Thursday 28 May 2020

Dividend Counters with Potential Growth

I have always used fundamental analysis be it the top-down or bottom-up approach for any addition of dividend counters with good growth potential to my income portfolio. 

Although it works well so far, I have been wanting to qualify my analyses with a mathematical model to justify them.
Maybe it's due to my engineering and science background. I don't know.

I found what I wanted some time last year from a fellow member on one of the online platforms that I frequent.

Apparently there is a finance formula called Dividend Yield + Expected Capital Growth (DYG).

This formula uses the expected annual dividend, dividend payout ratio and ROE as the metrics for gauging whether a particular counter is a good income-paying one with long term growth.

I created a spreadsheet with formulas for easy calculation as shown below.

The ROE is calculated by dividing the EPS by the NAV per share.

The dividend payout ratio is calculated by dividing the dividend per share by the EPS.

I obtained the EPS, dividend amount and NAV from the companies' annual and quarterly reports instead of third party websites for accuracy sake. Just a personal preference.
Coming from a non-finance background I have never heard of this formula prior to this. And being a skeptical person (guess it's just my nature, I don't usually take things at face value.), I did some searches online but couldn't find any results on this formula.

So I did the next best thing. Using the formula on some counters in my watch list and monitor them for couple of months, including their latest quarter reports.

The counters identified back then as good counters (DYG >10%), largely performed well so far.
So I decided to do a new round of calculations for selected counters in my watch list today.

The latest DYG results are as follows.

The top 3 counters I've identified in my previous round of calculations some months back are still the same with this latest set of calculations.
I also did a little stress test to mirror the current macro situation by factoring a 30% reduction in expected dividends.

Interestingly the DYG value of some counters went up while the others decreased. There is no fixed pattern.

I'm still trying to analyse why but one thing for certain. Even after factoring the 30% dividend cut into the calculations, the top 3 counters are still the same. The change in the respective DYG value is insignificant, not even 1% difference.

Lastly I have appended below the raw data for your reference if it's helpful to you.

Most investors who have read enough annual reports will roughly know where to find data such as EPS and NAV.

Nonetheless it is still quite a chore to download the various AR and run through the pages for so many companies. I wouldn't wish anyone else to do it if you have a choice.

So here it goes.


Personally I find the DYG method complementary to my current stock selection methodology. Moving forward I will probably add it as one more step as a justification to my FA.

For sharing purpose I have summarised my methodology as follows.

1. Use stock screener to sieve out potential counters. Personally I use P/B, P/E and debt/equity ratios, net profit and dividend yield.

2. Use FA to narrow down the counters.

3. Use DYG method as a double check.

4. Purchase counter(s).

5. And enjoy the passive income.

P.s. Decided to use another font type and font colour for this post. Please feel free to let me know if it's better for viewing compared to previous posts. Thanks.


  1. In my opinion, using EPS to gauge REITs may not be appropriate as increase/decrease in property value will skew the value away. If EPS is not suitable for REITs, then the same would apply to ROE as well. I am also coming from engineering background.

  2. Hi Vince,

    You are totally right in this.

    I shared the same thought while I was writing this blog post back then.

    I actually took a pause in the calculations to ponder on the suitability of using EPS for Reits as the depreciations do not paint an accurate picture of the earnings.

    However I decided to go ahead, at least to see the comparison among a selected group of Reits.

    The Reits also included the EPS in their financial report. I was wondering is it due to accounting / reporting standards or they have already accounted for the effect of depreciation in their earnings.

    Any idea on this?

    Thanks for sharing your thoughts by the way.

  3. In my view, since we are in REITs for dividend, therefore, distribution value is more useful to us. I have a SREITs dashboard in my blog @ which I share those data I would focus on when analyze SREITs.

    Is an accounting standard to mention eps, REITs can't skip that.