For this article, I will be taking the road less traveled when looking for dividend stocks. In the article, I will show a process to screen for stocks that pay a dividend, have increased those dividends over time, have high relative strength, and have high volatility. What makes the screen different and unique is that I only want to include stocks that have high volatility. There are two reason's why I wanted to include high volatility stocks, the first reason is high volatility stocks tend to have higher growth rates than low volatility stocks, and I wanted to find stocks that had higher growth rates but also paid a dividend. The second reason I wanted to include high volatility stocks is to play the contrarian side of investing in low volatility dividend-paying stocks. The combination of high volatility and dividend paying is contrary to ETFs like the PowerShares S&P 500 Low Volatility Portfolio (SPLV), the iShares MSCI USA Minimum Volatility (USMV), or the recently launched PowerShares S&P 500 High Dividend Portfolio ETF that combines low volatility and dividends. To find stocks that meet all four of these qualifications, I first had to find a source that had stocks that met each individual criteria listed above, and listed below in more detail.
Criteria 1: Stock pays a dividend.
Criteria 2: Stock has increased its dividend over time.
For Criteria 1 and 2, I decided to use a simple stock screener to find stocks that met the two above criteria, so the screener I decided to use was the Zacks.com stock screener.
Criteria 3: High Relative Strength
For Criteria 3 I decided to use the holdings of the Powershares DWA Technical Leaders Portfolio ETF because it takes into account relative performance, so I decided to use the holdings of the ETF in my screen.
Criteria 4: High Volatility
For Criteria 4 I wanted to use the holdings of the Russell 1000 High Volatility ETF (HVOL) because it screens stocks in the Russell 1000 by high volatility, but Russell shut down the ETF recently. However, there the index is still in existence so I used the index holdings in my screen.
Step 1: For the first step, I went to the Zacks.com stock screener, to find stocks that pay and dividend and have grown there dividend. After running the screen with the criteria below, there were 358 stocks that met the below screener criteria. Therefore, I copied those 358 stocks symbols into a spreadsheet.
Zacks Screener Criteria:
Item 1: 5 Year Dividend Growth Rate: Greater than 5%.
Item 2: Dividend Yields: Greater than .01%
Item 3: Average Volume: Greater than 500,000.
Step 2: For the second step, I went to the Powershares DWA Technical Leaders Portfolio ETF holdings page (PDP) to find the holdings of the ETF. The Index currently holds 101 stocks that meet the above criteria, so I copied the holdings into the spreadsheet.
Step 3: For the third step, I went to the Russell Index website to find the holdings for the Russell-Axioma U.S. Large Cap High Volatility Index which is the index formerly used by HVOL. The index currently holds 136 stocks that meet the above index criteria, so I copied the index holdings into a spreadsheet.
Step 4: After putting all the stocks from the first three steps into one column in the spreadsheet, I sorted them, and looked through the list to see which stocks were listed there three times, meaning they met all four of the criteria I listed at the beginning of this article.
There were five stocks, which were in both ETF indexes, and the dividend screen. The stocks are listed below with a short business summary from Yahoo Finance, then a table with dividend yield, and performance data from Seeking Alpha. In addition, in the table, I will include the historical 5-year dividend yield data from the Zacks screen, and five year estimated EPS growth from FinViz.com. After the 1st data table I will provide a second data table comparing the 5 stocks below to the largest holding of the SPDR Consumer Staples(XLP) , SPDR Utilities (XLU), and SPDR Healthcare (XLV).
Danaher Corp. (DHR)
"Danaher Corporation designs, manufactures, and markets professional, medical, industrial, and commercial products and services primarily in North America, Europe, and Asia/Australia." [Yahoo Finance]
Mastercard Incorporated (MA)
"MasterCard Incorporated, a payments and technology company, together with its subsidiaries, provides transaction processing and other payment-related services in the United States and internationally. Its payment solutions include payment programs, product development, payment processing technology, payment security, consulting, and information services and marketing." [Yahoo Finance]
The TJX Companies, Inc. (TJX)
"The TJX Companies, Inc. operates as an off-price apparel and home fashions retailer in the United States and internationally. Its stores offer family apparel, including footwear and accessories; home fashions, such as home basics, accent furniture, lamps, rugs, wall decor, decorative accessories, and giftware; jewelry and accessories; footwear; children's furniture; and seasonal and other merchandise." [Yahoo Finance]
Union Pacific Corporation (UNP)
"Union Pacific Corporation, through its subsidiary, Union Pacific Railroad Company, provides rail transportation services in North America. The company offers freight transportation services for agricultural products, including grains and related commodities, food, and beverage products; and automotive products, such as imported and exported shipments, finished vehicles, and automotive parts and materials." [Yahoo Finance]
Yum! Brands, Inc. (YUM)
"YUM! Brands, Inc., together with its subsidiaries, operates quick service restaurants in the United States and internationally. The company develops, operates, franchises, and licenses a system of restaurants, which prepare, package, and sell various food items, as well as operates Chinese casual dining concept restaurants." [Yahoo Finance]
Data Table 1
5 yr Div Growth Rate
TJX Companies Inc
Union Pacific Corp
Yum! Brands Inc
Data Table 2
5 yr Div Growth
EPS Growth % Next 5 Years
TJX Companies Inc
Union Pacific Corp
Yum! Brands Inc
Procter & Gamble Co
Duke Energy Corp
Johnson & Johnson
Being that this article is in the quick picks section which is for groups of stocks that are worthy of more research, I believe the five stocks above should garner a deeper look into the specific story of each. Some analysis of the fundamentals I see that the yields of each of the five stocks are lower, compared to the largest holdings of the three low volatility sectors. While the yields of the five stocks may be lower, the average five-year dividend growth rate of the five stocks is just over three times that of the top holdings of the low volatility sectors ETFs. [17.64% vs. 4.93%] In addition, I noticed the average estimated EPS growth rates for the five companies were over twice that of the largest holdings of the low volatility sectors. [14.46% vs. 6.17%] Therefore, I believe that the five companies above, currently have good value compared the largest holdings of the low volatility sectors, as well as the sector ETFs themselves, and low volatility ETFs like SPLV.
Disclosure: I am long SPLV.