Dirty Thirty

"Dirty 30" Evaluation Tool part 1

Currently I am sitting in Orlando, FL, watching Hurricane Irma seemingly bare down on my newly purchased home just south of Tampa. Obviously this is weighing heavy on my mind and I need to do something to keep my mind away from the subject. Since I need a distraction why not write a new post?!

I recently posted about the new breakdown of my dividend fund (which you can find here) and promised that I would write another article detailing exactly how I analyze companies that I believe are currently sitting at an advantageous price. While there are many, many variables to look at when investing (especially those that earn their paychecks primarily off speculation), I tend to lean towards a very select group that can keep emotions as far away as possible. If you remember in my previous article about BGFV (found here) I introduced you to what I called my "Big Ten". 

Obviously the ten that I introduced in this article does not encompass everything that I actually take into account before taking a position in a new company, or even adding to a current position. This has led me to develop my "Dirty Thirty" evaluation tool (a cheesy name I know!) to encompass truly all of the numbers that I really dig into when doing my research. Yes, there are some outside factors that I look at, such as the state of the industry or upcoming roadblocks, but for the most part this is exactly how I do my research. 

Let me show you an example of a company that has been getting a lot of publicity from other dividend investors: Hormel (HRL). Hormel is a company that has been growing dividends for a long while now, 50 years to be exact, and is always a popular add during dips. With all the speculation though what do my numbers say? Well here you go:

So currently Hormel sits at a 50% rating according to my evaluation. Yes I know that a 50% isn't the best final rating as that means you can flip a coin and do the same but let me defend it for a second. When you rate out of 5 stars or 1-5 rating you are also getting a hold or non-buy/sell rating when it is a 3 star. This is exactly the same as a 50% rating in my opinion! I look at 6 categories, all weighted equally (this can be disputed), and I primarily look to buy since I would like to hold my positions for long periods. This means that I look heavily at variables that I believe will effect the next couple of years of my investment. This is also the reason that I do not pay much attention to quarterly reports as there can be many factors that have an effect on a three month period, that will not have a significant effect over a 3 year period.

Going back to my analysis you see that there are six major categories that I look at:

  1. Current Comparative Values
  2. Debt
  3. Revenue, Sales, Income
  4. Cash Flow Analysis
  5. Dividend Analysis
  6. Earnings

These values I do place in order of how my mind works when purchasing positions. I usually screen using values such as P/E, Price to Book, etc. Next I usually look for the amount of debt that the company holds, their history of revenue, and what is happening with their cash flow over the past year. Finally I take a look at their dividend and last year of earnings per share data. 

Yes what I said above is correct, I don't look at the dividend and current EPS until last. Why do I do this? It is pretty simple. When you start to look at a dividend yield first you usually lose sight of what you need to be analyzing: the state of the actual company behind it. 

In this series I will dive into each section of the "Dirty Thirty" evaluation tool and explain everything in depth.  As always feel free to share any thoughts or questions below.

 

Information is provided 'as is' and solely for informational purposes, this is not trading or financial advice.