Screening for companies with strong balance sheets and solid dividend yields can be a quick and simple way of identifying potentially high-quality investments that might be attractively priced. One way of doing might be to include stocks that have a Piotroski F-Score of 8 or 9 and a dividend yield of at least, say, 3%.
Take Imperial Brands, for example, which is a large cap balanced super stock company in the Consumer Defensives sector. Imperial Brands pays out a rolling 8.22% of its share price in dividend payments.
Does Imperial Brands pass our F-Score test?
Stockopedia applies algorithms to its stream of financial data to automatically calculate the Piotroski F-Score for every stock on the market. It shows that Imperial Brands scores 8 out of a possible 9.
By investing in companies scoring 8 or 9 by these measures, Piotroski showed that, over a 20-year test period through to 1996, the return earned by a value-focused investor could be increased by an astounding 7.5% each year. Even better, it suggests that the company is well-placed to continue to pay out attractive dividends.
Prospects for Imperial Brands
Perhaps we can see why this is by looking at the company's most recent financial results. For the fiscal year ended 30 September 2018, Imperial Brands PLC (LON:IMB) revenues increased 1% to £30.52bn but net income decreased 3% to £1.37bn. That said, the group remains highly profitable, with an enviable five-year return on equity of 24.1%.
Imperial Brands' improving financial condition, reasonable yield, and decent results justify further analysis.
Find more high-quality stocks
This F-Score suggests Imperial Brands (LON:IMB) is a promising investment candidate and is worthy of further research - but it is only a first step. It has been proven that higher F-Score stocks often trade at a premium compared to other stocks. Investors like to pay up for quality but its important not to pay too much.
Disclaimer: These articles are provided for information purposes only. The content is not intended to be a personal recommendation. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser. The author has no position in the stocks mentioned, unless otherwise stated.