My Entry Criteria

As I’ve started to trade in stocks I just bought some “good-looking” stocks and sold them very fast. I hadn’t no idea why I bought them. I just looked to the development of the stock price and as it was nice looking I bought it. Without having any knowledge I sold them very fast. Middle of last year I visited a webseite about passive income by dividends and value investing and it looked very interesting to me. I heard about this strategy very often – especially as soon as I have heard something about the big genius Warren Buffet.

I started to learn more about the strategy of investing in dividend stocks. Be invested and get paid with the earnings of the company is awesome. I would participate on every coke I drink while I’ll invested into Coca Cola. If I clean up my apartment I would participate on buying products from Reckitt Benckiser on every dollar they made. If my car need gas I would participate from every dollar BP or Royal Dutch Shell made. If I get hungry and going to McDonalds I would participate too. This looks good to me!

Of course I could buy now every stock, but it would be better to have entry criteria. I don’t want to buy overpriced stocks.

My entry criteria

I have 5 different criteria before I enter into a position after finding an intersting value.

P/E Ratio

I look for a stock to have a current P/E Ratio of 25 or below. Stocks with P/E Ratio with more as 25 seems to be overpriced. I also take a look to the competitors what their P/E is looking like. Some industries have a P/E ratio over 25 but they are the market makers and sometimes ready for entry. Its not very strictly for me to decline if they have a P/E ratio over 25.

Unterstanding of the product

Before I enter a position I need to understand the company and their products. Without having a knowledge about the company it would be very crazy to be invested. As soon as I understand the product I just ask myself do people need their products? Its not up to me if I need the product, its up to the mass of people. If I am a non-smoker a lot of people love to smoke. I don’t speak about healthiness of smokers. A coke is full of sugar and its too sweet for me, but people love to drink a can of coke.

Dividend Growth 

If I’m interesting in buying a company I look to the dividend growth for the last 5-10 years. The dividend payout must continuelly growth. I just want to be invested into companies with a dividend growth. But if a company haven’t pay a dividend or did decrease dividend in the last 10 years for once or twice, I would only enter a position if the entry yield would be more than 4,00%. If continusly growth of dividend the entry yield could be 2,50%.

Entry Yield

I’m looking for entry yield of 3,50% or more. In some cases (if dividend growth is not available or decreased) I only accept a entry yield of 4,00% or more.  The maximum of “dividend growth stocks” are 2,50%.

Payout Rate

The payout rate should not be 80% or more of their earnings. The best payout rate would be 30-50%. Its very important for me that their is enough capital to reinvest.

 

What is your entry criteria?

Thanks for reading and take care!

Leave a Reply