Friday, March 5, 2010

What Is Intrinsic Value? – Dividend Growth

I’m convinced that the dividend growth investment strategy is best suited to my investment goals and my temperament. Even so, I still need to actually pick stocks for my portfolio and I don’t want to overpay for them. Therefore, I’m on a quest; searching for my own personal definition of “intrinsic value” – my own method of selecting investments for their dividends, their value, and their price appreciation.

I’ve learned some things from Warren Buffet, from Charlie Munger, and from Benjamin Graham. And, I’ve combined what I’ve learned from them with what I have learned over the years about myself and about what I have been able to make work.

I’m getting close to a working definition of “intrinsic value”.

A couple of books on dividend investing have aided my quest; the most useful was “Beating the S&P with Dividends: How to Build a Superior Portfolio of Dividend Yielding Stocks”.

Beating the S&P with Dividends: How to Build a Superior Portfolio of Dividend Yielding Stocks

In this excellent reference book, Peter O’Shea and Jonathan Worrall outline the characteristics of superior dividend stocks. They recommend selecting dividend stocks for:

(1) Strong Cash Flow
(2) Strong Earnings Growth
(3) Dividend Consistency
(4) Consistent Dividend Increases

These characteristics are a subset of those recommended by Warren Buffet and Benjamin Graham. But I’m gratified for this confirmation of what I’ve already learned.

Next, I must reduce what I’ve learned to a set of actionable criteria I can use to identify “wonderful” companies that are “fairly” valued.

Link to Other Topics in the Special Report: What Is Intrinsic Value?

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