Rules of Engagement

A bit military sounding, but in the end when you are talking rules it’s better to be strict rather than loose..

These are the rules that I will try to follow when buying/selling positions in the stocks out there:

1. A company must have a track record of at least 5 years dividend payments, increasing or at least stable for Europe and the UK. When buying stocks in the US this time-span is extended to 10 years.

2. A company that cuts dividend might still be on the portfolio, but only after a very detailed scrutiny of the reasons why they are cutting dividends. Needless to say that if dividends are stopped positions will be closed immediately.

3. If falling more than 10% the stock will enter a “dollar cost averaging” zone, reassessment of the stock will be needed here. If the position is already quite important, the threshold must be increased to 20% and even 30% to start considering a DCA movement. Coming Ex-dividend dates must also be taken into account to maximize a move in a falling asset.

4. Total Beta PF must be under 1

5. Special attention needs to be paid to lower dividend yielding stocks, mostly for tax reasons, net YOC should be close to 2%

6. Companies must have a clear competitive advantage, market leaders where possible or anyhow working in a market where high entry barriers are present.

7. A P/E of above 20 can be considered but generally the P/E ratio should fall below this mark.

8. 10% of the dividend income must be destined to a “market crash fund”, useful to invest more money after a major market correction (where normally bargains are to be found).

9. If a stock records a capital gain of 5 times the value of the dividend an automatic sell order must be set just in case the stock price falls. A repurchase order must be entered later for a lower price. If stock goes ex-div in 30 days the automatic sale order should not be entered to avoid loosing the dividend.