Using the Magic Formula With Dividend Stocks

One advantage to Joel Greenblatt's Magic Formula strategy is its applicability to many other popular value based investing strategies. In this article, I'll show how an investor focused on building income through dividends can apply the MFI screen to find potentially attractive investments.

First, let's define what a dividend strategy is. Dividends are simply cash payments a company makes to its shareholders. This concept is exactly the same as interest paid on a savings account, or yield on a bond. The main difference is that dividend payments are up to the discretion of a company's management and board of directors. Dividends can be cut or raised at any time.