Over several days last week, I was invited to make several presentations to investors at the Las Vegas MoneyShow. I enjoy that my talks are well attended and that the investors in the room learn quite a lot when I discuss my cash flow focused stock analysis techniques. Because it is the core of my investing strategy and I write articles and newsletter sections on stocks that my strategy digs out, I sometimes forget that what I do is very different and new for a lot of investors. I also find that it is new and useful for even experienced stock market investors.
Here are some of the basic guidelines that make of the core of my strategies that I covered in detail during my MoneyShow presentations:
Income-oriented investors need to have or develop the mindset that to earn dividends, you have to own shares of dividend paying stocks. This means that this type of investor cannot try to jump in and out of stocks based on their beliefs about share prices.
From that outlook, the investor’s stock selection needs to focus on the safety of dividend payments from the purchased income stocks. If dividends are secure, share prices become less of a concern, and share price declines can be viewed as buying opportunities to boost dividend cash flow earnings.
Traditional stock valuation metrics do not provide the information you need to evaluate the ability of a company to continue to pay and grow dividends.
I show investors how to find cash generated per share in the income statement. This is the money that supports dividend payments.
Many dividend-focused companies do provide a cash flow per share number. This metric may be called adjusted funds from operations (AFFO), distributable cash flow (DCF) or cash available for distribution (CAD).
Each quarter, you should evaluate your income stocks for dividend coverage from the CAD per share and, for the highest level of safety, a growing CAD per share.
To close one of my presentations, I provided a list of dividend stocks that had reported stellar cash flow dividend growth for the 2016 first quarter compared to the same quarter in 2015. Here are those stocks:
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