A Global Head of Equity Strategy Helps You Pick Dividend Stocks For Retirement


Jefferies Global Head of Microstrategy, Desh Peramunetilleke created a six-step process and explains it.

Jefferies Global Head of Microstrategy, Desh Peramunetilleke created a six-step process for investors to find companies that can provide strong and stable dividends, reported by Business Insider.

In a note to clients, Peramunetilleke expected 31 percent of companies to cut dividends as a result of the economic downturn caused by the global pandemic. “Markets have so far overlooked the fundamentals by rewarding the cuts, which is not sustainable,” he said.

In response, he created a six-stage process to pick from thousands of stocks around the world to find the ones that could raise their dividend payments.

Firstly, Peramunetilleke looked for companies in the MSCI All-Country World Index that have substantial analyst coverage and are in the top 75 percent of the index for their forward dividend yield.

Next, companies with unsustainable dividends are eliminated after a holistic review of their dividend forecasts and history of cuts.

In the following step, the analyst and his team removes companies with weak balance sheets from the search, including the ones that took on debt to pay their dividends.

The fourth step is to remove companies that have little cash in hand, the analysts wrote.

Fifth, the group took out the companies that have poor earnings visibility based on growth histories or recent cuts to earning forecasts. “Companies with high future earnings visibility can afford to pay more in dividends than the ones that lack visibility,” Peramunetilleke said. “Low historical earnings stability also hinders future dividend-paying abilities as an indication of high business cyclicality.”

Lastly, the team screened out “value trap” companies who have “high yields for a wrong reason,” such as a plunging stock price.

Through this process, Peramunetilleke’s team picked 20 stocks that have “rock solid” dividends. The top 20 include five stocks each in the U.S., Japan, the developed countries in Europe and another five from emerging markets such as the rest of Asia.

10 in no particular order are below:

  1. Proctor and Gamble (PG)

  2. Medtronic (MDT)

  3. Roche (ROG.SW)

  4. Mondi (MNDI.LN)

  5. Sage (SGE.LN)

See the full report here.


Economics, Finance and Investing