The first thing we need to decide on when constructing any investment portfolio is the “universe” of assets from which we pick and choose from. In the case of Quantigence, we use three criteria to define our universe of stocks:
- Location of Listing
- History of Dividend Increases
- Size
Let’s take a look at each of these attributes.
Location of Listing
As the majority of our readers are based in the United States, we are going to limit our stock selection to companies listed on U.S. exchanges. (In the future, we’ll roll this out to foreign stocks as well.) According to MSCI, the global leader in international equity indices, the U.S. stock market represents around 58% of all global stocks. As the largest and most well-developed market in the world, it is easy to obtain audited annual reports, regulatory filings, and any other information that we require for our analysis.
History of Dividend Increases
Paying and increasing dividends for 25 years or more is no small feat. Called dividend champions, these dividend paying stocks are an elite group of companies that withstood all the local and global crises since at least the Dot-com bubble while continuing to increase dividends every year. As risk-averse investors, we find this track record convincing enough to trust that the management of these companies knows how to keep increasing dividends, even in the face of market turmoil. As of August 2020, there are 136 dividend champions in the U.S.
Size
Larger companies are better equipped to weather recessions, have better access to capital markets and money markets, and are more stable in general. We’ve set our minimum required size at a $10 billion market capitalization as this is the median market cap of all U.S. dividend champions. It’s also an easy to remember round number that ensures we’re investing in larger companies that will be more likely to increase their dividends over time.
The Final Quantigence Investment Universe
After applying these filters, we arrive at an investment universe of ~70 companies. This is the universe included in our Q-score calculator that can be used to to build your own dividend growth stock portfolio. As a next step, we will start to look at defining characteristics of our dividend growth stocks like payout history, market cap, international exposure, dividend yield, payout ratio, and dividend growth rate.