Locating Attractive Dividend Stocks

MagicDiligence has written several times about using the official Magic Formula Investing (MFI) screens as a starting point for locating attractive dividend stocks. There are two main reasons this is true: MFI screens for high earnings yield. This has the effect of finding undervalued stocks where the dividend yield is likely to be higher than normal. Also, since it screens stocks cheap against their trailing earnings, it also creates opportunity for capital gains in the stock price, in addition to dividend payments. The screen also looks for high returns on capital. High returns on capital are often a sign of a company with competitive advantages, and/or one that is well run by a competent management team. These kinds of companies are more likely to be able to sustain a dividend payment than ones that are poorly run or have few competitive advantages. Of course, dividend stocks are most useful when... Read more