If you are a reasonably active investor, you probably have a watchlist. And if you are anything like me, that watchlist has grown over time. At this point in my investing career it’s time to trim my watchlist some. This will be an active exercise of that process.

My reasons are numerous; I am going to focus on my better ideas and “average” ideas are probably better in a diversified ETF. It’s hard to have conviction about 40+ different names. It’s also less leg work on my end. New investing ideas will be compared to a determined benchmark for merits. For example; a stock with a 3% yield and may be expected to grow 5% per year is what I would call “table-stakes”. That is average growth and average yield – there are plenty of dividend ETFs that I could buy as an alternative to that instead. I take individual equity risk out of the equation and a big difference is an ETF that I believe in – I will continue average in over time. Even on some level, I would stop adding to an individual stock based on position sizes.

Commonly ideas are bought to take advantage of “mean reversion” or stocks that are temporarily out of favor. Of course – stocks can continue to stay out of favor for extended periods or never return to former valuations. It does make for some exciting possible big winners in a short time but I’ve had mixed success when that is part of the thesis. I don’t mind using that as a “kicker” to a thesis but it shouldn’t be the prime reason. A crude example of this would be a stock that tends to trade for a P/E of 20 currently having a P/E of 10. History alone may suggest it will eventually return to 20 which would be a 100% return.

One trick is using the dividend scores from Simply Safe Dividends. While not an absolute benchmark, the scores should provide a thumb in the air gauge as to the overall quality of a stock. An “average” company would score 50 for safety, 50 for growth and 50 for yield (150 total). There are over 100 companies that score over 200 which is the area I am looking into more.

Here is the scorecard for Kraft Heinz (a recent sell of mine) – their total score of 159 is middle of the pack. In fact – with their dividend cut this year the growth score should be much lower. It also highlights that having a low safety score is not something I want.

This exercise will involve cleaning up my watch list on Seeking Alpha and my alerts that I’ve created on Custom Stock Alerts. With that said, I’ll provide some of the names on my list and try to highlight a few high level points about why it’s being removed and what would make me take a second look.

TickerSSD ScoreNotesAlternatives
GEO154Staying away from prisonsSRET
CXW177Staying away from prisons SRET
F183Staying away from autosDIV
LTC139Not interestedREIT ETF
LOW219Home depot is the better performerHD
AOS227Not really interestedNOBL SCHD
CLX181Low growth, can probably do better indexingSCHD SPYD
BA191Just not really interestedSPY SCHD
UL184Similar to CLX, muted growth, just index hereSCHD SPYD
ATVI193Decent growth expected, maybe worth a second lookSCHD
PH215Could be interesting, maybe worth another lookNOBL
AFL208Muted growth, need a big stock pullbackSCHD
APLE165No FFO growthSRET
CLDT164No FFO growthSRET
VZ169Where’s the growth?SPYD
WBA207What’s the opportunity?SCHD
UTX187Low yield, not interested in defense contractorsSCHD

After going through this analysis there are even some names that I’ve reiterated as being on my watchlist.

TickerSSD ScoreReason
PNC208Strong performer, muted growth but low valuation. Maybe better entry point.
CAT199Great score, could be a good winner, maybe after a recession though
BLK236Solid score, strong growth expected over time

The opportunities I see here would have to involve strong growth, preferably 10%+ which will support high dividend growth going forward. In fact – I need to dive into BLK because their extremely high total score caught my eye. They are probably in the top 15 combined score in all of the dividend stock paying universe.

Conclusion

Every so often it is a worthwhile exercise to trim your watch list. This is not even the exhaustive trim I have done and I have more names to review. Hopefully you can find this useful as some starting points and processes for helping to review and trim your list.

Leave a Comment