Dividend Informer User Guide

Sep 21, 2023

The Dividend Informer delivers regular research and analysis on securities that provide a combination of income and long-term appreciation. On a regular basis our professional stock analysts publish at least one detailed, high-quality, income-oriented stock idea for subscribers. These in-depth research reports will be exclusive to the Dividend Informer newsletter. All content is produced by Provident Investment Management, Inc., a Registered Investment Advisory firm since 1981.

In the Dividend Informer you will discover actionable opportunities for your portfolio, through investing in growing companies with a track record of offering regular, increasing capital return in addition to potential for share price growth.

Our focus is on reasonably valued companies with solid balance sheets and significant free cash flow generation, allowing for the payment of consistent, growing dividends. A heavy emphasis is placed on dividend yield, but the newsletter also highlights companies returning significant capital to shareholders via share repurchases and debt reduction.

Summary

Each company write-up includes a summary of significant company metrics. The following are definitions of the figures displayed in this section.

Recent Price: The price of shares as of the date the analysis was produced.

Current Yield: The percentage dividend yield based on the indicated dividend of the next four quarters.

Payout Ratio: The percentage of current earnings per share being paid as dividends to shareholders. A lower payout ratio means that a company’s dividend is well-covered by its profits.

Estimated Forward P/E: The Price/Earnings Ratio calculated using the recent price divided by the estimated earnings per share of the next four quarters as determined by our analysts.

Historical Average P/E: The average Price/Earnings Ratio of the stock over the last five years. This figure may be adjusted to remove outliers.

Discount/Premium (-/+): The percentage by which the estimated forward Price/Earnings Ratio is either lower (discount) or higher (premium) than the historical average Price/Earnings Ratio. Investors often consider a stock trading at discount to be more attractive than one trading at premium. This is comparable to “Relative Value,” which is the P/E based on EPS 12 months into the future compared to its historical average P/E. We refer to “premium/discount” to imply that the P/E is either more expensive (a premium) or cheaper (a discount) compared to that company’s history.

Debt/EBITDA: The company’s total debt divided by EBITDA (earnings before interest, taxes, depreciation, and amortization). This is a measure of how much debt the company possesses relative to operating cash flow the company generates that is available to pay down its debt. A low debt/EBITDA ratio is an important indicator of a conservative balance sheet.

Determining When to Buy

Dividend stocks aren’t held to the same total return and valuation criteria as growth stocks. They are prized for their yield, their cash flow, their capital return to shareholders, and the potential for some growth in order to at least keep up with inflation. Without the strong upside that comes from being a growth stock, a 3:1 Upside-Downside or reward-to-risk ratio is much harder to achieve for the mature, cash-rich companies that we feature in Dividend Informer.

As a result, we have consciously decided against specifying a buy-up-to price for stocks that we present in the newsletters. Subscribers should make their own decisions about buying and selling based on their personal preferences and tolerances, but it is usually preferable to buy a stock at a discount (when the P/E is below its typical level) rather than at a premium as is defined above. Subscribers can check the updated coverage list published each month with a current estimate of premium or discount available for each stock under coverage.

We still consider growth trends that are relevant to dividend investors to a certain degree. Some revenue growth is required, along with rising EPS, free cash flow, and dividend increases.

Scores

Companies are assigned a Score in four areas using an A-B-C-D scale (where A is the strongest and D is the weakest):

Capital Return: Assessment of shareholder-friendliness in terms of dividend payments, share buybacks, and share offerings.

Growth: Underlying growth of sales and earnings is necessary in order to increase a company’s dividend over time.

Stability: Consistency of the growth of sales, earnings, and free cash flow over time, as well as exposure to the economic cycles.

Governance: Considers factors reflecting management’s alignment with shareholders, as well as practices regarding capital allocation and use of excess cash generated by the business.

Using Dividend Informer in Your Personal Portfolio Management

We do not provide a model portfolio or make specific buy/sell calls. Our research is intended for self-directed investors who can utilize our work to assist them in making their own portfolio decisions.

Subscribers are expected to do their own supplemental research before acting on any stock recommended in the Dividend Informer.

Asset allocation and portfolio diversification objectives are highly personal, and we recommend working with a financial advisor if you are unsure about setting and achieving goals for yourself.

Publication Schedule

The Dividend Informer publishes content throughout the month. A typical month will include one or two stock write-ups, a summary of current coverage with updated metrics for all stocks covered, and economic and market commentary. Paid subscribers will receive all this content as it is released.

The Stock Selection Guide

The Dividend Informer uses some of the methodology of national non-profit investor education organization BetterInvesting/National Association of Investors. Each company write-up includes a graph taken from the organizations Stock Selection Guide (SSG), which provides a graphical picture of whether or not a company’s sales, profits, and dividends have been growing over the past ten years. (And as you well know from every mutual fund advertisement, past performance is no guarantee of future results.)

Still, unless something has changed, the best predictor of what to expect in the future is often what has happened so far.

Earnings per share is a key factor determining whether or not a company can pay dividends. This is graphed on the Stock Study form by the line labeled “e” on the front of the graph.

Free cash flow per share is another critical determinant of the company’s ability to return cash to shareholders. This is included on the Stock Study form with the label “f.” Over time, free cash flow per share should be growing at least as rapidly as sales and EPS.

The third line labeled “s” for company sales is also important. The importance is that long-term earnings growth always depends on sales growth. In the short term, earnings can be boosted by cutting expenses (such as a merger), but expenses can’t be cut forever. If sales are not growing at the same rate as earnings, this is a matter to be investigated.

The fourth line labeled “d” shows the actual dividends per share paid each year. On the graph you can instantly determine if a company has tended increase its dividend regularly or occasionally.

On the bottom of the graph, the historical rate of sales and earnings growth is calculated, and forward rates are estimated. These estimates are expected to be applicable for at least the next five years.