The 'bible' of my stock selection process is my watchlist. I've explained in a previous post, how I develop my watchlist. I've also explained in a previous post how I go about selecting stocks for this watchlist. If developing a concrete, bulletproof strategy is considered a '10' on a scale of 1-10, then I would say I am at around an 9 right now. I've probably moved to this 9 slot from around 7-8 over the past few months, and after reading 'The Single Best Investment'. The book rung true for me, and opened up my eyes a little wider to the dividend growth strategy which I have embarked on.
As a result of my recent realization, I have decided to add some more focus to my dividend growth strategy which was already in place. Eventually I will get to a place with my holdings and watchlist where the point of clarity has been reached; then I can move on to the job at hand which is the practice of implementing the strategy over and over. This will free up more time to change diapers and mow the lawn....
The focus that I have added involves narrowing the universe of stocks in which I will invest. In the book, Miller talks about 'Creating Your Own Private Compounding Machine'. The formula for success is High Quality + High Current Dividend + High Growth of Dividend = High Total Returns. In a round about way I had been already using this strategy to select stocks, but I am now going to focus my strategy based on this idea and toss out some of the bad apples...
The Bad Apples
- not that these are not fine companies, but they just don't fit with my strategy and thus I am wasting my time keeping tabs on them.
Thomson Corporation (TOC)
Thomson Corp. is actually a pretty good, consistent company with decent earnings and dividend growth and amount, however I have decided to remove TOC from my watchlist for the following reasons:
- I don't understand enough about how the company makes money.
- Their Price / Earnings ratio is too high, for no good reason, and I can not rationalize it so I know I could never buy the stock
FedEx Corporation (FDX)
- The dividend yield is 0.4%
- UPS is a public company.
Starbucks Corporation (SBUX)
- The dividend yield is 0%