The Cheapest Dividend Aristocrats
Another dividend screen we run is to take all the companies in the Dividend Aristocrat Index and rank them by cheapest.
We define cheap using the Enterprise Value to EBIT ratio, EV/EBIT. The lower the number the better.
We use enterprise value, debt + market capitalization- cash, because we want to know what it costs to buy the whole company.
EBIT allows us to equally compare the pre-tax profit of each company without worrying about how much debt each company is carrying.
This is a good screen to find ideas for the dividend stalwart part of our portfolio.
Enterprise Value to EBIT is the ratio used in Joel Greenblatt’s magic formula ranking system.
I’ve included a column in the spreadsheet with each company’s magic formula ranking. The rankings only apply to companies with the Dividend Aristocrat index. What is ranked best within the Dividend Aristocrats Index doesn’t mean it ranks the best against the whole universe of U.S. stocks.
But I’m curious to see what the backtest results would be for a portfolio of Dividend Aristocrats rebalanced using the magic formula.