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Introduction to The Dividend Drill

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We will look at identifying high-quality stocks with good return prospects. Dividends can establish a firm intrinsic value for a stock.

What you will learn

  • Consider a Stock's Current Dividend and the Company's Core Growth Potential
  • Evaluate a Company's Excess Earnings and Calculate the Dividend

What do you know?

Introduction to The Dividend Drill

Dividends can establish a firm intrinsic value for a stock and act as a check on management’s capital-allocation practices. In this lesson, we’ll focus in more detail on how to identify high-quality stocks with good total return prospects.

Breaking total return into current yield and expected dividend growth, we should also sort the growth potential into two buckets—growth in the company’s core business (assuming it’s profitable growth, that is, or all bets are off) and the growth funded by any remaining free cash flows. We’ll call this three-part process the dividend drill.