In many situations, many people have checklists to ensure things get done and there is some sense of order. It does not mean there are changes, but at least the road map is available. George Athanassakos is a Professor of Finance and the Ben Graham Chair in Value Investing at Western University in London. He offers a checklist, note his has a bias towards value investing. You can use some of it, all of it, but it important before you make a decision on what to buy, you have an idea of what the outcome should or could be besides make more money.

1. Understand the business and strategic positioning of the company. Is the company attractive in terms of how well it is positioned? What is the competitive situation in the industry and how does it fit in? Who are the key players and how does the company compare with dominant players? Do you understand the business model? What is the company’s business risk?
2. Understand the company’s profitability and trends in the industry. Is the company’s operating margin high and stable? Does the company have a moat to protect those high margins and profits?
3. What is the company’s balance sheet strength and financial position relative to the long-term? Is debt comparable to other companies or higher or lower? Is interest coverage at least 5 times? Does the company have the cash flow to pay off debt as it matures?
4. How good is the management? Compare and contrast other companies are they better or worse? Does management seem to understand the company’s business and dynamics? Are they non-recurring charges? Is the company a good operator? How excessive is the pay package? What is the succession planning?
5. Has something happened to make the company stock price to do down? Was that a bad quarter or something more? Are activist shareholders sniffing around the company?
6. What is the company’s valuation? Does the stock seem undervalued? Looking at the Price/Earnings Ratio or the Price/Book Ratio is a good starting point. The numbers ideally should be less than 13 times or 1.2 times respectively.
7. Are they any value traps? A value trap is one that has all the characteristics of being inexpensive but the stock price does not go up and may even go down. This could be related to the fundamental business has changed The industry is seen as a dying industry or one that is going through many changes. (check out Clayton Christensen of Harvard on You Tube – review the steel cycle industry.
8. Und

The checklist will help you to determine when to buy and sell. As the data changes on the checklist you will know whether to hold or find alternatives.

Linking to dividend paying stocks, at the simplest if you buy a dividend paying stock you most important checklist is the company profitable and can continue to pay the dividend? If yes then you can hold, if not there are alternatives but which other good company should you pick? The checklist or doing your homework is very useful.