Dividends4Life: 5 Rules To Buy Quality Dividend Stocks Over Deep Value

Buying a well-diversified portfolio of small and micro cap stocks trading at a large discount to book value and/or net current asset value is generally the best way to generate high returns investing in the stock market. Unfortunately, this strategy suffers from high volatility. Additionally, there is something psychologically frightening (at least to most people) about putting your hard earned money into businesses that are poorly managed or unprofitable. The data shows deep value investing works, but it can be fraught with anxiety.

I am a fan of systematic investing processes because they remove bias. You can use systems to either identify candidates for further research (a la Old School Value’s excellent screens), or to actually make your investment selections. The 5 Buy Rules from the 8 Rules of Dividend Investing are used to identify high quality businesses trading at fair or better prices. They are: Rule 1: 25+ Years of Dividend Payments without a Reduction, Rule 2: Rank by Dividend Yield, Rule 3: Rank by Payout Ratio, Rule 4: Rank by 10 Year Historical Growth Rate and Rule 5: Rank by 10-Year Standard Deviation.

Source: Seeking Alpha

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