The ‘SG Quality Income Index’ tracks yield and quality - a combination that SocGen analysts have called the 'holy grail' of investing.
Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to a SocGen research note (Popular Delusions: Introducing SG's Quality Income Index), stocks that share both qualities put together standout total returns that have averaged 11.6% per year since 1990, more than doubling the return of the global equity markets at a significantly reduced volatility.
This 'holy grail' stock is, simply, one with a Piotroski F-Score of more than 7 and an above-average dividend yield. Using the financial data computed and included in Stockopedia's StockReports, we can instantly check whether our own stocks meet these criteria and screen the market for new candidates.
Let's take escrow and assurance services provider NCC as an example.
Checking the quality-income characteristics of NCC (LON:NCC)
The first point to check is NCC's Piotroski F-Score. As mentioned above, any score above 7 gets this company past the first hurdle. A quick look at the group's StockReport shows a passing F-Score of 8.
Next up is the income check. NCC pays out a rolling dividend yield of 3.02% (covered 1.70 times) rising to 3.36% - a healthy yield for patient shareholders.
Find more high-quality stocks
This F-Score suggests Ncc (LON:NCC) 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.