First, I find the latest price, 52 week high and low, dividend payment, P/E and EPS for shares of each company on the S&P 100. I use RBC Direct Investing (http://www.rbcdirectinvesting.com/) because it’s my online broker but you can use any site that appeals to you. Google Finance (https://www.google.ca/finance) is great and Yahoo Finance (http://finance.yahoo.com/) is another good choice that’s easy to use but there are plenty more.

I have an Excel spreadsheet which lists all the companies on the S&P 100 (including any I’m considering that are not on that list) and has a column for each of the factors we’re using. There are also columns for dividend yield, % below the 52 week high and % above the 52 week low.

Now for assigning the scores. I start by sorting the companies in order of decreasing dividend yield so that I can easily assign the dividend score to each one. I use a simple 5 point scale as in the table below:

Notice I don’t consider a stock that pays a dividend of less than 3.5%. There are always great deals on companies that pay higher dividends so why choose a lower-paying one? Once this step is complete, I sort the stocks by the % below the 52 week high and assign scores for that. I continue doing this for each factor in turn until scores have been assigned for all the factors, then I simply add up the scores for each stock.

In a perfect world, the stock with the highest score would always be the stock to buy but, unfortunately, we don’t live in a perfect world. Rather, the score highlights the top options but you might need to decide between a few of the top contenders. My preference is usually for a stock which is currently at the deepest discount. Remember, we never consider a company that doesn’t pay a good dividend so it makes sense to take advantage of the potential growth in share price of a stock that is beaten down. I have found that this system really helps to removes the emotional or subjective element in choosing a company by using hard numbers to narrow down the options to just a few.

I don’t always assign a score for the % above the 52-week low. To be honest, that metric only becomes useful when a stock is sliding in price and you want to see if it has started to rebound. A stock that is barely above the 52-week low might still be falling and we want to buy when it is still on sale but recovering. A later version of my system might assign a score based on the 52-week low but for now it’s really not one to worry too much about. Check back for our next post where we’ll use the system to score a real stock to get some practice using the system.