Dividend Stock Screener

I love dividend investing and today I would like to share my dividend stock screener with you!

This article is very overdue, because I have been receiving many questions about my approach to finding dividend stocks.

And don’t worry, because it’s a very simple dividend stock screener. It only consists of 3 criteria which form the core of my dividend growth investment philosophy.

So let’s get started!


The problem I had with my old Dividend Stock Screener

The key to my dividend stock screener is to keep it very simple. I had to learn this, because I found myself often overcomplicating my approach at the start of my investing journey.

Maybe it sounds familiar to you, because I was literally building very complex gSheets with tons of metrics in it. At a certain moment I realized that my old stock screener had become a monster with more than 30 columns.

And to be fair to myself, I didn’t invent all those metrics myself. Those metrics were simply a result of reading many books from great investors (i.e. One Up on Wall Street and The Buffett Way).

Every time I read such a book literally resulted in adding a few more columns to my screener. And as you can imagine, this became very complex and also hard to maintain (a monster!).

But the worst part of it is that it actually created the opposite effect for me.

I simply got lost and I always found a reason to not like a stock after running it through the screener. And to be honest, I can tell you that I have yet to find the ideal dividend growth stock based on so many metrics.

This self-reflection made me think about the pure essence of dividend growth investing in relation to my screener. Let me explain this first.

Why do I need a dividend stock screener?

I just need a dividend stock screener for two reasons:

  • to find new opportunities to invest in, preferably undervalued dividend stocks
  • to trim down the amount of effort it takes to analyze companies

In the end I just follow a very simple process:

Dividend stock research process

So if those are the main two reasons for having a screener, then I really need to find stocks that meet the bare minimum criteria for me.

Those criteria should be at the center of my dividend growth philosophy. At the same time it shouldn’t exclude stocks which had a single bad year as an outlier.

I would even argue that such stocks make it even more interesting to pop-up on the screener. Those dividend stocks might just have a larger chance of being overlooked and being undervalued.

Having said that, I now know what those dividend stock criteria are and I will explain them in the next section.


Criteria Dividend Stock Screener

Criteria #1 – Dividend Yield is more than 2.75%

This first criteria is very straightforward, but at the same time very needed. My early retirement plan depends on an average portfolio yield of 3.25% and 6% organic dividend growth.

The 2.75% yield criteria serves therefore as a minimum requirement.

I will not really benefit from the snowball effect if I start investing in stocks with a low dividend yield. It would literally take me decades to get to a meaningful benefit from reinvesting those dividends even when using double digit dividend growth rates.

Having said that, 2.75% seems to be a nice lower-end dividend yield based on my 6 years of experience. It still allows me to mix up the portfolio a bit with higher growth companies.

Keep in mind that no criteria is good enough on its own. Therefore we really need to judge a dividend stock in conjunction with the other 2 criteria’s.

Just for the people that are totally new to dividend investing. You get the dividend yield by dividing the annual projected dividend by the current share price.

Criteria #2 – Dividend payout ratio is less than 70%

This criteria works very well in conjunction with a minimum dividend yield of 2.75%. I find the dividend payout ratio to be a very strong sign of dividend safety. The lower, the better!

The first priority of a company should be on growing their business. That’s why there should be enough cash left after paying out the dividends to reinvest back into the business.

If the business is not growing, then the dividend is almost automatically at risk. It’s as simple as that.

Therefore I have found a 70% dividend pay out ratio to be the upper limit of what I would like to see. Mature blue chip companies can usually reward their shareholders with slightly more than 50% of their earnings being paid out in dividends.

Less is more though!

This especially applies to companies which operate in highly competitive and technology driven industries. I have found that such companies require more capital investments to beat the competition and stay ahead. Therefore they should reinvest as much as possible back into product innovation to protect their future earnings power (i.e. Intel Corp).

Hence, the 70% serves as an upper limit. Though, I would rather prefer to see it somewhere around the 50% or 60% payout level.

6 years of experience in dividend investing has taught me that anything above 70% typically signals slow dividend growth or even a potential dividend cut. And remember, I need an average organic dividend growth of 6% as part of my early retirement plan.

Having said all of this, the only exception to this rule are Real Estate Investment Trusts (REIT). Those stocks are exceptions, because they are required to distribute 90% of earnings in the form of dividends to shareholders .

Just for the people that are totally new to dividend investing. You get the dividend payout ratio by dividing the annual projected dividend by the twelve trading months earnings per share or cashflow per share. Alternatively you can use the forward earnings per share which sometimes works better. It rules out one-off events which resulted in a quarterly loss.

Criteria #3 – Increasing dividends for at least 5 years

I am a dividend growth investor, so this criteria is equally important to me. I would like to increase my income from dividends above the rate of inflation when being in retirement. Therefore I very much count on ever increasing dividends from the stocks which I hold in my portfolio.

Personally I find a minimum of 5 years still pretty limited. It doesn’t necessarily show the resilience of a company during a financial crisis. Therefore it has my preference to screen for companies which haven’t cut their dividends since at least the great recession (2007).

On the other hand I don’t want to exclude relatively new dividend paying stocks which might become a future dividend aristocrat. Good examples of such companies are Apple, Microsoft and Starbucks.

Hence, this is why I find the 5 year dividend growth criteria to be the best consensus as a criteria for the screener. I will anyway dive into a company’s dividend history as part of my stock analysis process. At the same time it avoids the exclusion of potential future dividend aristocrats from the get-go.

There is a small exception though and this relates to European dividend stocks. The culture regarding rewarding shareholders with dividends in Europe is just a bit different. They rather prefer to pay out a certain fixed percentage of their earnings in dividends (i.e. 40%).

Therefore I allow European companies to have a flat dividend from time to time. Though I need to see them increasing their dividends with an average of 6% over time.


Where to screen for those stocks?

Here is where it becomes a bit harder, because there aren’t too many options out there. The issue is mainly with the 3rd criteria, because there are almost no online stock screeners available with dividend growth record as a criteria.

I don’t want to leave you in the dark though. So hereby my recommendation when it relates to US stocks:

  1. The best is the CCC-list which is available on dripinvesting.org. You can download the full list of US companies that have paid an increasing dividend for more than 5 years. You can then simply set the 3 criteria as a filter in the excel list.
  2. Alternatively you could configure MarketBeat’s dividend stock screener to screen for stocks with a dividend yield above 2% or 3%. It also allows you to configure a dividend payout ratio under 70% and 5 years consecutive dividend growth. I’m just not too sure about their data reliability and I find their website quite spammy.

But hey, these are pretty good options to find US listed stocks, but what about European stocks?

To be honest, I have yet to find a dividend stock screener which I would want to recommend to you. Hence, I’m afraid that I will end up building one myself one day. It requires a lot of sweat, because it often means a lot of data scraping from investor relations websites.

For now I can only recommend you to keep an eye on the stocks being recommended in the European dividend investment community. Most European dividend growth investors bloggers really do their homework.

Final thoughts

As you can see, this is a very simple dividend stock screener. These three criteria alone allow me to rule-out many stocks which don’t serve my interest as a dividend growth investor. At the same time they allow me to keep being inspired by new companies popping up on the radar.

These 3 criteria are also at the core of my dividend growth investing philosophy.

All the other criteria will only become important when I truly start to analyze the company. That’s the time I want to look deeper into their business model, earnings power and balance sheet. I would then be looking into metrics like Debt/Equity, Gross profit margin, Interest Coverage and for instance the value spread (ROIC > WACC).

This is not needed at the screening stage and it keeps my dividend stock screener very simple.


Last but not least, I think that it is also worth mentioning why I am ignoring a popular metric like the P/E ratio.

Well, this is already implicit in using the dividend yield and the payout ratio. The P/E ratio is a function of the share price and the trailing twelve months earnings per share.

These variables are already used when calculating the dividend yield (share price) and the dividend payout ratio (earnings per share). Therefore there is no additional value in including it into my dividend stock screener.


And that’s it, this is my personal dividend stock screener.

I hope it clarifies to you what I’m looking for during the screening process. I also hope that it helps you in creating your own dividend stock screener.

As always, let me know if you have any questions.

Yours Truly,

European Dividend Growth Investor


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Disclaimer

I’m not a certified financial planner/advisor nor a certified financial analyst nor an economist nor a CPA nor an accountant nor a lawyer. I’m not a finance professional through formal education. I’m a person who believes and takes pride in a sense of freedom, satisfaction, fulfillment and empowerment that I get from being financially competent and being conscious managing my personal money. The contents on this blog are for informational and entertainment purposes only and does not constitute financial, accounting, or legal advice. I can’t promise that the information shared on my blog is appropriate for you or anyone else. By reading this blog, you agree to hold me harmless from any ramifications, financial or otherwise, that occur to you as a result of acting on information provided on this blog.

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European DGI

It's my desire to retire early via Dividend Growth Investing as a passive income stream. This is not easy and especially when living in Europe. That's why I started this blog and share my journey: to give you a European perspective.
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Piotr
Piotr
9 months ago

Thanks for new post, I like your approach, simpler is better 🙂 I also used to overcomplicate it, by applying too many filters and ending up with nothing 😜 Regarding payout ratio, do you more focus on earnings or cash flow as a reference?

Mistress of Home and Finance
9 months ago

Thanks for sharing such a clear screening process!
I’d somehow overlooked dividend payout ratios in my own screening process, but going back over my holdings it luckily looks like everything passes anyway.
I’m definitely adopting some of your suggestions though 🙂

Markus
Markus
6 months ago

Very informative article. In terms of stock screeners I’d also recommend https://seekingalpha.com/ which has a lot of basic features, including dividend growth history, available for free – includes a lot of European stocks as well. Thanks and keep it up!