I was pretty lucky when I purchased my first stock. I hadn’t really done any research; in truth, I wouldn’t have known what to look for or where to look for it anyway. I knew that prices were low, because we had just entered a recession and everyone was talking about the big market crash. I had extra money lying around, so I opened up a brokerage account and bought some shares.
Luckily for me, I had already decided I was going to be a dividend investor. The approach fit my personality, and the dividends provided the passive income I sought. Up till that point I had been following a few dividend investing blogs, and was so excited to get involved in the market I blindly took their advice and bought shares in Coca Cola. As luck would have it, their praise of Coca Cola was well deserved, and I had bought a solid dividend growth stock.
Now that I have a little bit more experience and patience, I perform the analysis necessary before buying into any company. As I decreased the time it takes me to analyze a companies finances, I am now working at a rate of about 1-2 companies a week.
I find new companies to analyze from many different sources, but the majority of them are from the commonly used dividend indices: Aristocrats, Achievers, and Champions. The businesses that comprise these lists generally have the qualities you would expect of a dividend growth stock; strong revenue, low debt, positive cash flow, and increasing dividends. So how do you narrow down the ones you want to buy?
This is where your strict entry criteria comes into play. By following a (semi) rigid formula, we can focus on the companies that provide the most value.
After I find a company that is worthy of investment, I then decide if it is selling at a price I want to pay for it. I look for a 3% yield, a p/e of 15 or below, and an intrinsic value that is higher than a 10 year treasury. If a stock meets these criteria, I put it into my “watch” category. If the price is still within my buy range when funds become available, I will buy in.