You are currently viewing Ep #5 – How to Find Dividend Growth Stocks

Ep #5 – How to Find Dividend Growth Stocks

In this episode, co-hosts European DGI and EMF share their insights on current news, their strategies for identifying promising dividend stocks, and answer questions from listeners.

Current News Highlights

The episode kicks off with a discussion of recent news events that have caught the hosts’ attention:

  • Twitter Hack: High-profile accounts, including those of Elon Musk and Barack Obama, were targeted by hackers, raising concerns about security on social media platforms.
  • US and UK Relations: The US has canceled its preferential treatment for Hong Kong, and there are ongoing discussions about banning Huawei from 5G networks due to security concerns.
  • Wells Fargo Dividend Cut: The bank announced an 80% cut to its dividend, prompting discussions about the implications for other banks.
  • Google’s Investment in India: Google announced a $10 billion fund aimed at digitizing India, highlighting the country’s potential as a growing market.
  • Netflix Earnings: Following Netflix’s earnings report, the stock price dropped despite strong cash flow, illustrating the volatility of tech stocks.

How to Find Dividend Growth Stocks

The main topic of this episode is inspired by listener questions regarding the practicalities of finding and selecting dividend growth stocks. Both hosts share their personal approaches:

EMF’s Approach

  1. Learning from Experts: EMF began his journey by following a US-based dividend investor who provided insights through newsletters. This helped him understand the basics of dividend investing.
  2. Using Resources: He recommends websites like Drip Investing, which offers comprehensive lists of dividend champions and tools for tracking stocks.
  3. Filtering Stocks: EMF downloads the Dividend CCC spreadsheet monthly and uses Excel to filter stocks based on his metrics, narrowing down to 10-15 potential investments.
  4. Analyzing Financials: He emphasizes the importance of understanding financial statements and metrics such as revenue, income, debt, and cash flow.

European DGI’s Approach

  1. Diverse Sources: European DGI started by exploring various blogs and resources, including drip investing and European stock exchanges, to find potential stocks.
  2. Annual Reports: He relies heavily on annual reports for European stocks, as he finds them to be more reliable than many online data sources.
  3. Personal Templates: He has developed his own templates for analyzing stocks, focusing on key metrics and trends over time.
  4. Valuation Techniques: European DGI uses the Dividend Discount Model and Discounted Cash Flow analysis to assess the fair value of stocks.

Key Metrics for Evaluating Stocks

Both hosts agree on several key metrics that are crucial for evaluating dividend growth stocks:

  • Yield: A yield that is significantly higher than the S&P 500 is often a good indicator.
  • Payout Ratio: Understanding how much of the earnings are paid out as dividends is essential for assessing sustainability.
  • Debt Levels: A low amount of debt relative to equity is preferred to ensure financial stability.
  • Cash Flow: Strong cash flow is critical for maintaining dividend payments.

Listener Questions

The hosts also address several listener questions, including:

  • Biggest Regrets and Escapes: EMF shares his near-miss with Bank of Ireland, while European DGI reflects on his regret of not buying more Microsoft shares when they were undervalued.
  • Selling Stocks: Both hosts have evolved their strategies regarding when to sell stocks, now considering broader financial health rather than just dividend cuts.

Stock Picks for the Week

  • EMF’s Pick: Pepsi, which has shown strong earnings and a solid dividend growth rate, though concerns about its valuation remain.
  • European DGI’s Pick: Danone, which he continues to dollar-cost average into, believing in its long-term potential.

Conclusion

In this episode, European DGI and EMF provide valuable insights into the world of dividend growth investing. They emphasize the importance of research, understanding financial metrics, and developing a personal investment strategy. As they continue to engage with their listeners, they encourage everyone to keep learning and growing in their investment journeys.

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