This is a large-cap dividend focused screen, loosely based on the "Dividend Attraction" screen discussed by Kevin Matras in his useful book, "Finding Number 1 Stocks". It focuses on the added dividend security to be found amongst larger-cap stocks in a credit-constrained environment.
In Matras' version, however, the primary filter is the Zacks Rank (a proprietary metric analysing analyst forecasts for i) Agreement, ii) Magnitude, iii) Upside Potential, Surprise). However, this version just uses the 3 month change in analyst forecasts instead.
The other elements are: i) A market capitalisation above £1.5 bn, ii) Positive 5 Year Dividend growth, iii) Above Average Return on Equity, iv) Above Average EPS Growth and v) Price to Operating Cashflow. more »
Market Capitalisation only takes into account the value of the company's shares (equity), it ignores the amount of debt a company may have taken on and therefore isn't the best indicator of the company's size. The Enterprise Value adds the net debt to the Market Cap and is a better indicator of the minimum amount that an acquiring company may have to pay to buy the firm outright.
Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. The DuPont formula is a common way to break down ROE into three important components. Essentially, ROE will equal the net margin multiplied by asset turnover multiplied by financial leverage.
Stockopedia explains ROE %...
Widely used by investors, the ROE ratio shows the return being generated for every pound of equity on the balance sheet. It should be thought of as the 'internal return' that the company generates, and should not be mistaken with the market returns that shareholders may attain.
It varies by industry but ROEs of 15% or over are usually considered desirable. High ROE numbers sustained over the long term may indicate a company has a 'sustainable competitive advantage'. Such companies tend to sell at higher valuation multiples.
The impact of leverage is one of the disadvantages of focusing on ROEs as it can skew ROE upwards - an alternative is to look at Return on Capital Employed.
A valuation metric that compares a company's market price to its level of annual operating cash flow. This is similar to the valuation measure of price-to-free cash flow but uses a looser measure of cash flow, by not deducting capital expenditures.
Operating cash flow, aka. "cash inflow from operating activities", is the amount of actual cash made by a company's business. It is similar to operating profit but without the accruals.
Stockopedia explains P/OCF...
In general, the higher this measure, the more expensive the company. There are several advantages that the P/CF holds over other investment multiples - most notably the fact that, in contrast to earnings, sales or even book value, companies have a harder time manipulating cash flow.
This shows the percentage EPS upgrade of consensus broker forecasts for FY2 over the past three months.
FY2 means the next forecast year after this one. If we are in March, it would usually be the year ended the December after next December. It does however depends when the company's year-end is, i.e. they do not always end in December (this is not the case with a rolling ratio which is normalised for different year-ends).
Stockopedia explains % 3m EPS Upgrade FY2...
Research has shown that analysts forecasts have a tendency to trend. Analysts often get 'anchored' to their previous forecasts and only ratchet forecasts up or down cautiously in reaction to new events.