ITA Wealth Management

Over the last year, ITA Wealth Management placed an increasing emphasis on dividend paying investments.  Behind the scenes, I set up a screen for dividend paying stocks using the American Association of Individual Investors (AAII) screening program, Stock Investor Pro (SIP).  The screen looks for stocks that have increased dividends for the past seven years.  In addition, defense, alcoholic beverages, tobacco, and casino stocks are eliminated.  The company must have a positive free-cash flow, Price/Book <= 4, P/E <= 18, and a few other specialized screens related to net income and dividend payout rate.  The September data of SIP produced 12 companies out of over 9,000.  I then run these stocks through several other screens from Manifest Investing, Morningstar, and TDAmeritrade before they are added to the “Watch List.”  Through a complicated and proprietary system of stock weighting, I come up with the “Creme List,” and it is these stocks that are generally used to populated portfolios made up of a wide array of ETFs.  The highly selected individual stocks are inserted into the index oriented portfolios to reduce risk and increase diversity while giving up no return benefits.

Why pay attention to stocks that are increasing dividends?  Check out this article if you have any doubts about this approach to investing.  Not only are we screening for stocks that are increasing dividends, we are also giving addition weight to these stocks within the “Watch List” spreadsheet.  One side benefit to this stock selection process is that we are finding stocks that have a low correlation with the S&P 500 index even though the stock is part of the index.  Since the emphasis here at ITA Wealth Management is index investing with a passive bent, stock selection is used for the purpose of putting only a few stocks into the larger portfolios.  We are not recommending stock selection for most investors as it is generally a losing game.

In addition to placing an emphasis on dividend paying stocks, ITA also pays attention to dividend paying ETFs.  Of particular interest are VIG, DVY, IDV and HYG.  Once more, we are looking for ETFs that show up with a low correlation when measured with the overall portfolio.  This is all part of portfolio management.  Premium Content subscribers will see from the various portfolios that ETFs make up the vast majority of our holdings.  Concentrate on constructing portfolios with ETFs over a wide variety of asset classes.

Photograph:  Ephesus, Turkey

Premium subscription available for $6.99 per month.