Investment Philosphy

Since I am not the most intelligent guy you will ever meet, nor do I have loads of time to screen potential investments, I like to keep my investment philosophy simple. Giving credit where it's due, Lowell Miller's The Single Best Investment: Creating Wealth with Dividend Growth book helped refine my philosophy.  Without further ado, here is the top secret formula I use to screen investments:

Dividend Yield (> 3%) + Dividend Growth (>5%) = > 8%

Although there are some exceptions in my portfolio, the above simple formula serves as my primary screen for potential securities. A couple quick notes:

- If a company has a dividend yield less than 3%, I worry that management does not see the importance of a dividend to potential investors. As tempting as I find the Apples and Visas of the investment universe, I do not think their management teams see the importance of distributing a material portion of their profits to investors.
- I generally consider the 1, 5, and 10-year dividend growth records of companies before I invest. Ideally, the company has a 10-year track record of dividend increases and the dividend growth is closer to the 10% range. 
- I chose 8% since it covers inflation and trading costs, and equates to the long-term average return of stocks in the North American markets. 

No comments:

Post a Comment