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Professor Aswath Damodaran's Dividend Stocks Screen (Dividend Stocks 101 Series)

Aswath Damodaran is a professor of finance at NYU Stern. He is the author of several widely used academic and practitioner texts on valuation, corporate finance and investment management and is regarded as an authority on the subject of valuation.

He has also written books about investing, notably "Investment Philosophies" and "Investment Fables." In Chapter 2 of "Investment Fables: Exposing the Myths of 'Can't Miss' Investment Strategies," he questioned the conventional wisdom of selecting stocks solely on high dividend yield. He say that dividends, unlike coupons on bonds, are not promised cash flows. A dividend that is too high, relative to the earnings and cash flows generated by a company, is unsustainable and will have to be cut sooner rather than later. Also, high dividend payouts often translate into low expected growth rates in earnings.

Previously I have written an article on "Why the High Dividend-Yield Screen Fails," where I share similar thoughts with Professor Damodaran on the perils of screening and selecting stocks purely on high dividend yield.

He suggested the following improvements to the traditional high dividend yield screen:

- dividend yields > 4%

- dividend payout ratios< 60%

- dividends< FCFE

- expected EPS growth > 4%

The following stocks passed the Damodaran Dividend Stock Screen:

Stock SymbolCompany NameDividend YieldDividend Payout
BOHBANK OF HAWAII CORPORATION4.0%53%
BMOBANK OF MONTREAL (USA)4.7%56%
FMERFIRSTMERIT CORP4.5%58%
GRMNGARMIN LTD.4.2%60%
HBCHSBC HOLDINGS PLC (ADR)4.1%45%
DCMNTT DOCOMO INC (ADR)4.8%50%
TALTAL INTERNATIONAL GROUP, INC.5.8%60%
TEOTELECOM ARGENTINA S.A. (ADR)9.7%36%


About the author:

Mark Lin
Mark is a private value investor and runs the Cheapskate Investing website which borrows from the wisdom of value investing giants, using a systematic quantitative screening approach to filter the global stock markets for cheap cigar-butts and wide-moat compounders. He is also a regular contributor to various value investing communities.

Visit Mark Lin's Website


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