Joel Greenblatt Magic Formula Dividend Screen November 2017

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.

Magic Formula Investing Screen
Top Decile of Ranked Stocks

Download the whole spreadsheet.

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.

I valued Starbuck’s using a discounted economic profit model. With Papa John’s I did a brief back of the napkin valuation to see what I price I would pay per share to generate 20+% returns.

Further Reading

The Little Book That Still Beats the Market by Joel Greenblatt