Comments on: Refining Risk Measurement Of Dividend Stocks

By: Dan Remy

Dan Remy — Sat, 14 Mar 2009 18:09:02 +0000

Here are factors that I deem important:
VALUE and VIABILITY:
Price/Book Value Price/Cash Flow Price/Sales
REASONABLE DIVIDEND:
Div$/NetIncome, Div%/Profit%
PROPORTIONAL GROWTH:
Year Income Growth%/Year Div Increase% =>1
Signed: REALVALUEDIV%

By: Dividends4Life

Dividends4Life — Tue, 30 Dec 2008 22:27:00 +0000

Dividend Tree: I like the idea of incorporating a debt load into the risk calculation. I look at debt but have not directly built it into my analysis.

Joe: I have not heard of ETJ before. As time allows, I would like to take a look at it. Thanks for ringing it to my attention.

Best Wishes,
D4L

By: Joe

Joe — Tue, 30 Dec 2008 20:41:00 +0000

There is a very conservative options strategy called a “collar strategy” where you hold a stock (or an index) and sell covered calls against it, and use the money from the calls to buy “insurance” using puts. I’ve been doing a lot of research into using this strategy. It looks like a very good conservative strategy. While you can “roll this yourself”, it’s a lot of work. I have found 2 ways to have somebody else implement this for me. One is a service: http://www.swaninvesting.com/ and requires a large investment ($400K), and the other is a closed-end fund (traded on the NYSE): Eaton Vance Risk Managed Diversified (symbol: ETJ). Currently ETJ pays almost 10% dividends, which can be reinvested, but because it is a closed-end fund, it can trade either below, at, or above it’s Net Asset Value.

I’m wondering how ETJ calculates out in your formula?

By: Dividend Tree

Dividend Tree — Tue, 30 Dec 2008 17:53:00 +0000

Another piece of gem from D4L data mining! 2008 showed the need for appropriate risk metrics.

I have been playing around with different elements to calculate a risk number. Assigning individual risk number is exactly same as yours 1 (low), 2(medium), and 3 (high). But the parameters are somewhat different.

Price (P) and Yield (Y) are similar to yours. However, I am not using RQ values. Instead I am modeling it as follows:
[P + Y + Payout Ratio + Ratio of ShortDebt/FCF + Ratio of LongDebt/FCF] / 5.

I am still calibrating the risk numbers for debt/FCF ratios. Should it be calibrated based on point in time or based on y-o-y rate of change? Still toying with it.

Some food for thought!