The Top 40 Dividend Stocks for 2010--Getting Closer to Publication

Preparing the new edition of THE TOP 40 DIVIDEND STOCKS is a little like the NCAA basketball tournament. First, the Selection Committee--that would be me--must decide who is even eligible. Theoretically, all stocks, worldwide, are eligible. But because this is a book on dividend investing, the very first step is to select a starting universe of dividend-paying companies with half-decent records. I did that a couple months ago, ending up with about 700 companies. That's my starting universe.

Next, I put those companies through what I call "Stage 1" testing. I applied five ground-rule requirements. Each stock must have:

--Increased its dividend distribution in each of past 5 years.
--Current yield of at least 3% (2.5% is allowed for stocks that have raised their dividends at least 20 years in a row).
--Positive return in 3 of past 5 years.
--Total return over past 5 years of at least even.
--3-year percentage increase in dividend payout of at least 16% total (12% is allowed for members of the 20-year club).

Those five simple tests (eased a little bit so as not to lose borderline candidates) reduced the starting universe of 700 down to 169 stocks. Then in November came Stage 2. I appplied the same five tests to those 169 stocks, with no easing this time. The tests were applied rigorously. That got the number down to 108. These are the Semi-Finalists, sort of like the Sweet 16 round of the basketball tournament.

The December task for the Selection Committee (me) is to reduce that list again to what I call the Finalists. I am working on that right now. What I do is "score" those stocks using a partial version of the complete Easy-Rate system. This allows me to eliminate those stocks that, while they may be very good investments, are not the championship calibre of the Top 40. I try to identify 50 to 60 Finalists. I do this by recording the score for each of the stocks, then sorting the list by score. The stocks sort themselves out, from obvious winners to stocks that may now even fall short of the original tests from the first stage. For example, a stock's rising price may have driven its yield below the acceptable minimum.

I will take a first shot at identifying the Top 40 by the end of December. But the final selection will take place in the first week of January, when I have complete 2009 data to work with. By then, I will have written all of the Finalists' Stories and prepared their Easy-Rate sheets that will appear in the book. One final pass through the latest data will allow me to make any necessary changes to my first crack at the Top 40. When I know exactly who the winners are, I will update all their Easy-Rate sheets and combine them with the text.

Ah, the text. Throughout the year, I have been collecting information and tidbits to update the text. I start with last year's text, of course, but a good portion of it--more than 25%--gets changed for the new edition. New statistics and charts are added. The scoring system has been further refined this year, to place a little more emphasis on high-yielding stocks. I completed a first draft of the new text in November. Later this month, after I have identified the Finalists as explained above, I will go through the text again and complete the second draft.

Just as with the Top 40 stocks themselves, I will make one final pass through the text in January, with complete 2009 information available. Tables will be prepared showing how 2009's Top 40 stocks did and presenting the 2010 Top 40 in a variety of ways for easy access and use.

Finally, when they are merged, the text, the Top 40 list and its tables, plus an Easy-Rate sheet for each stock, will form the complete e-book. I hope to launch it on or about January 20. And then, I'm going on vacation!