Can 20 Financial Ratios Be Used To Find Dividend Growth Companies That Outperform The Market?

INTRODUCTION
As do-it-yourself investors, we all seek to pick the right companies to ensure a better financial future. I had attempted to use 20 financial ratios to measure a company's moat. This exercise has not proven to have had the immediate results I had hoped for. But from this effort, SA member Fernando Soriano made the comment in one of my articles that when he back tested the top scoring stocks using my moat rating system, he found that they had outperformed the market. I am interested in dividend stocks that provide continuously increasing dividends but I am also interested in dividend stocks that can outperform the market as well because the bigger the capital gains, the greater the margin of safety that protects my initial investment. Also, a company that outperforms the market is also likely to continue to grow its dividend because of its financial strength. This article will analyze whether the 20 financial ratios can identify companies that outperform the market and by how much.
METHODOLOGY
The 20 financial ratios were obtained from the book "Warren Buffett and the Interpretation of Financial Statements" by David Clark and Mary Buffett as well as from SA contributor Jae Jun. Using the guidelines published by these authors, I sought to quantify each ratio by using a 5 point Likert scale with a range of possible scores between 0 and 100. The table below presents the ratios and the scoring system.
WHAT TO LOOK AT
EXPLANATION
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