It’s time to show you my value stocks and dividend stocks watch list
I’m long overdue for beginning a monthly lowdown of my UK dividend stock watch list. Every month, I go through a list of FTSE 350 value stocks and dividend-paying stocks. I start off with all 350 stocks, and I rank them in different ways in order to whittle down the numbers towards a lower amount by following a set of criteria. This helps me review what is going on in the UK stockmarket, as I see the ups and downs of every stock’s data. I can then choose stocks that I would like to research more, in order to invest, but first I have to get rid of those that I probably wouldn’t like to invest in. I start the process by ruling out:
- Stocks that don’t pay dividends (you need to give me something back, mate! I’m trying to earn passive income here! Dividends are one of my strategies for wealth a new income stream I’m trying to build up alongside my p2p lending);
- Stocks with a PE of over 20 (expensive – I’m a cheapskate and always will be!);
- Stocks with a PE of less than 7 (value trap? too good to be true?);
- Stocks with a dividend cover of less than 1.5 – I prefer to buy those with a 2 upwards, equivalent to a 50% payout ratio;
- Stocks that have less than 7 years’ increasing dividends (unless the company has a wide ‘moat‘);
- Stocks I find morally incompatible with my beliefs (tobacco, gambling, sugar – yes, sugar! Bye-bye Tate & Lyle!);
- Stocks that are facing some kind of legal issues or suspected fraud (e.g. Tesco, Serco);
- Stocks that have not increased their dividend by at least 2% per year (my default inflation figure, although I sometimes ignore this if the company has a wide moat).
How I rank my value stocks and high dividend stocks watch list
I order my remaining companies into an edited value stocks and dividend stocks watch list. This is done in various ways, e.g. highest dividend yield, highest dividend cover, lowest PE, and any which way I feel like… but basically, once I’ve deleted stocks according to the 8 criteria above, this doesn’t leave many left. Funnily enough however, it leaves rather a lot more FTSE 250 companies compared to FTSE 100 companies. There are usually less than 10 FTSE 100 companies left in my list, and maybe 20+ FTSE 250 companies. I’m not really sure why this is, but I did notice that many of the FTSE 250 companies have usually got much more dividend cover, so perhaps they are just more conservative, or they have lower costs or something. Who knows?
Things to consider when buying stocks
There are other things to consider before I dive in. For example, what is the ROCE (return on capital employed) of the stock? Do they have have a history of decent ROCE, or has it been choppy? What’s their cash flow like? Does the stock look too good to be true? If it looks too good to be true, it could be what John Kingham (a UK investor I respect) calls a value trap. Has some new technology come along that might make the company irrelevant in a few years? There are, of course, many more questions one could ask, but they vary form person to person. Some people like to set a minimum dividend yield, but I tend to think in terms of quality. However, I do like to make sure that the yield is above inflation, just because otherwise I am losing money after inflation’s greedy money-eating effects, grrrrrr!
Other points to think about – Firstly, I don’t like to be too harsh with stocks, e.g. Royal Dutch Shell, a high-yield dividend and value stock actually cut their dividend a bit a few years ago, but I feel that they are strong enough as a company to keep providing me with a decent income. The yield is always pretty high, so a slight cut would not phase me too much. Sure, oil has taken a beating of late, but Royal Dutch Shell also have a huge part of their business coming from natural gas. There are also problems in data-gathering, in that sometimes my data may not be 100% accurate. This is why the list I compile is just a beginning for me to research into the stocks further. One of the problems you may come across is when using different data sources to get information on stocks, sometimes the data varies. For example, my data would show that WPP does not have a 7 year increasing dividend history, but other websites do… this is something myself and Dividend Life have discussed, when trying to compile the UK Dividend Champions List.
So, what does my dividend stock watch list look like for January 2015?
January 2015 Value Stocks and High Dividend Stocks Watch List
FTSE100
| Epic | Name | Sector | Yield | Div. Cover | 02/01 P/E |
| ADN | Aberdeen Asset Mgmt | Financial General | 4.15% | 1.80 | 13.4 |
| AGK | Aggreko | Support Services | 1.77% | 3.50 | 16.2 |
| BA. | BAE Systems | Aerospace | 4.33% | 2.10 | 11.1 |
| BG. | BG | Oil and Gas | 2.27% | 4.50 | 10.6 |
| CPI | Capita | Support Services | 2.53% | 2.20 | 18.3 |
| DGE | Diageo | Food/Beverages | 2.83% | 1.80 | 19.2 |
| ITRK | Intertek Testing | Support Services | 2.01% | 3.00 | 16.8 |
| JMAT | Johnson Matthey | Chemicals | 1.89% | 2.70 | 19.9 |
| MRW | Morrison Supermarket | Retailers | 7.20% | 1.90 | 7.3 |
| PRU | Prudential | Insurance | 2.35% | 2.70 | 16.5 |
| PSON | Pearson | Media | 4.17% | 1.50 | 16.7 |
| RB. | Reckitt Benckiser | House/Leisure | 2.65% | 2.00 | 18.9 |
| SBRY | Sainsbury (J) | Retailers | 7.11% | 1.90 | 7.4 |
| SKY | Sky | Media | 3.57% | 1.90 | 14.5 |
| VOD | Vodafone | Telecomms | 4.99% | 1.60 | 12.7 |
FTSE 250
| Epic | Name | Sector | Yield | Div. Cover | 02/01 P/E |
| AMEC | AMEC | Oil and Gas | 5.03% | 2.10 | 13.1 |
| ATK | Atkins | Support Services | 2.54% | 2.60 | 15.3 |
| AVV | Aveva | Tech/Software | 2.15% | 3.30 | 14.3 |
| BEZ | Beazley | Insurance | 3.10% | 3.60 | 8.7 |
| BWNG | Brown (N) | Retailers | 3.83% | 1.90 | 13.4 |
| CCC | Computacenter | Tech/Software | 3.02% | 2.50 | 13.7 |
| CLLN | Carillion | Construction | 5.29% | 2.00 | 9.5 |
| COB | Cobham | Aerospace | 3.09% | 2.20 | 14.9 |
| CRDA | Croda International | Chemicals | 2.50% | 2.00 | 19.6 |
| CWK | Cranswick | Food/Beverages | 2.37% | 2.60 | 16.3 |
| DCC | DCC | Support Services | 2.26% | 2.50 | 18.4 |
| DNO | Domino Printing Sciences | Electronics | 3.49% | 1.80 | 18.6 |
| FSJ | Fisher James | Indust. Transport | 1.75% | 3.30 | 17.8 |
| HICL | HICL Infrastructure | Investments | 4.74% | 1.80 | 10.6 |
| HSX | Hiscox | Insurance | 3.03% | 3.20 | 10.7 |
| IMI | IMI | Indust. Engineer | 2.88% | 2.10 | 17.2 |
| IRV | Interserve | Support Services | 4.02% | 2.20 | 11.6 |
| JD. | JD Sports | Retailers | 4.69% | 4.30 | 4.3 |
| MCRO | Micro Focus Int. | Tech/Software | 2.74% | 2.30 | 16.9 |
| MTO | MITIE | Support Services | 4.10% | 2.20 | 11.3 |
| PAG | Paragon | Financial General | 2.14% | 3.50 | 13.1 |
| PAY | PayPoint | Support Services | 3.97% | 1.50 | 17.3 |
| PZC | PZ Cussons | House/Leisure | 2.49% | 2.20 | 17.0 |
| RPC | RPC | Industrial General | 3.18% | 2.70 | 12.3 |
| RPS | RPS | Support Services | 3.69% | 2.70 | 10.6 |
| SGC | Stagecoach Holding | Travel & Leisure | 2.66% | 2.70 | 14.2 |
| SMWH | WH Smith | Retailers | 2.60% | 2.30 | 17.1 |
| SXS | Spectris Ord 5p | Electronics | 2.10% | 3.10 | 15.8 |
| UBM | UBM | Media | 5.73% | 2.00 | 11.4 |
| ULE | Ultra Electronic Hdgs | Aerospace | 2.39% | 3.00 | 14.1 |
| WG. | Wood | Oil and Gas | 2.52% | 3.50 | 12.5 |
As I mentioned above, for some reason, there are always way more value stocks and dividend stocks on the FTSE 250, compared to the FTSE 100. Also, I’ve left JD Sports on the list, even though their PE is below 7, once again, this is something where data conflicts. Plus, since I own JD Sports and bought them at a good price, I like seeing them on there 
So, what stocks are on your watch list for this month? Do any of them match mine?!
Cheers!
Image credit: iosphere at freedigitalphotos.net
You do this list every month? This is great! I like your filters and glad someone is crunching the numbers for me
Andrew recently posted…95 Days of Happiness
Hi Andrew, thanks for visiting! Yes, i do a list after the first Saturday of each month, although January was the first time I got round to posting it online.
Are you interested in any stock in particular?
M,
Some great companies on your list!
I recently discovered RB had a lower payout this year than last year. It’s just 0.01£ though. How do you feel about that?
Also, are you planning on buying companies outside the UK?
Looking forward to your next purchase!
NMW
I’m saddened by reckitt’s dividend cut, i know it’s only a penny, but a cut is a cut. So I’d rather buy PZ Cussons instead, or something else from overseas.
Speaking of overseas, i do have a couple of US companies in my portfolio, but with the dollar being so high right now, this makes it difficult to justify buying US stocks when i can see better bargains at home. I do think there are a few opportunities though, despite the high dollar.
Thanks for your comments, as ever,
Cheers!
Thanks for pointing me to the UK Dividends Champions List – I did see the link to it on someone else’s blog a while ago but forgot to take note of whose.
The list makes me want to consider FTSE 250 stocks, whereas previously I was only really looking at FTSE 100.
I’m only investing small amounts so any risk will be limited to these small amounts. I’d best do a little research of my own!
weenie recently posted…Home Brew Beer #2
Hi Weenie,
thanks for dropping by again. Major coincidence – I was writing you an email just as your comment appeared. SPOOKY!
Yes, I am liking the FTSE 250 more and more these days. It’s very well-researched, unlike the AIM companies, about whom it can sometimes be difficult to find enough information!
Check out investegate.co.uk, morningstar.co.uk, iii.co.uk, and digitallook.com for free research tools!
Cheers
Hi M,
It looks like you have a good initial screen to me – do you have a minimum dividend yield that you look for in addition to a growth of >2%?
That’s an interesting observation about the dividend cover for the FTSE-250 shares. Maybe because the companies are smaller and haven’t reached the point of diminishing growth due to large size of perhaps more mature FTSE-100 companies, so they can increase dividends without digging into the cover ratio? It might be interesting to see the correlation between yield and cover and if any companies stand out from the average.
I am wondering where you saw WPP with 7 years’ growth? I hope it wasn’t in one of my lists! They froze their FY dividend in ’09, so they either have 4 years if you start then (FY14 is still in progress), or they have 20+ years if you ignore the freeze or if you count by CY. I think many websites only go back 5-10 years so they may present shorter growth lengths just because they only have a subset of data.
My pet peeve at the moment is the definition of “million” between the UK and the US. I’ve seen sites with the P/E of some UK companies off by a factor of 10 because they used market cap with the wrong interpretation of million…but I digress.
Best wishes,
-DL
Dividend Life recently posted…My Goals for 2015 (and beyond!)
Hi DL, thanks for visiting again.
I do like to start with a yield of at least 2%, although I often try to look for 3% or more, as I can get 3% from a bank account already. The FTSE 100 average yield is around 3.02% right now, whereas the FTSE 250 is 2.47%, so 3% is not that hard to achieve, thankfully.
I agree that it would be interesting to look into the correlation between yield and dividend cover… some of the FTSE 250 companies are quite mature though, but you have to also remember that companies go in and out of the various indices according to their value, so it’s not really about size or maturity sometimes. However, smaller companies are often still largely family-controlled, or have a large family interest, so they do tend to be much more conservative.
WPP – we spoke about this via email I think. I count by financial year, so in their case they fail. But I’m sure some datasets are counting by Calendar Year, in which case they seem to be onto a winner! I think that’s wrong however, it’s kind of a sneaky thing.
I’m not sure what you mean about there being a difference in the interpretation of a million… we have the same million as you do. There used to be a difference between the billion and the trillion, but we use the same as you, and have done since 1975.
Best Wishes from the Motherland!
M
Hi M,
Yes I meant billion, sorry – so it’s 1,000 million right? Morningstar.com and Morningstar.co.uk can’t agree on the data for SHP for example…Morningstar.co.uk shows SHP with a market cap of 27B and a P/E of 32. Morningstar.com shows SHP with a market cap of 2,805.0 bil (!) and a forward P/E of 718.7…
… but maybe it’s just how they’ve used the share price with one site thinking the currency units are pounds when they’re really pence…whatever it is, I always seem to have to triple-check UK stats and units.
Yes, we’ve discussed WPP before – I was just curious where you still saw 7…it’s either 4 or 21+ years. Companies with quarterly payouts have it even easier for showing an increase as they can show an annual increase simply by increasing their dividend every second year.
Cheers,
-DL
Dividend Life recently posted…My Goals for 2015 (and beyond!)
Yes, we have the same million. I think it could be a currency issue, but whatever the reason, SHP definitely doesn’t have a market cap of 27B!!!
Re WPP, I look for 7+ years of increasing dividends, so depending on whose data you look at, you might see the 4 or the 21+ my data says 4 years, so they’re out of my list!