The design of the DividendQuality stock rating strategy. A strategy that focuses more on business stability.
The design of the DividendQuality strategy is all tailored around the accomplishment of the task “Find stocks that give solid and stable profits in the long run”. In a nutshell, it aims to meet the requirements by stressing the importance of a stable business.
Within the DividendQuality strategy, business stability is mainly modeled by the features “dividend payment”, “earnings” and “cash flow” stability.
1. Prefiltering
Prefiltering is done according to the following rules. When the “no-go” criterion is fulfilled, the stock is filtered out. It is then not considered during the stock rating anymore. If no data is available or can’t be evaluated the stock is skipped as well.
The abbreviation “ttm” means “trailing twelve months”, i.e. the last twelve months are evaluated. The abbreviation “by” means “business year”.
| feature | no-go filter criterion |
|---|---|
| dividend yield ttm | = 0 |
| P/E ttm | < 0 |
| eps ttm (earnings per share) | < 0 |
| fcf ttm (free cash flow) | < 0 |
| stock price performance rel. index after earnings release | missing data |
| eps during the last four business years | < 0 at least once |
| fcf during the last four business years | < 0 at least once |
| 10 year stock price performance | < 0 |
| 5 year stock price performance | < 0 |
| 3 year stock price performance | < 0 |
2. Stock rating
Stock rating is done by applying the classification and scoring rules listed in the below tables. The features are grouped into categories which are weighted by a percentage value as stated in the below feature category table.
| feature category | category weight |
|---|---|
| dividends | 40 % |
| quality | 40 % |
| price | 10 % |
| sentiment | 5 % |
| momentum | 5 % |
The rating of the single features again uses the scores +1, 0 and -1 for the performer, neutral and underperformer class respectively. The features of the dividend category are listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| dividends increased yearly during last 5 by | true | – | false |
| mean dividend increase over last 5 by | > 10 % | 5 % – 10 % | < 5 % |
| dividend yield ttm | > 5 % | 3 % – 5 % | < 3 % |
| dividend payout ratio rel. to eps ttm | 25 % – 75 % | < 25 % | > 75 % |
| dividend payout ratio rel. to fcf ttm | 25 % – 75 % | < 25 % | > 75 % |
The features of the quality category are listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| RoE last by | > 20 % | 10 % – 20 % | < 10 % |
| EBIT margin last by | > 20 % | 10 % – 20 % or if financial sector | < 10 % |
| debt to equity ratio last by | < 1 | 1 – 2 or if financial sector | > 2 |
| mean revenue growth last 5 by | > 10 % | 0 % – 10 % | < 0 % |
| mean earnings growth last 5 by | > 10 % | 0 % – 10 % | < 0 % |
| earnings growth last by | > 10 % | 0 % – 10 % | < 0 % |
| mean fcf to eps ratio last 4 by | > 100 % | 75 % – 100 % | < 75 % |
| fcf to eps ratio last by | > 100 % | 75 % – 100 % | < 75 % |
The features of the price category are listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| mean P/E last 5 by | < 12 | 12 – 16 | > 16 |
| P/E ttm | < 12 | 12 – 16 | > 16 |
The feature of the sentiment category is listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| stock price performance rel. index after earnings release | > 1 % | -1 % – 1 % | < -1 % |
The feature of the momentum category is listed in the table below.
| feature | +1 | 0 | -1 |
|---|---|---|---|
| stock price change last 6 months | > 5 % | -5 % – 5 % | < 5 % |
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