so generous that it compromises a company's margin of safety to deal with deteriorating business conditions. Finally, mandate number 13. Like what we did for dg stocks look at p e ratios to ensure you also do not overpay for your d s stock. Here's a recap. rescreening dg and DS stocks and the mandates to follow