Anybody who has watched Indiana Jones or Monty Python will know to beware holy grail-based quests. But what if we said that there was not only a holy grail in equity investing, but that the famed SocGen Global Equity team actually found it in 2012 (with a little help from Professor Piotroski...)?
The ‘SG Quality Income Index’ tracks yield and quality. Many in the market now appreciate that both higher ‘quality’ stocks and higher yielding stocks tend to outperform, but according to the research note, 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 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 National Express as an example.
Checking the quality-income characteristics of National Express (LON:NEX)
The first point to check is National Express'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. National Express pays out a rolling dividend yield of 3.76% (covered 2.13 times) rising to 4.08%. A rising, well-covered dividend yield coupled with an improving financial health trend certainly positions National Express as a good investment candidate.
Find more high-quality stocks
This F-Score suggests National Express (LON:NEX) 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.