I like to run a screen based on Joel Greenblatt’s Magic Formula with a dividend twist.
Like the book, I remove all financials.
I set the minimum market capitalization to $500 million
Only companies listed on a major U.S. stock exchange.
I set the minimum dividend yield at 1%.
Finding New Dividend Payers
I don’t run this screen to find the highest yielding stocks. It has been a decent screen to find new dividend payers.
Our definition of a New Dividend Payer is a company that started paying a dividend within the last 5 years.
The magic formula selects for companies that generate high returns on invested capital. A New Dividend Payer with a high ROIC generates excess capital to continue to grow their dividend.
Like the book. I ranked each company based on their cheapness and their ROIC. Below is the top decile of companies based on the rankings.
Coffee & Pizza
A couple interesting names pop out, Starbucks (SBUX) and Papa John’s International (PZZA). I recently did some valuation work for the two companies.
The Little Book That Still Beats the Market by Joel Greenblatt