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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 15.3% and an average dividend yield of 2.9%.

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.

The SDG All Stars: First 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 First Team (stocks #1-5). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.

#5 General Mills (NYSE:GIS)

General Mills has good ratings for Risk/Reward Profile (93), Dividend Track Record (94) and Financial Stability (69). GIS has delivered shareholders an 147% total return over the past five years, and it has increased its dividend at a compound annual rate of 11.7% over that period. In addition, the stock has the lowest beta (0.13) of the group, with a decent dividend yield of 3.0%.

#4 Wisconsin Energy Corp. (NYSE:WEC)

Wisconsin Energy has delivered shareholders a 171% total return over the past five years, and it has increased its dividend at a compound annual rate of 21.1% over that period. In addition, the company still has a very modest payout ratio of 56%, so it has plenty of room to continue to increase its dividend in the future.

#3 Texas Instruments (NASDAQ:TXN)

Texas Instruments, a leading manufacturer of semiconductors, has been a great dividend growth stock over the past 10 years. TXN has grown its dividend at a compound annual rate of 30% since 2003 (including a 48% increase in 2013). TXN is certainly dedicated to returning cash to shareholders, which helps explain the recent run-up in the stock.

#2 Raytheon Co. (NYSE:RTN)

Raytheon is a low beta (0.68) industrial company. RTN has paid dividends to shareholders for almost 50 years in a row (hence the high Dividend Track Record rating). RTN also has decent ratings for Financial Stability (71) and Dividend Sustainability (88). RTN has delivered shareholders a 154% total return over the past five years, and it has increased its dividend at a compound annual rate of 14.4% over that period. It's certainly not a shock that the stock has been on quite a run recently and we would also wait for a pullback to get into RTN as well.

#1 Genuine Parts Co. (NYSE:GPC)

Genuine Parts has paid a dividend every year since going public in 1948. Over the past 5 years the company has delivered shareholders a total return of 206% and it has grown its dividend at a compound annual rate of 6.9%. In addition, GPC has a high Financial Stability (89) and Dividend Sustainability (77) ratings. The company has over $100 million of cash on its books and a very low debt-to-EBITDA ratio (0.75x).

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 GIS, WEC. 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.

Source: Dividend Growth All Stars: 20 Dividend Stocks That Will Help You Grow Your Income (Part 4)