Société Générale publishes a monthly update on the performance of several value-oriented fundamental trading strategies across both developed and emerging markets. I've covered SocGen's top Graham & Rea deep value picks for September here (a great resource for value investors), and the results of the bank's Joel Greenblatt (based on Joel Greenblatt's magic formula published in his bestselling book, 'The Little Book That Beats the Market') screen here.
Along with the monthly value screens, Société Générale's analysts use a number of other screens to weed out the market's best, and worst opportunities.
For example, the bank's 'Quality income stocks' screen searches out companies with attractive and sustainable dividends. Another screen, 'High dividend risk companies' seeks to weed out those companies that could be forced to slash their dividend payouts in the near-future.
The results of these two screens are published below; hopefully, they will help you improve your investing process to some degree.
Here are results of the screens for the last five months:
- SocGen: The Best And Worst Value Income Stocks August Update
- SocGen: The Best And Worst Value Income Stocks July Update
- SocGen: The Best And Worst Value Income Stocks — June Update
- SocGen; Income Stocks And Poor Quality Earnings Screens May Update
- SocGen; Income Stocks And Poor Quality Earnings Screens April Update
Value Income Stocks - Quality income stocks
Société Générale's income stocks screens use the Merton model, Piotroski model and consensus estimated yield for the next-12-months to filter out the best income stocks.
If you're not familiar with the Merton credit-risk model, the model is used to distinguish between high and low credit-quality assets. A full description of the model, as well as its benefits, and drawbacks can be found here.
"We use Merton's credit-risk model to distinguish between high and low quality assets. Based on this measure, traditionally high quality has been strongly re-rated versus low quality during economic downswings. Screening for quality but combining this with a dividend yield strategy is less volatile, even more profitable and has historically delivered an annualized alpha of 7.2%."
The Piotroski model is a simple reinstatement of the Piotroski F-Score. To pass the screen stocks must yield more than 4% (consensus estimate for next-12-months).
Here's the screen's performance over the past 13 years compared to the wider universe of FTSE World Developed and FTSE 350 stocks. All financial companies are excluded from the screen and the universe. The portfolio is rebalanced monthly, and returns are on a total return basis.
Value Income Stocks
The top 15 stocks that qualify for Société Générale's September quality income stocks screen are shown below.
Value Income Stocks
High dividend risk companies
Société Générale also produces a high dividend risk screen.
This screen is based on Merton's distance-to-default model, which I covered at the beginning of this piece. Société Générale notes that the majority of significant dividend cuts have come from companies with poor Merton scores. This income stocks screen is designed to help investors avoid those companies that are most likely to cut their dividends.
The screen includes companies with a dividend yield (consensus estimate for next-12-months) greater than 4% and weak balance sheets. The universe is based on FTSE World Developed and FTSE 350 stocks, and all financial companies are excluded.
And the screen has shown an impressive ability to pick underperformers since its inception during 2002. Indeed, since 2002 a portfolio of companies qualifying for Société Générale's high dividend risk screen, rebalanced quarterly has underperformed the market by 2.9% per annum. Over the past five years, companies qualifying for the screen underperformed by 6.6% per annum.
The results of the screen as of September 02 2015. [Side note: Glencore cut its dividend a few days after this screen was published.]
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