The RIP spreadsheet has been enhanced to allow batch processing of multiple tickers. Since I will need to go through each of Miller’s Income Groups periodically, this will speed repeat analysis. This post is about the TelecomUS and TelecomFor Groups. I grouped them together because Schwab’s stock screener didn’t yield very many candidates in the sector. 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: Telecommunication Services; 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%
Once again, 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 21 Telecom companies of interest. I copied the tickers to the RIP portfolio sheet and then ran the batch processing routine, which is even more automatic and faster (10 minutes for 21 stocks) than the one-at-a-time method (almost 2 hours for 43 stocks) previously used. Then I sorted them by my own Dividend Safety score. 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 stocks don’t measure up to his demanding criteria... Remember, these are Miller’s screens, not mine, although I tend to like them.
I know little or nothing about most of these companies, but plan to look into several of the top 8 and have placed them on a watch list. I was a little surprised to see how many unknowns (to me) were near the top of the list. When the next correction happens, one or more of these may find their way into my 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 meaningless “Auto” comment on the far right is generated by the batch processing software
I plan to continue screening to find potential portfolio additions in each of Miller’s 18 Income Groups. More posts will follow. Eventually, I hope to post one big update covering all income groups every quarter or so, and will be adding some ETFs to the mix, which will have less single company risk, but probably yield less.
In the meantime, my weekend in Pittsburgh went well. My newly separated son is trying to figure out how to be a single dad and is adjusting. Fortunately, he’s got a good lawyer and supportive family.
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:
A measure of the company’s debt load. 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: A measure of the company’s dividend coverage. 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 of 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.