In Search Of Value

The “best” dividend stocks can be pricey as measured by their Price-To-Earnings and Price-To-Sales ratios. Nevertheless, with 8o2 stocks in our dividend paying universe, there must be some “good” stocks that are priced right for acquisition. With that in mind, we began scouring the Dividend System™ database.

Currently our entire universe of dividend stocks (those that have paid increasing dividends for 5-years and more) has an average Price-to-Earnings ratio of 29.3 and a Price-To-Sales ratio of 3.4. A PE of 20 is considered average and a PS between 1 and 2 is considered acceptable. Looking at the universe as a whole we are not surprised by the “premium pricing” for reliable dividends, as one would think that quality comes with a higher price, and demand for certainty is high in uncertain times. That’s how it looks on the surface.

We ranked this month’s stocks by both PE and PS ratios as common measures of value and combined those into a score, that we then ranked for an overall “best” value. Eliminating the bottom 70% of stocks based on their value ranking, we are left with 241 stocks, an average PE of 7, PS of 1.02, and average total return of 1.0% Seems a little grim.

But fear not, we can filter out the chaff — we immediately eliminated the stocks with Reliability Ratings below 3.5, which left us 33 stocks, an average PE of 10.1, PS of 0.72, and average total return of 3.6%. A little better. And that’s where we use our Final Filter! Eliminate the negatives! It’s really all about positivity when talking about Dividend Stocks. And we lied — we also eliminated any stocks with zero free cash flow growth.

The resulting five stocks have an average PE of 10.4 and PS of 0.95, with an average total return of 10.7% — much better! These five stocks represent a good opportunity a below market prices. We hope this tickles you into a tizzy of further research and analysis.

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