- I have passed all of the 136 survivors of Stage 1 testing through Stage 2. In that second stage, all of the stocks were again subjected to the six fundamental Stage 1 tests, but this time with no "easing" of the requirements. In addition, I applied several additional tests designed to anticipate how the stocks were likely to score when I applied my Easy-Rate standards to them. As I have stated, I love to eliminate stocks--it's like eliminating the non-contenders in a horse race. After you do it, you have the pleasure of knowing that you are looking at the likely winners of the race. This year's Stage 2 phase dropped the 136 survivors of Stage 1 all the way down to 46 "Semi-Finalists." The 90 stocks that didn't make it were removed to a "2012 Contenders" document, where they joined the stocks that were eliminated in Stage 1. I will maintain that document throughout next year, as it will become the pool of candidates a year from now (along with all the survivors) for 2012.
- Stage 3 consists of preparing the "Company Quality" portion of the Easy-Rate scoresheets for all of the survivors. Thus I write (or re-write) their Stories; study their EPS growth rates, ROEs, debt ratios, and other financial factors; and rate their dividend prowess (current yield, years increased, average rate of increase, and the like). The result is a Company Quality score using a system that has been optimized for dividend-growth stocks. (I tinker a little with the system each year based on new learnings and insights.) As I complete the analysis of each stock, I place it in a table in order of its Company Quality score. I also record the stock's current yield, as that may be used as a tie-breaker in selecting the Top 40.
- I have just about completed Stage 3. When I finish, I will have ranked the 46 Semi-Finalists by Company Quality. That list will then be frozen until the first of the year. (If you saw the weather up here in Webster, NY, you might think I mean "frozen" literally.) In a first for us, my wife and I are driving to Florida on January 2-4. By the time we arrive, full-year 2010 data should be available. At that time, I will value the stocks using my Easy-Rate stock valuation system and update the Company Quality scores. That will give me all the information I need to pick the Top 40. If there are any ties, I'll select the stock with the higher yield--all other factors equal, higher yield is better.
- I will also go through the text at least one more time. I will have full-year 2010 statistics about dividends generally and also be able to complete the table showing how 2010's picks did for the full year. As I said in an earlier post, I am adding a new chapter this year on Retirement Financing, and I want to go over that again. This is the time to catch errors, from important logical mistakes down to little spelling errors.
Interesting tidbits: 32 of the 46 Semi-Finalists have been a Top 40 pick in 2008, 2009, and/or 2010. That is not a surprise: It takes a special kind of company, with lots of great characteristics, to survive this kind of analysis. Certain companies have been on that plateau for years and are simply excellent companies that many would call Blue Chips. But some of the other Semi-Finalists are relatively new to the dividend-raising world (I require at least 5 consecutive years of increases to be eligible at all). Maybe they are the Blue Chips of the future and now is the time to get in on the ground floor. The Semi-Finalists represent all manner of size and many industries. Most but not all are domiciled in the USA. Even if domiciled in the USA, most get close to or more than half their revenues from outside the country. When you go through an exercise like this, the ongoing globalizaton of companies and markets just jumps out at you. My take: You do not have to invest in foreign companies to gain access to many of the opportunities represented by global markets and developing economies. These companies are already doing it.
