The DividendRank formula at Dividend Channel ranks a coverage universe of thousands of dividend stocks, according to a proprietary formula designed to identify those stocks that combine two important characteristics — strong fundamentals and a valuation that looks inexpensive.
Discover Financial Services (NYSE:DFS) presently has an above average rank, in the top 50% of the coverage universe, which suggests it is among the top most “interesting” ideas that merit further research by investors.
But making Discover Financial Services an even more interesting and timely stock to look at is the fact that in trading on Friday, shares of DFS entered into oversold territory, changing hands as low as $59.10 per share.
We define oversold territory using the Relative Strength Index, or RSI, which is a technical analysis indicator used to measure momentum on a scale of zero to 100. A stock is considered to be oversold if the RSI reading falls below 30.
In the case of Discover Financial Services, the RSI reading has hit 28.3 — by comparison, the universe of dividend stocks covered by Dividend Channel currently has an average RSI of 47.5. A falling stock price — all else being equal — creates a better opportunity for dividend investors to capture a higher yield.
Indeed, DFS stock’s recent annualized dividend of 96 cents pet share (currently paid in quarterly installments) works out to an annual yield of 1.6% based upon the recent $60.10 share price.
A bullish investor could look at DFS stock’s recent 28.3 RSI reading as a sign that the recent heavy selling is in the process of exhausting itself and begin to look for entry point opportunities on the buy side. Dividend history is among the fundamental data points dividend investors should investigate to decide if they are bullish on DFS.
In general, dividends are not always predictable, but looking at the history chart below can help in judging whether the most recent dividend is likely to continue.
DFS makes up 3.14% of the PowerShares DWA Financial Momentum Portfolio ETF (NYSEARCA:PFI).
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