📊 Investment Criteria: The “Perfect” Dividend Growth Stock Screener

At Penny Per Day, we aren’t just picking stocks — we’re building a portfolio of high-quality, dividend-growing businesses designed to compound wealth steadily over time.

Our Investment Criteria is what we use to screen potential investments for the Penny Per Day Challenge. It’s strict on purpose — because we want to invest in only the strongest, most reliable companies for long-term dividend growth.

👉 Important:
This is what we call a “perfect screener.”
Very few stocks meet every one of these criteria at the same time. In fact, some days, none do.
When that happens, we may slightly relax certain filters (within reason) to ensure we stay invested while staying true to our long-term mission.

✅ 1. Consistent Dividend Growth History

Why it matters: A company that increases its dividend year after year shows strong financial health and long-term commitment to rewarding shareholders.

  • Must have at least 5 years of consecutive dividend increases (10+ years preferred)
  • We prioritize Dividend Achievers, Aristocrats, and Champions
  • Companies with a consistent dividend growth history are often stable, cash-generating businesses

✅ 2. Reasonable Payout Ratio

Why it matters: The payout ratio tells us how much of the company’s earnings are paid out as dividends.

  • Target payout ratio < 65% for most sectors
  • For REITs and Utilities, we use Adjusted Funds From Operations (AFFO) or industry-specific metrics
  • A healthy payout ratio means there’s room for future dividend growth and a buffer during tough years

✅ 3. Strong Balance Sheet

Why it matters: Financial strength keeps companies afloat during recessions and allows them to keep paying dividends even in downturns.

  • Low debt-to-equity and manageable interest expenses
  • Investment-grade credit ratings (BBB or higher)
  • Strong balance sheets reduce risk and support dividend reliability

✅ 4. Robust Free Cash Flow

Why it matters: Free cash flow (FCF) is the lifeblood of dividend payments.

  • Companies must generate positive, consistent FCF
  • We want dividends funded by cash flow, not debt or financial engineering
  • More FCF = more flexibility to grow dividends, reinvest in the business, and reward shareholders

✅ 5. Earnings Growth & Stability

Why it matters: Dividend growth is only sustainable if the business continues to grow its earnings.

  • Look for consistent earnings-per-share (EPS) growth over 5–10 years
  • Stable or growing earnings support long-term dividend increases and stock appreciation

✅ 6. Wide Economic Moat

Why it matters: A moat helps a company maintain market share, pricing power, and profits.

  • Look for businesses with brand strength, network effects, patents, or cost advantages
  • Companies with durable moats tend to outperform over long periods

✅ 7. Attractive Valuation

Why it matters: Even the best companies can be poor investments if bought at the wrong price.

  • We evaluate valuation using:
    • Dividend Discount Model (DDM)
    • P/E Ratios compared to historical averages
    • PEG Ratios to account for growth
  • Buying great companies at fair or undervalued prices improves long-term returns

✅ 8. DRIP-Eligible (Dividend Reinvestment Plan)

Why it matters: Reinvesting dividends supercharges compound growth — one of the core principles of the Triple Compounding Methodâ„¢.

  • All stocks must be eligible for automatic DRIP through common brokerages
  • DRIP ensures that dividends are working instantly to buy more shares

✅ 9. Shareholder-Friendly Management

Why it matters: Good management rewards long-term investors.

  • History of consistent dividend increases, strategic buybacks, and transparent leadership
  • Clear, long-term capital allocation strategies
  • We look for management that communicates well and makes decisions with shareholders in mind

✅ 10. Alignment With Penny Per Day Challenge Rules

Why it matters: This is a strategy — not random stock picking.

  • All picks must follow the Penny Per Day Challenge Rules
  • If a company cuts its dividend or violates criteria, it is replaced by SCHD or our top dividend ETF at the time

🎯 Final Thoughts:

This screener sets the bar extremely high â€” and intentionally so.

📌 It is rare that any one company meets all these criteria.
But that’s the point. This framework ensures we remain disciplined, focused, and committed to long-term quality over short-term hype.