4 Dividend Aristocrats to Consider

In a continued effort to expand the focus of my site’s screens and hypothetical portfolios, this article is a fifth follow-up to an article written in early April focusing on the S&P 500 Dividend Aristocrats. The S&P 500 Dividend Aristocrats index measures the performance of large cap, blue chip companies within the S&P 500 that have followed a policy of increasing dividends every year for at least 25 consecutive years. The current list has 43 constituents and the entire list is available from Standard & Poors or on my site.
If an investor wanted to replicate the list the best option is probably SDY, the SPDR Dividend ETF, which is a variation of the Aristocrats – it seeks to replicate the “High Yield” Dividend Aristocrats Index. An alternative is to start with the Aristocrat list and then reduce the list of candidates through screens and/or fundamental analysis. I screened for Aristocrats which had a sustainable payout ratio, a high dividend yield, reasonable debt/equity ratio, and moderately positive return on assets and equity. 
 
Using Finviz, which has some of the better screeners and charts available, I screened the Aristocrat list for:

    • Payout Ratio < 80%,
    • Dividend Yield > 3%

    • Return on Assets > 10%

    • Return on Equity > 10%
    • Total Debt/Equity < 1

Each individual criteria taken by itself is not overly stringent; however, when taken in aggregate they yield just 4 results this month.  Two stocks on last month’s list no longer qualify, MHP and KO.  The yields for both MHP and KO have dipped under 3% due to price appreciation the last month, so they could quickly re-qualify. The 4 remaining aristocrats below are worthy of further consideration, especially if one is seeking yield or seeking to reduce exposure to non-dividend paying companies.  Reader’s have noted that LLY is on watch for dropping off the Aristocrats list.  It has not yet raised its $.49/quarterly dividend in 2010 which would disqualify it from consideration in 2011.
Another thought is to hedge the list with a short position in the S&P 500 is below its 200 day moving average.  One such vehicle for doing so is SH.  Obviously, hedging could reduce returns but also reduce drawdowns and volatility.  Or, an investor could only purchase stocks which are above its 200 day moving average.  I have added the percent each stock is above/below its 200 day SMA.  MCD was also featured in an article I wrote earlier this year about dividend growers. 

No positions

 

Ticker Company Trend Dividend Yield Payout Ratio Debt / Equity 200-Day SMA Price
ABT Abbott Laboratories Here 3.36% 48.89% 0.93 3.26% 52.38
JNJ Johnson & Johnson Here 3.46% 40.96% 0.22 2.18% 62.43
LLY Eli Lilly & Co. Here 5.39% 50.65% 0.67 5.85% 36.39
MCD McDonald’s Corp. Here 3.27% 48.30% 0.81 11.16% 74.63


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Monday Readings

Some good articles to read this week:

The Recipe for Another Depression – Jim Jubak

Pushing on a String – John Mauldin (pdf)

The Road Not Taken – Jim Welsh September Investment Letter

Gold Price in Euros Pointing Downward – Tom McClellan

Not Yet Out of the Woods – John Hussman

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SP500 Internals, Dollar & Gold Pre-Week Analysis

Below is a weekly update from Chris Vermeulen of the thegoldandoilguy (I have no positions in stocks mentioned):

“After a fierce equities rally on Friday, which I figured would happen, just not that strong; I have to wonder if there is some event or major decision in the works we don’t know about?
Friday’s rally could be something simpler like window dressing by the funds. This is when the funds buy up all the top performing stocks for month end reporting. They do this so that their investors think they are on the ball and know what they are doing. Window dressing will end Monday and from there we could see some profit taking (selling) start. But for all we know Obama could be extending the tax cuts for everyone or cutting payroll taxes etc…
It would only take one of these events to trigger a sharp up move in the market and that could be what Friday’s move was anticipating. That being said volume has remained light and during low volume session the market has a tendency to move higher. Sell offs in the market require strong volume to pull the market down, so until volume picks up there could still be higher prices just around the corner.
Let’s take a look at some charts…

SPY – SP500 60 Minute Intraday Chart

Last week we saw the market reverse to the down side with a strong end of say sell off. That set the tone for some follow through selling and for any bounces to be sold into. That being said, the market always has a way of surprising traders and it did just that on Friday gapping above Thursday’s reversal high causing shorts to cover and the typical end of week light volume drift to help hold prices up.

NYSE Market Internals – 15 Minute Chart

I like to follow some market internals to help understand if investors are becoming fearful or greedy. It also helps me gauge if the market is over bought or oversold on any given day.
These three charts below show some interesting data.
Top Chart – This indicator shows me if the majority of shares traded are bought or sold. When the red line spikes up and trades above 5 then I know the majority of traders are buying over covering their shorts. I call this panic buying because traders are buying in fear that the market will continue higher and they will miss the train. When everyone is buying you know a pullback is most likely to occur.
Middle Chart – This is the NYSE advance/decline line. When this indicator is below -1500 then the market is over sold and bottom pickers/value buyers will step in and nibble at stocks. But when this indicator is trading over 1500 then you know the market is overbought and there should be some profit taking starting any time soon.
Bottom Chart – This is the put/call ratio and this tells us how many people are buying calls vs put options. When this indicator is below 0.80 level more traders are bullish and buying leverage. My theory is if they are buying leverage for higher prices, then they have already bought all their stocks and now want to add some leverage for more profits. When I see the majority of traders bullish then I an sure to tighten my stops (if long) as top my be forming.
Putting the charts together – When each of these charts are trading in the red zone know I must be cautious for any long positions because the market just may be starting to top. Or a short term correction may occur.

UUP – US Dollar Daily Chart

The US dollar has been under some serious pressure with all the talk about quantitative easing (printing money). Obviously the more the Fed’s print the less value the dollar will have. The chart below shows a green gap window which I think once it is filled should put the dollar in a oversold condition for a short term swing trade bounce before heading back down. A bounce in the dollar will put pressure on equities, gold and oil.

GLD – Gold Daily Chart

Gold continues to grind its way up. This move is looking very long in the teeth and pullback will most likely be sharp.

Weekend Trading Conclusion:

In short, equities and gold continue to grind their way higher while the US dollar continues its grind lower. When I say the market is grinding I am implying the market is over extended and a reversal any day should occur.
Financial stocks like Goldman (GS) which typically leads the market has been strongly underperforming over the past week. Insiders were selling GS very strongly which is strange and makes me wonder what’s up there? With the financial stocks underperforming it sure looks like a market reversal is just around the corner.
If Friday’s rally was simply window dressing by the funds then it should end on Monday and with any luck we will see a sharp reversal to the down side early this week.
You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me toe get more into across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.
Let the volatility and volume return!
Chris Vermeulen”

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12 Top Stocks Based on PEG and Price Momentum

I conduct the following screen on a monthly basis. Early out-of-sample results have been mixed, performing well during bullish environments and poorly during bearish/choppy markets.  Last month’s list here, July’s list is here, June’s list is here, May’s list is here, Aprils’ list is here, March’s list is here, February’s list is here and January’s here. The screen looks for the following:

  • earnings growers still reasonably priced as judged by the PEG ratio
  • low debt
  • a history of high return on equity and investment, and
  • price momentum as gauged by the percentage the stock is trading to its 250 day high.
January’s list returned 1.39% vs .57% for SPY. February’s list returned a solid 11.78% vs. 6.77% for SPY. March returned 7.91% vs. 4.23% for SPY, April was a down month, nearly matching SPY in returning -11.57% vs -11.52% for SPY, May’s list returned -6.55% vs -.56% for SPY, June’s list returned -1.74% vs. 3.27% for SPY, July returned a sour -10.36% vs -5.55% for SPY.  
Last month’s list returned a whopping 16.17% versus 7.87% for SPY.  It is worth noting last month’s list had very few stocks that qualified for the list, three in total.

When the screen results in more than 5-10 stocks I have also started tracking returns of the top  5 or 10 stocks at the beginning of each list (when more than 5 stocks qualify).  The top stocks are selected based on fundamental factors.   For the full list of stocks and results, please see the right hand side of Scott’s Investments.

The screen has tested well historically in bullish periods so strategies an investor could use to avoid drawdowns would be to either a) abandon this type of strategy entirely when the S&P 500 or another major index is below a long term moving average, or b) hedge positions with a position in SH or write a short option strategy on an equity index or ETF like SPY.
This month’s list contains 12 stocks,and two of the three stocks on last month’s list remain on this month’s list.
Ticker Name Trend Rank MktCap Industry
TXN Texas Instruments Incorporate Here 96.29 32186.61 Semiconductors
JOSB Jos. A. Bank Clothiers, Inc. Here 96.17 1172.07 Retail (Apparel)
FOSL Fossil, Inc. Here 95.53 3559.52 Jewelry & Silverware
IDCC InterDigital, Inc. Here 94.03 1261.24 Communications Equipment
SHOO Steven Madden, Ltd. Here 93.5 1095.05 Footwear
FCFS First Cash Financial Services Here 90.16 800.21 Retail (Specialty)
USNA USANA Health Sciences, Inc. Here 88.77 630.43 Personal & Household Prods.
COH Coach, Inc. Here 87.09 12621.91 Retail (Apparel)
AZO AutoZone, Inc. Here 81.86 10182 Retail (Specialty)
CTCM CTC Media, Inc. Here 72.53 3323.15 Broadcasting & Cable TV
CPRT Copart, Inc. Here 63.93 2860.06 Retail (Specialty)
FSLR First Solar, Inc. Here 43.36 12584.28 Semiconductors
Two possible tools an investor could use to conduct this screen on his/her own are stockscreen123 or Finviz. This screen was conducted using stockscreen123.

No positions in stocks mentioned

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Readings

Don’t forget about INO’s Diversification is Dead report which can be downloaded for free here.

Summers: Good Riddance – Barry Ritholtz

Sequential Signals – John Hussman

Why There’s Such a Dividend Deluge – Jim Jubak

Sovereign Subjects: Ask Not Whether Governments Will Default, but How – John Mauldin

Excerpt From “Traders, Guns & Money” (Part 3) – Satyajit Das

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Guest Article on Gold, the Dollar, and Equities

Below is another article from Chris Vermeulen who offers free bi-weekly trading and education analysis:

Sept 23, 2010
It’s been a wild ride the past few days. Now, thanks to comments from Obama and FOMC, it seems like everyone is waiting to see what the market will do from this pivotal point onward.
Since the market topped in April and has since been trading sideways in this rather large range, everyone has small positions at work but waiting for a decisive move before fully committing to one side. There could be a few opportunities in the coming days using bonds, the dollar and the SP500 if all goes well which I explain below.
Lets take a look at the charts…

SP500 – SPY ETF, Daily Chart

There has been a lot of talk about a sharp rally if the SP500 could break the 1130 level or the neckline everyone is talking about. Well this week Obama was on TV and the market rallied into that, then again after. I don’t really thing investors or traders were buying things up as he said the same boring stuff he always says without anything new. I feel there could have been another force at work, which we can discus another time .
Anyways, the market pierced those resistance levels and I’m sure a ton of traders have switch their view on the market from bearish to bullish. While I prefer to trade with the trend I can’t help but feel this market is still range bound, which is why I am still bearish at these shakeout levels. The SP500 did break resistance BUT the following candle did not close above the breakout candles high to confirm the move.
That said, the market is now trading back down at support and the next couple of days I’m sure will shed some like on the direction.

20 Year Bonds – TLT Fund, Daily Chart

We have seen the bond price pullback in a bull flag formation. It touched support before bouncing to break short term resistance as it looks to have started another rally. The chart below overlays both the candlesticks of the bond price and the SP500 which is the white line. You will notice they have an inverse relationship. If bond prices continue to rally then lower SP500 could start to rollover.

US Dollar – UUP Fund, Daily Chart

The dollar has fallen sharply the past 10 trading session and it looks to be oversold for a couple reasons. The past couple days the price has dropped straight down and gapped lower. This recent drop has reached a gap window which will act as support and could provide a tradable bounce in the coming days depending how things unfold.

Mid-Week Market Analysis Conclusion:

In short, the SP500 is flirting with resistance and has yet to confirm the breakout. Bond prices look to be headed higher which will makes me think equities could start to sell off any day now… It’s also important to note that the big banks GS and JPM shares have been under pressure and they tend to lead the broad market. Another point to add is the fact the oil has not rallied even though the dollar dropped like a rock? What happens if the dollar bounces? Could oil finally start its next leg down?
Gold and silver continue their steady grind up. The price action reminds me of the 2009 Nov –Dec move. Once that train de-rails its going to have a sharp correction…
You can get my ETF and Commodity Trading Signals if you become a subscriber of my newsletter Chris Vermeulen’s Free Trading Analysis & Signals Newsletter. These free reports will continue to come on a weekly basis; however, instead of covering 3-5 investments at a time, I’ll be covering only 1. Newsletter subscribers will be getting more analysis that’s actionable. I’ve also decided to add video analysis as it allows me to get more into across to you quicker and is more educational, and I’ll be covering more of the market to include currencies, bonds and sectors. Before everyone’s emails were answered personally, but now my focus is on building a strong group of traders and they will receive direct personal responses regarding trade ideas and analysis going forward.
Let the volatility and volume return!
Chris Vermeulen

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A Book Review: The Little Book That Still Beats the Market

Joel Greenblatt’s The Little Book That Still Beats the Market is a revised and updated edition of the 2005 best-selling The Little Book That Beats the Market. Greenblatt is the founder of Gotham Capital, adjunct faculty member of Columbia Business School, and the chief strategiest for Formula Investing.
This “Little Book” is one of the most appealing investment books available because it contains a straightforward strategy (a “magic formula”) for long-term value investing and provides readers the education and tools necessary to achieve long-term success.
Greenblatt’s strategy is to buy above-average companies at below-average prices. He uses just two metrics, return of capital and earnings yield, to find such companies. Then, he advises his readers to buy the top 20-30 companies based on these two metrics and hold for a year and repeat. He maintains a free website, magicformulainvesting.com , which provides current rankings so that investors can access the top stocks at any point in time.
Greenblatt provides ample backtests of his strategy across multiple timeframes and using multiple starting points. He also shows how buying the top 10% of stocks in the market as ranked by the magic formula have outperformed the rest of the market and the returns of each successive group outpeform the lower groups. In other words, on average the magic formula works in order for the entire market. This is an important point because it shows that Greenblatt’s system has worked beyond just the 20-30 stocks he recommends investors hold.
Perhaps the most appealing aspect of The Little Book is Greenblatt’s writing style, which is highly accessible yet retains academic integrity. The books begins by defining a “good” company using real examples in terms that non-professionals would understand and then easily applies these real world examples to equities. Throughout, he balances humor and education in a way that anyone from the most novice investor to a financial professional would benefit from reading the book.   

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Revisting a Deep Value Momentum Screen

Several months ago I wrote an article highlighting 3 Deep Value Momentum Stocks With Price Momentum.  I decided to revisit the article and screen since I have not done so since the original article was written.

The three stocks that made the first screen were ALG, GLAD, and QLTI.  Below is a snapshot of their returns since the first screen:

Trend Analysis 3/22/10 Open Current Return Excluding Dividends Dividends Since 3/22
ALG Here 18.47 22.03 19.27% $.12/share (19.92% return incl dividends)
GLAD Here 11.16 11.12 -0.36% $.42/share (3.41% return)
QLTI Here 5.05 6.21 22.97%

This update was done at random and the original screen was performed randomly.  In other words, the day the screen is run will greatly impact the results.  ALG has traded as high as $26.98 between March and today, GLAD at $13.63 and QLTI $6.67.

Using Finviz.com I searched for value stocks that traded at a 52 week high as of Wednesday September 22nd.  The criteria to identify stocks are below:

Traded (not necessarily closing) at 52 Week High on Wednesday September 22nd.
Price/Book < 1
Total Debt/Equity < 1
Positive Return on Assets
Positive Return on Equity
Positive Return on Investment
Market Cap > $100 million

 I should emphasize again that this screen could be run daily with different qualifying stocks. This is simply a follow-up and another screen for me to look at a few months down the road.  I hesitate to include closed-end funds like 2 of the stocks below, but will include them for informational purposes:

Ticker Company Trend Industry Market Cap Price
CHY Calamos Convertible & High Income Fund Here Closed-End Fund – Debt 891.16 12.76
EVV Eaton Vance Limited Duration Income Fund Here Closed-End Fund – Debt 1928.25 16.44
FEIM Frequency Electronics Inc. Here Communication Equipment 52.82 6.41
KCAP Kohlberg Capital Corporation Here Diversified Investments 138.37 6.12
NUHC Nu Horizons Electronics Corp. Here Electronics Wholesale 128.04 6.91

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Special Free 10 Page Diversification Report

Adam Hewison of INO has put out a special, free report regarding diversification.  While I may not agree that diversification is totally dead, regular readers of the blog know that part of my purpose is to explore strategies that can further reduce drawdowns versus simply buying and holding a diversified portfolio. Now you can learn from this timely 10 page report that explores the myth of diversification and offers some alternatives.

This Is Not About Derivatives
Before I go any further, we are not talking about exotic derivatives, the kind that tanked the economy and sent a financial tsunami through Wall Street. No, we’re talking about the major markets,  mainstream shares, the kind of shares you hear and read about every day.

We Have A Solution
In this in-depth report on diversification, you will learn how one simple adjustment can easily open up the money spigots and turn the tables on Wall Street. This one simple adjustment can put your account in the black faster than you can go to our website. This new solution, which we fully reveal, can turn your retirement account into the financial powerhouse that it deserves to be.

A Non Wall Street Portfolio
Also included in the report is a model portfolio that proves that diversification can work when it’s done the right way. Using the Wall Street method of diversification you would have lost close to 30% of your money! In the “Global Strategy Portfolio” included in the report, you would have made a 23% return on your money during the exact same timeframe. That’s an over 50% swing in  just 30 short months. In the report we show you not only how to achieve these results, but we also share the rules that you need to follow in order to get the exact same results in half the time,  with less risk.

What Is The Cost?
If you do nothing and don’t download this special report, it could cost you thousands of dollars in losses in your portfolio over the next few months. However, if you call or click on the link below, the report is free of charge along with our “Global Strategy Portfolio.”

ACT NOW AND RECEIVE THIS REPORT BY EMAIL
Call or click to receive your personal copy of this timely report and it can be in your hands in the next 3 minutes. This report is free of charge and there is no obligation. 

Click HERE to get your report 




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10 Microcap Value Stocks

 I am a member of AAII (American Association of Individual Investors) and was recently reading one of their more popular screens, the Shadow Stock Screen.  I decided to run my own test of the screen with a few small twists.  This is a very simple screen that seeks out small/microcap value stocks.  The screen criteria I used are below:

  • No over-the-counter stocks
  • No financial stocks
  • Market cap > $20 Million and < $200 million
  • Previous EBITDA quarter and trailing twelve months are positive
  • Share price > $4
  • Price/book < .80
  • Price/sales < 1.2
  • Top 10 stocks are selected based on highest 52 week returns

This is the fifth month of performing the screen.  The first month’s list performed poorly, returning -15.35% versus -13.2% on VBR, the small cap value ETF.   Last month’s  list returned an average of 8.73% versus 7.73% for VBR over the same period.  Full results can be viewed on the right side of Scott’s Investments under “Micro Value Screen”.

I would describe this as a high beta strategy – it performs very well in bullish markets and underperforms in bear markets.  I said previously that “this is not a strategy I am investing in.  However, if an investor was looking to add some risk to his or her portfolio, this one could certainly add some ‘juice’.”  One additional option which I have mentioned on other screens is to abandon this type of strategy when an underlying index such as the Russell 2000 is trading below a long term moving average such as the 200 day moving average.  Currently the Russell 2000 is above its 200 day moving average.

The current top 10 stocks are also below.  I update the screen once per month on my site and track the results for free on the right hand side of the site. The tool used for the screen is stockscreen123



No disclosures
 

Ticker Name Free Trend Analysis Rank MktCap Industry
AHC A. H. Belo Corporation Here 97.72 152.56 Printing & Publishing
SGMA SigmaTron International Here 94.57 24.47 Electronic Instr. & Controls
CUO Continental Materials Corpora Here 93.09 28.26 Misc. Capital Goods
HAST Hastings Entertainment, Inc. Here 90.14 61.08 Retail (Specialty)
CGL.A Cagle’s, Inc. Here 89.26 30.47 Food Processing
PTSI P.A.M. Transportation Service Here 87.05 118.06 Trucking
RCKY Rocky Brands, Inc. Here 86.91 58.37 Footwear
HWG The Hallwood Group Incorporat Here 82.4 51.86 Textiles – Non Apparel
REX Rex American Resources Corp. Here 80.6 133.77 Chemical Manufacturing
WCAA WCA Waste Corporation Here 80.1 96.5 Waste Management Services

Cheap? No. 100% Free. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

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