I have continued to improve the RIP spreadsheet. Bugs are now infrequent. The last one was a bear. It seems NEE data from Yahoo is limited to 3 months of historical prices and no dividend history at all when using the download link (which is how the RIP spreadsheet retrieves it). For someone with OCD, the obvious solution was to completely rewrite the download routines to test for this 1% problem and code a simple method of manually inputting the data into the SS. This took about a week to re-code. I could have manually downloaded and pasted it in the appropriate spots in about 10 minutes. But this spreadsheet was never about expedience. I like to write VBA code. In any case, with this glitch taken care of, I decided to systematically go through each of Miller’s Income Groups and find promising stocks to watch and/or add to the portfolio. This post is about the Tech Income Group. See my prior posts about Miller’s income groups and his diversification recommendations (https://www.valueforum.com/forums/show.mpl?keywords=1462315789.9.686&so=201605).
I used Schwab’s stock screening tool with these selection criteria:
Universe: Domestic, International (ADR); Market Capitalization: Micro Cap, Small Cap, Mid Cap, Large Cap; Sectors and Industries: Information Technology;Optionable Stocks: Yes, No; Annual Dividend Yield: 2.0 - 3.0%, 3.0 - 4.0%, 4.0 - 6.0%, > 6.0%; Increasing or Decreasing Dividends - YOY: Increasing; 3 Year Dividend Growth Rate: 0 - 5%, 5 - 15%, 15 - 25%, 25 - 50%, > 50%
I included micro caps, although Miller would probably not be willing to invest in these. I excluded stocks with no increase in dividends and deliberately used only a 3 year dividend growth rate so I would not miss any companies that had a bad year or two before 2012. This screen produced 43 Tech companies of interest. I copied the tickers to the RIP spreadsheet and ran the analysis routines. The analysis is mostly automatic and takes about 3 minutes per company. Then I look at the results & sometimes look up a little info on a company I may be interested in. Overall it took a couple hours for a superficial screening analysis on all 43. The results were similar to my last post on BDCs (https://www.valueforum.com/forums/show.mpl?keywords=1470760114.23.72&so=201608). It seems most tech companies are overpriced and at risk of cutting dividends, according to Miller’s criteria. Remember, Miller’s criteria are used to search for companies that have a long history of paying dividends and increasing them over time, so it is no surprise that many fail in this part of the cycle... Remember, these are Miller’s screens, not mine, although I tend to like them.
I am somewhat interested in several of the top 10 tickers (including Dig4Value’s favorite, AAPL) and have placed them on a watch list. When the next correction happens, one or more of these may find their way into the RIP portfolio, but nothing will be purchased until I have delved into each of these companies more thoroughly.
Here’s the comparison list, sorted by Dividend Safety Score (see explanation below).
*Note: The column values are cryptic and hard to understand. Definitions and explanations are at the bottom of this post.
Left side of table:
Right side of table with ticker column repeated: the comments on the far right are mine & are worth what you see: (not much)
I plan to continue this screening to find potential portfolio additions in each of Miller’s 18 Income Groups. More posts will follow.
In the meantime, I’m off to visit my son in Pittsburgh, whose wife just left him with a 3 year old and an empty house (and wallet - so it’s a good thing Google pays him well). My opinion of her would violate VF TOS, so I won’t bother. At the moment the poor guy has no idea how lucky he is - but I will be sure to point it out to him. Someone please remind me why we have children?
Explanation of table entries:
RIP Screening for the Bruce Miller guided Income-Only portfolio
From Miller: Growth in revenue by itself is not adequate to show a healthy company. It must be translated into growing Net Operating Cash Flow. Consistently increasing Revenue & Net OpCF is a measure of management's ability to translate increased revenue into dividends. Dividends should come from OpCF. In bad years, some companies may pay some of the dividend from bonds, selling assets, or new equity (termed return of capital). This is a bad sign, but is sometimes necessary. Shareholder equity will decline if this is happening.
Change in Revenue & Net OpCF:
The last 5 year’s year-end and TTM Revenue & Net OpCF Values come from the company's Income and Cash Flow statements (copied from Morningstar), respectively, and are translated into a single value:
2+ means company increased Rev in 2/5 years with the last year being + growth
2- means company increased Rev in 2/5 years but the last year was not greater than the previous year
The best result here would be 5+ meaning Rev consistently increasing
The worst would be 0- meaning Rev is consistently declining
Interest to Net OpCF:
This is calculated from the "Interest Expense" obtained from the company’s Income Statement (copied from Morningstar). It is the fraction of Net OpCF dedicated to paying off debt. Debt service should be <30% for utilities and <50% for most others.
Dividend to Net OpCF: This is calculated from the “Dividends” or “Dividends Paid” value obtained from the company’s Cash Flow Statement (copied from Morningstar). It could be considered a payout ratio. Utes are usually <50%. MLPs and REITs should be <80%. Anything above should be concerning.
Growth of Revenue:
Miller calls this “ROIC Revenue” or “Revenue for ROIC”. It’s actually a 3-5 year average annualized measure of revenue growth. Values less than 2% indicate the company may be struggling to increase cash flow from operations. A bad year here or there may be OK, depending on what explains the growth failure. Values less than 1% are a clear danger sign. Really high values usually reflect missing or absent Investment data for one or more years.
Growth of Net OpCF:
Miller calls this "Net OpCF ROIC" or "ROIC for Net OpCF". It’s actually a 3-5 year average annualized measure the company's cash flow growth. A rising Net OpCF from year to year is a sign the company may increase its dividend. A falling value makes a dividend increase unlikely. A bad year here or there may be OK, depending on what explains the growth failure. A value <2% means the company is struggling to increase Net OpCF and <1% is a clear danger sign.
Change in Equity:
Gradually rising equity is a good sign and declining equity is bad. The Shareholder Equity value comes directly from the company’s Balance Sheet (copied from Morningstar) and is translated into a single value on the comparison table:
2+ means company increased Shareholder Equity in 2/5 years with the last year being + growth
2- means company increased Shareholder Equity in 2/5 years but the last year was not greater than the previous year
The best result would be 5+ meaning Shareholder Equity has consistently increased for 5 years.
An attempt to put dividend safety into one number generated from an individual stock's financial evaluation. It’s a summation of changes in revenue, cash flow, equity and growth. Positive growth increases the value and negative growth decreases it. The result is a single number between -13.5 to max 27, with higher numbers indicating higher dividend safety. Values above 16 appear green. Anything below that probably has too many problems to be considered. It is not tabulated for ETFs, CEFs or mutual funds - only stocks.