10 High Quality, Low Volatility, Persistent Dividend, Positive Price Trend Stocks

by: Richard Shaw

Today, we cross referenced several important lists to identify a group of potentially attractive dividend stocks.

We found the intersection of:

(1) high quality stocks,

(2) low volatility stocks,

(3) stocks that have paid and increased dividends for at least 5 years

(4) those stocks where the price trend is favorable.

We did not put a minimum yield on this filter as we have in most others, but the aggregate yield was still OK in the end.

The 10 stocks held in equal weight have a 2.62% current yield. The 5 highest yielding of the 10 held in equal weight have a 3.74% current yield.

High quality was defined as stocks rated in the top 1/2 of the rated universe by either Standard & Poor's or Value Line (1125 stocks).

Low volatility was defined as stocks held by either SLPV or USMV - the two US domestic low volatility ETFs (162 stocks).

Persistent dividends with increases were defined as inclusion in the Champions, Contenders or Challengers list maintained and published by David Fish (466 stocks).

Favorable price trend was defined as:

  • P> 200-day SMA
  • 100-day SMA > 200-day SMA
  • P> 100-day SMA
  • 50-day SAM > 100-day SMA
  • P > 50-day SMA
  • 20-day SMA > 50-day SMA
  • P > 20-day SMA
  • 14-day Positive Dir. Movement > Negative Dir. Movement
  • 3-month average daily dollar volume > $20,000

There are 79 stocks in the US that pass each of the high quality, low volatility and persistent dividend criteria (download full list from our Rational Risk website).

Only 19 of those 79 passed the favorable trend criteria.

The top 10 of those 19, based on highest daily dollar trading volume are:

JNJ Johnson & Johnson
COST Costco Wholesale
V Visa
COP ConocoPhillips
GIS General Mills
CVS CVS/Caremark
TRV Travelers Cos
LMT Lockheed Martin
ACN Accenture
RTN Raytheon

The ThomsonReuters StarMine rating (1-10), the trailing yield (per Morningstar) and the Wright Investor's Service ratings for liquidity, financial strength, profitability and growth, and the number of years they have paid and increased dividends are provided in this table:

JNJ 7.4 3.38% AAA6 50
COST 7.4 1.07% AAB10 9
V 5.0 0.66% AAA19 6
COP 9.4 4.45% ABB4 12
GIS 7.8 3.10% ABA9 9
CVS 9.9 1.32% AAB10 9
TRV 7.6 2.41% AAC2 8
LMT 9.2 4.47% ABA11 10
ACN 8.7 2.09% AAA16 8
RTN 9.7 3.28% ABB11 8

Trailing returns (as of Nov 30, 2012) for each stock are as shown in this image:

(click to enlarge)

Worst 3 months in the last 10 years, 3-year standard deviation, dividend yield, and 5-year dividend growth rate (as of Nov 30 2012) are shown in this image:

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A variety of valuation metrics (as of Nov 30 2012) are provided in this image. The highest PEG ratio is 2.3 and the lowest is 0.4. The table shows the current ratio for P/E, P/B, P/S and P/CF versus historical averages.

(click to enlarge)

While we are not specifically recommending any stock in this list (this is a filter result not a recommendation), should an investor decide to own these 10 stocks on an equal weight basis, these images depict some of the attributes of that portfolio:

The P/E is higher than the S&P 500 (the benchmark) by about 1/2 a multiple (15.65 versus 15.06). The P/B is 50% higher at 3X versus 2.1X. The P/S is lower at 1.1X versus 1.2X. The P/CF is higher at 10.5 versus 9.2X.

The net margin is much lower at 5.7% versus 13.4%. The ROE is lower at 17% versus 21%. The ROA is lower at 7.3% versus 8.65%. However the leverage is lower at 24.90% debt to capital versus 35.24%.

The stocks are all large-cap and are mostly (60%) in the value category.

The sectors on balance are more defensive than the S&P 500 benchmark: 20.0%% cyclical versus 29.3%, 40.0% versus 43.8% sensitive, and 40.0% versus 27.0% defensive. This classification is by Morningstar.

Defensive stocks respond least to economic cycles. Cyclical stocks respond most to economic cycles. Sensitive stocks respond to economic cycles more than defensive, but less than cyclical stocks. The Sensitive sectors are communications services, energy, industrial and technology.

Morningstar uses an additional classification system they call "type."

The stock types for an equal weighted portfolio of these 10 stocks are shown in this next image.

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The two most significant deviations from the S&P 500 benchmark are a much lower cyclical stocks weight, and higher slow growth stocks weight.

Price, Earnings and Dividend Charts (from CorporateInformation.com) for the 10 stocks are:

Disclosure: QVM has positions in JNJ, COP, RTN and GIS as of the creation date of this article (December 19, 2012). We certify that except as cited herein, this is our work product. We received no compensation or other inducement from any party to produce this article, and are not compensated by Seeking Alpha in any way relating to this article.

General Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.