Probably the holy grail of toxic waste. 
Maybe some of the rules for my divi portfolio help: I want to be able to hold stocks as long as possible, but not longer. Some of those stocks are with me for 10 years now and did multiply it’s value.
I check quarter and year data from SEC’s Edgar database for some numbers. If quarter or year data are not OK for me I don’t invest any more there, set to “hold”. If quarter and year data are not OK I sell, but only if they are in the worse half of momentum. I don’t want to sell a stock just because it got a little expensive, those tend to get a lot more expensive sometimes…
Those rules are simple:
- FCF payout ratio under 100%
- EV/FCF <34
- OCF/Debt >0.1
- Dividend over 2%. This only leads to a sell if dividend + treasury stocks bought is less than 2%
FCF= Free CashFlow, OCF= Operating CashFlow, EV=Enterprise Value (market cap + debt minus cash).
The quarterly data is extrapolated to 12 months for those checks. So I need to do 4 checks per year on every investment. I want the company to pay a nice dividend (or at least buy their own stock), be reasonable priced and have a reasonable amount of debt. I focus on cashflow, not on earnings, because cashflow is what I am seeking for myself, this is my only source of income. The dividend should be covered by the free cashflow.
This is the actual dividend portfolio:
finviz link
Of those stocks currently TRI and AVGO would be on sell, but are too good performers, so they stay until that changes. DOW, NUE, DD, KLG, CLX, CAT, EMR and ATMU are on hold. The rest is on buy and the dividends are re-invested round robin in all positions that are worth less than 4% of the portfolio.
I did start with 4% per position and every time a position reaches 6% I sell down to 5%, I call this the market dividend. Market dividends and the reinvestment of dividends do a kind of buy low and sell high and that works very nice on cyclicals.
There are some diversification rules too, only 20% per sector, no new positions in sector with >20%. Initial position is 4% of portfolio value, which gives an initial size of 25 positions.
There is also a “crash recovery program” which I may explain later. Worked nice in the last few bear markets, but adds risk.