Dividend Growth All Stars: 20 Dividend Stocks That Will Help You Grow Your Income (Part 2)

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Includes: ES, KMP, NJR, PEP, TUP
by: Parsimony Investment Research

Summary

Dividend growth stocks help investors maintain their future purchasing power and offer the opportunity to grow income over time.

Stocks that consistently grow earnings have a higher probability of maintaining future dividend growth and offer higher potential for capital appreciation.

The 5 dividend growth stocks highlighted below have an average 5-year dividend CAGR of 10.8% and an average dividend yield of 4.0%.

Each month we publish a list of our "Stable Dividend Growth Stocks" for our members. This list highlights stocks that have consistently grown their dividends and earnings over the past 10 years. To make it on this exclusive list a stock must meet the following criteria:

  • Dividend Yield: > 2.0%
  • 5 and 10-year Dividend CAGR: > 5.0%
  • 5 and 10-year EPS CAGR: >5.0%
  • Payout Ratio: < 60%

The reason we picked this criteria is simple. Stocks that consistently raise their dividend over the rate of inflation help investors maintain their future purchasing power and offers the opportunity to increase income over time. In addition, stocks that consistently grow earnings have a higher probability of maintaining future dividend growth and offer higher potential for capital appreciation. Throw in a low payout ratio (the percentage of earnings that a company "pays out" as a dividend) and you feel really good about future dividend sustainability.

That said, we recently scanned our Stable Dividend Growth list and came up with our current SDG All Star Team. This team is made up of the 20 stable dividend growth stocks with the highest Parsimony Ratings yielding over 2.5%.

We will highlight each of these stocks over the course of a 4-part series. Below is a schedule of the entire series. Please make sure to "follow" us so that you will be notified when each new article is published.

  • Part 1: Honorable Mention (stocks #16-20)
  • Part 2: Third Team (stocks #11-15)
  • Part 3: Second Team (stocks #6-10)
  • Part 4: First Team (stocks #1-5)

The SDG All Stars: Third Team

Our 20 SDG All Stars have an average 5-year dividend CAGR of 12.3% and an average dividend yield of 3.3%. This article highlights the 5 stocks that made the Third Team (stocks #11-15). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.

#15 Northeast Utilities (NU)

Prior to briefly terminating its dividend in 1997 (due to regulatory changes that opened up competition in NU's markets), NU paid a dividend to shareholders for 30 consecutive years without a decrease. Since reinstating the dividend in 1999, the company has increased its distribution every year (including a solid 6.8% increase for 2014). Despite breaking the "golden rule" of many dividend investors (cutting its dividend), we believe NU has reestablished itself since restructuring and the stock warrants consideration in a long-term dividend growth portfolio.

#14 Kinder Morgan Energy Partners (NYSE:KMP)

Kinder Morgan Energy Partners is the only Master Limited Partnership ("MLP") that made the SDG All Star list. Large-cap diversified MLPs are very "utility-like" in that they tend to deliver stable and consistent income in any market environment. For example, KMP has increased its dividend at a compound annual rate of 5.7% over the past 5 years, while delivering shareholders a total return of 119%. In addition, KMP has a low beta (0.45) and it had a relatively small maximum drawdown (28.0%) during the recession (which is why its Risk/Reward Rating (92) is so high). Also, KMP has a very attractive dividend yield of 7.3%.

#13 Tupperware Brands (NYSE:TUP)

Tupperware is somewhat of an under-the-radar stock that has become a dividend machine recently. The company raised its dividend 72% in 2013 and we expect TUP to offer another nice hike to shareholders this year. In addition, TUP has grown earnings at a compound annual rate of 16% over the past 5 years. Tupperware's geographic diversity and focus on higher growth emerging economies will continue to help the company generate strong and stable cash flow in the years to come.

#12 New Jersey Resources (NYSE:NJR)

New Jersey Resources has paid a continuous quarterly dividend to its shareholders since 1952. Recent dividend growth has been very steady as well with 5-year and 10-year CAGRs of 7.1% and 7.0%, respectively. In addition, NJR has very high Financial Stability (76) and Dividend Sustainability (82) ratings for a Utility. This is definitely a stock to keep on your radar!

#11 PepsiCo (NYSE:PEP)

PepsiCo has great ratings for Financial Stability (81) and Dividend Track Record (92) and it has increased its dividend at a compound annual rate of 13.5% over the past 10 years. In fact, the company has paid consecutive quarterly cash dividends since 1965, and 2014 marked the company's 42nd consecutive annual dividend increase. PEP is another decent core stock for a dividend growth portfolio, in our opinion.

Summary

If you are looking to generate safe and stable income in a volatile market environment, the SDG All Stars are a great place to start your diligence. We believe that any of the 20 All Stars would make a nice addition to a long-term dividend growth portfolio.

Disclosure: I am long TUP, KMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.