Current low interest rate environment has made investors clamour for yield. We have put together two stock screener ideas investors can use to find reasonable yielding stocks.
The first path is use dividend ETFs which invests in a broad portfolio of stocks that pay dividends. This takes away the stress and keeping track of stocks. The ETF provider already created a portfolio of dividend stocks and will rebalance the portfolio over time as the index component changes.
This is an autopilot approach in managing investments. Investors that want to take control of the portfolio can use a stock screener to find dividend stocks. A dividend ETF can act like a screener in saving time carrying out the initial research in finding the right income stock for the portfolio.
By narrowing down the universe of stocks using a dividend screener, those that know what they are doing can really roll up the sleeves.
How to find good dividend stocks with a dividend screener
What we to look for is not just the dividend yield but also additional factors so we don’t fall into value traps. It is important that investors not just buy the highest yielding stocks as there is no such thing as a free lunch, the market usually price a higher the dividend yield for a reason because of the risks inherent the stock.
We can avoid some of this risk by setting a yield cap rather than a minimum yield. A yield cap means that it cuts off the highest risk stocks and then we can use other fundamental metrics to sort through the rest of the shortlist.
Similar to false flags. another pro tip for investors is to watch out for low price to earning stocks. One reason why a stock trades at a low P/E ratio is the market is expecting the earning component (the E in P/E) to fall and the stock has already priced in the future fall in earnings. P/E should be used a guide only.
On a more advanced level we can build on the previous dividend stock screening ideas by adding additional filters such as:
1. Stock must have low current year earning growth (0 to 10%) in the next year (low volatility in earnings)
2. Stock must have positive earning growth this year (improving earnings trend)
3. Overall debt/equity ratio must be lower than 1 (to control of leverage)
Using the filters above, investors can find candidates that can growth their dividend payout overtime from increases in earnings.
Growth Stock Stock Screener – PEG Ratio
Price earning growth ratio is one of the simplest metrics standardizing growth stocks . It is a simple standardised metric used to measure to relative value of the current price versus the growth earning growth rate.
PEG Example
An example of PEG is the price earning ratio of a stock is 10 and an expected earnings growth rate of 5% a year. The PEG is calculated as 10/5 = 2.
If a stock has an price to earnings ratio of 20 but with 30% growth ratio then the PEG is 0.67 (20/30). This shows investors are paying for growth and while the former has 10 p/e which can be considered cheap. The latter has a lower PEG which implies that investors in the latter stock is not paying as much as the former for growth.
By using a PEG ratio filer, this can shape the results either for investors can find value by finding growth stocks without paying a premium or avoid growth stocks and associated premium by setting a low PEG.
Preferred stock screener
Aside from screening for dividend from the list of all possible options. Investors can use preferred stocks as income portion of portfolio. Preferred stocks can be considered safer due to their higher ranking on within the capital structure. This is at a cost of a lower total return for preferred stocks as the only return is from the stated income yield.
The question of which is better, preferred stock vs dividend is dependent on investors risk appetite as well as the yield target of the dividend portfolio. Preferred stocks has a higher initial yield but has limited income growth potential unlike dividend stocks.