As I’ve written in prior missives, my friend and colleague, Frank Gristina of Tell-tale Capital, has developed a unique way to find cheap stocks that generate superior income streams while providing the potential for equity appreciation. It involves using a concept called “GARY” which stands for Growth at the Right Yield. We believe it is the yield-focused equivalent to a concept Peter Lynch popularized: GARP investing or Growth at a Reasonable Price.
By way of quick explanation, GARY stipulates that when a stock has a yield that is well above its historical average, one of two things is true...the share price of the company is undervalued or the dividend is at risk of being cut. Thus, GARY investing involves determining that a dividend is sacrosanct and that a company is committed to the dividend even when times are tough. If the investor can get a high degree of certainty on the dividend, and that the fundamentals of the company aren’t a permanent disaster, then they can confidently buy the underlying stock and get paid to wait for the equity to recover. GARY investing is value-focused and most often contrarian so by definition, companies that fit the GARY model are not perfect.
Over the years, Gristina developed an automated screen using Excel (this thing has 2,000 rules) to evaluate companies with a special focus on the dividend. The following companies screened near the top of over 1,000 dividend-payers. Looking at a chart of a company’s stock price plotted against its historic expected yield is a simple way to determine when to start checking out a potential GARY stock.
Here I display the Top Ten most interesting GARY charts from May of 2015. Though many of stocks I featured in the last two “top ten” lists have rallied, there are a few repeats, meaning that they are still in the “buy zone.” Most importantly, none of the companies from previous lists have cut their dividends. They are: Potash (POT),
Many people worry about dividend paying stocks underperforming during a rising interest rate environment. Gristina thinks such fears may be warranted with junk bonds and the like, but not as much with equities. Bonds are a substitute for each other but the stock component means equities can benefit if a company’s fundamentals improve. That means GARY investing also involves fundamental analysis of a company. Happy hunting.
Standard Research Corp. publishes economic and investment research such as this to a select group of institutional investors. Clients of Standard Research may or may not own any of these securities.
