The concept of using a screen to narrow our choices is a familiar part of daily life. For example:
- people with food allergies can't eat certain dishes, no matter how delicious they are.
- we only read books written in languages we understand, and
- when we shop for clothing we start by looking for clothes that will fit. After all, it doesn't matter how nice an item is if it's not the right size.
Sometimes a measurement you use as a screen to shorten your list will also be used as a standard to rank your choices.
The most obvious screen you'll be running your universe through is the size of the dividend yield. If you've set your minimum dividend yield at 2.25%, then a stock with a yield of 3% and another stock with a yield of 4% would both pass the dividend screen you've set and be added to your list of candidates.
Later, when ranking your candidates to decide which ones to buy, you can use the dividend yield measurement again - but this time as a standard. On the basis of the dividend yield standard, the 4% stock would rank higher than the one with a yield of 3%.
How high the dividend yield should be to pass through your screen depends largely on
- how much income you need to take from your portfolio, and
- how much risk you're comfortable assuming.