I am going to provide a synposis of some of the rules that the author suggests to find suitable candidates using this dividend-and-value-oriented approach:
- Company has to be financially strong, minimum B+ Value Line rating, or BBB+ S&P credit rank;
- Dividend yield at 150% of the S&P500, but hopefully at 200%+;
- Yield has to be expected, and shown to have grown over 5-10 years, at at least 5% annually (twice the expected inflation rate);
- Dividend payout ratio less than 50% (except for utilities and REITs);
- Company should have at least moderate earnings growth of 5-10% annually (both historically and going forward);
- Price/Sales ratio below 1.5, and hopefully less than 1.0;
- Price/Earnings ratios lower than the market, AND must less than the reciprocal of the long-term bond rate;
- Book value ratios should be lower than the market, and;
- Growth of cash on the balance sheet is a big positive.
There are, of course, other rules and suggestions, but I'd suggest to you that these encompass the heart of the book and suggested technique.
Since almost all of these rules as stand-alone situations have been shown by various academic studies to produce some level of market outperformance, combining them is obviously going to provide a platform for outstanding results with enhanced safety of capital.
The Confused Capitalist