Joel Greenblatt's Magic Formula can be re-purposed to find attractive stocks that pay dividends. In a prior article, we showed that it could be restricted to picking dividend-paying stocks without detracting from the performance of the Magic Formula. Encouraged by this success, we used this screening method to create a current list of the best dividend stocks to buy in today. This strategy is designed for income investors who are concerned that dividend-yielding stocks are becoming too pricey. It combines a screen for dividend income with Greenblatt's screen for the best stocks trading at the cheapest values.
Magic Formula stocks have historically outperformed the market with a total portfolio which is a blend of value and growth with a beta of roughly one. This blended profile of Magic Formula picks lends itself to do-it-yourself investors as a core holding strategy. Moreover, since many of these picks have dividend yields, they can be used to create an income portfolio. Re-purposing the Magic Formula for dividend investing created a compelling portfolio. Its median holding price-to-earnings ratio of 10.87, and a price-to-sales ratio of 1.68. This is an attractively valued income portfolio.
Source: Seeking Alpha
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