How to Score Compound Income↑ Stocks Part 6 - Prospects

This is the final thing to monitor and score for Compound Income Stocks. To recap from previous parts we have been trying to identified good value yield stocks, with well covered dividends, solid financial and operating statistics which have demonstrated dividend growth in the past and are forecast to in the year ahead.

Having perhaps identified a stock which looks good on those criteria and having put it on your watch list or maybe even purchased it you then want to monitor its prospects. By that I mean following news announcements and reactions by brokers and other investors to the news. If these are positive then this should support the case for the dividend growth which is forecast.

I find the best way to get a quick indicator on this, as you cannot hope to follow news flow on every stock in the market, is to look at estimate revisions over the last one and three months. I then combine these into an earnings momentum indicator a a quick guide to whether prospects are improving, deteriorating or unchanged. Obviously as a support to the case for receiving the expected dividend you would prefer to see earning forecasts being either stable or upgraded overall. That will then increase the likelihood of the forecast dividend being made or even exceeded. Conversely you will probably be less sure of and those companies with downgrades to their prospects which may undermine the dividend, cover and growth going forward.

You can of course track changes in dividend forecasts but I find that these are changed less frequently unless there is a dramatic change in the earnings as analysts seem to be more focussed on earnings rather than dividends. In addition I also have forecast dividend growth elsewhere in my scoring so this is already being picked up to some extent there. Thus I find using earning changes to be more effective as a guide to these changes and using one and three months captures the most information even if it is somewhat dated after three months. Obviously a ranking will be relative to other companies so you will need to look at the actual numbers to get a feel for the absolute change in the numbers. 

I hope you have found this series of posts on how to score Compound Income Stocks useful, as it has been quite quiet on the news flow front being August. If you have enjoyed this series of posts bear with me and I might have something of interest for you in the near future. 

However in the meantime, you may be pleased to know, I'll be back to talking about some stocks tomorrow.