We all have an investment style. That investment style can and should change as you get older. A young investor with a career of investing in front of them can afford to be aggressive, but only if they have the temperament for it. If they tend to sell in a panic when the market is crashing and buy back as a bubble expands, that’s not a good fit for an aggressive investment style.

I was an aggressive investor when I was younger. But as I grew older, I became more appreciative of conservative dividend investing. There’s nothing quite like the feeling of seeing those dividends pile up in my account every quarter. I often use these dividends to buy new positions and further diversify my portfolio. As I move into retirement, I will count on these dividends as a source of income.

Screening for Dollars

How do I find companies that fit my particular style? One way is through stock screening. A properly designed stock screen can objectively find companies that fit every sort of investment style.

One of the most useful “free” stock screens I have found is Fidelity’s. It comes with a string attached: you must have a Fidelity account to use it. But I found it so useful that I moved assets to Fidelity primarily for their stock screener.

I designed a stock screen that fits my criteria of “dream income securities.” I call it my “5% Yield Screen.” I screen for companies that have yields of at least 5%, but that also meet certain criteria related to trading volume, dividend coverage ratio, analyst scores, industry, and market capitalization. I also require that these companies be optionable, so I can further boost my income from them by selling covered calls.

A company either meets the criteria or it doesn’t. If you think a company you like should be on the list, you can manually add it and Fidelity’s screen will flag which criteria failed and caused it to not be included.

As I was writing this article, I ran this screen. Here is a screenshot of the highest ranked companies, out of 88 total companies identified in this screen:

Source: Fidelity

As I glanced down this list, I saw that two of these companies are already in my portfolio. I also noticed some patterns. The financial sector and real estate investment trusts (REITs) were disproportionately represented in this screen. That’s because these sectors have been beaten down in recent months, which has pushed up yields.

However, you have to be careful in chasing yield. When yields get too high, companies often decide to cut them. You need to make sure that the companies are safely covering dividends and you have to listen to any signals from executives that dividend cuts are a possibility.

Complete Your Due Diligence

This is only a first step for me in identifying attractive companies. The next step is dumping these companies into a second proprietary stock screener that further refines the list. Typically, this step will cut the list down to a dozen or so, but this time there were 35 companies remaining that were classified by my criteria as “Strong Buys.” More than half were financials or REITs.

The final step for me is to go through the list, looking for industries that are underrepresented in my portfolio. If you’re building an income portfolio, it’s important to have representation from many different sectors to protect against a downturn in certain sectors. In that way, even if you do see dividend cuts in some sectors, it probably won’t have a big impact on your overall portfolio.

Of course you can apply your own criteria to perform a screen that fits your investment style. The beauty of the stock screen as a first step in making an investment decision is that it has no emotional attachment to any particular company or industry.

Keep in mind that this cuts both ways. The stock screen evaluates against a specific set of criteria. But it won’t identify an emerging scandal at the company, for example. It’s always important to check news articles to see if anything unusual is happening at the company before making an investment. Stock screens are an important tool, but they are only one step in your due diligence.

Editor’s Note: Our colleague Robert Rapier just explained to you the value of stock screens. With the help of Investing Daily’s proprietary stock screens, our experts have pinpointed a stock that’s poised to soar. This company is deeply involved in one of the most promising long-term trends you can find: the worldwide implementation of 5G (“fifth generation”) wireless.

5G will pave the way for a new wave of technological advancement, which explains why so many companies both large and small are jumping onto the 5G bandwagon.

5G will facilitate the Internet of Things by allowing several interconnected electronic devices and machines to communicate with each other instantaneously at ultra-fast speeds.

5G adoption enjoys a multi-year upward trajectory. Regardless of the worsening pandemic or the renewed U.S.-China trade war, the momentum of 5G can’t be stopped. That spells opportunity for the shareholders of the chipmakers, telecoms, systems builders, and device makers that benefit from lightning quick connectivity.

For details on the 5G stock we’ve screened for you, follow this link.