Geraldine Weiss Stock Screen

The Geraldine Weiss stock screen prescribes a method for buying and selling high-quality blue-chip stocks using the historical range of dividend yields as a value guide. Geraldine Weiss is the erstwhile editor of Investment Quality Trends- the number 1 ranked investment newsletter for risk-adjusted returns by The Hulbert Financial Digest.

In markets like this, there are many among us who would prefer dividends in the pocket now, rather than future capital gains. They would vouch for mature established companies with a good dividend paying track record. So how do we choose among such stocks. The Geraldine Weiss screen prescribes a time-tested method.

The Geraldine Weiss stock screen is based on the approach outlined in her books
Dividends don't Lie and The Dividend Connection.

Dividends are tangible evidence of a firm's profitability and proof that the firm's earnings are real. The consistent dividend payments become a reliable source of steady and increasing income. Its natural that these type of stocks are also well-regarded by the market. They are usually stable and the last to fall in a declining market.

Weiss believes Dividend Yield -dividends per share to price per share -is the most important measure of investment value. there is a significant impact on prices if dividends change. If dividends increase, the stock becomes more valued, and if dividends decrease the stock loses value.

On the other hand, stock prices can fluctuate between extremes in the short term. Lower share prices cause dividend yields to go high (indicating stock may be under-valued) and higher share prices lead to lower dividend yields (indicating stock may be over-valued). She found that thus a company's dividend yield fluctuates in a range that is unique to each company. Historical dividend yield ranges provide important clues to over and under valuedness of a stock. She suggests stocks could be bought or sold when they reach the extremes of their historical dividend yield range.

Sustainability of dividends and increasing dividend payments are at the core of the Weiss approach (and our Geraldine Weiss stock screen). She therefore suggests starting on the selection process by narrowing down the list to blue-chip, high quality stocks. Companies that are run by good management, selling well-known products and services, with good marketing and R&D skills, and unwilling to cut dividends even in cyclical downturns!

Geraldine Weiss stock screen prescribes some 6 criteria for pruning the blue-chip, high quality stock universe

1. Dividend increases in 5 of last 12 years - Weiss's most reliable measure of good management
2. A min of 5 million shares outstanding - An assurance of liquidity
3. Shares must be held by atleast 80 instituitions
4. Improved earnings in atleast 7 of last 12 years
5. Must have paid dividends with no interruptions
6. Stock must carry a S&P quality ranking of atleast A- or above

Once this list of high-quality stocks is devloped, Weiss suggests buying these stocks using historical dividend yields as a guide. She tracks a company's dividend yield and share prices for over 10 years looking for historical high and low dividend yield turning points -where stock prices change direction. Her observation is that most stocks change price direction at about the same dividend yields.

When such a shortlisted stock's dividend yield comes within 10% of their historical high dividend yields, she suggests buying. However she suggests first examining the reasons for the price fall-specifically possibilities for a decrease in dividends -which would cause the stock's removal from the list.

Similarly she advocates selling the stock when its dividend yield comes within 10% of the historically low dividend yields. Although in such markets the stockprice may contiunue to rise, she believes the upside potential is overshadowed by the downside risk.