10 Dividend Growth Stocks For September '14

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 |  Includes: AVA, BBL, BCE, BHP, COP, CVX, DAKT, DE, GIS, HMN, HP, MAT, MDT, PMT, RTN, SNP, XOM
by: FerdiS

Summary

To diversify my portfolio of dividend growth stocks by sector, I rank a selection of David Fish's CCC stocks and identify top candidates in each sector for further analysis.

Until my portfolio is sufficiently diversified, I'm biasing purchases to sectors that are under-represented. With 34 holdings, I am nearing my target of 36-42 holdings.

My target sector distribution is not uniform, but aims to mirror the distribution of stocks in my watch list, in which Financials and Industrials presently dominate.

Editor's note: Originally published on September 1, 2014

Every month, I use David Fish's CCC list to search for stocks trading at a discount to fair value. The CCC list is updated monthly and contains all U.S.-listed stocks that have raised their dividends for at least five consecutive years. The accompanying spreadsheet provides key statistics of all the CCC stocks and is a wonderful resource for dividend growth investors.

This month's list contains 553 stocks. I use a series of filters to reduce the number of stocks to about 200 candidates, which, along with DivGro's holdings, form my watch list. Until DivGro is nicely diversified, I'll continue to search for the best available candidates by sector and bias my purchases to sectors that are under-represented.

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For September, 38 stocks made the cut. This is more than the 30 or so I usually select, because I'm keeping DivGro holdings rather than removing them from consideration. Here are the top ten stocks by rank, with DivGro holdings highlighted:

Rank 1 2 3 4 5 6 7 8 9 10
Ticker HP XOM PMT SNP HMN CVX BBL BHP COP DE
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The sector winners for September contain several DivGro holdings:

  • PMT (Financials), BBL (Materials), DE (Industrials), JNJ (Health Care).

Since I'm still diversifying DivGro, I'm interested in the top sector candidates that I don't yet own. In the following list, I replaced sector winners with runners-up and marked those sectors with a diamond (◊):

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HP repeats in the top spot for the fourth time in a row. BHP has been on the list for 8 consecutive months. BCE is making its sixth consecutive appearance, while HMN is repeating for the third time.

Please note that these stocks are candidates for further analysis, not recommendations.

• Helmerich & Payne (NYSE:HP) | growth 42 yrs | yield 2.62% @ $105.05 | 5-yr CAGR 46.9% | 10-yr CAGR 23.3%
HP is an energy-oriented company engaged in contract drilling of oil and gas wells. The company was incorporated under the laws of the State of Delaware on February 3, 1940. HP is trading at a premium of 1.5% above my fair value estimate of $103.50. It is a Dividend Champion with an exceptional growth rate.

Horace Mann Educators Corp. (NYSE:HMN) | growth 5 yrs | yield3.09% @ $29.80 | 5-yr CAGR 16.2%
HMN is an insurance holding company, which, through its subsidiaries, markets and underwrites personal lines of property and casualty and life insurance and retirement annuities in the USA. The stock is trading at about fair value.

BHP Billiton Ltd. (NYSE:BHP) | growth 12 yrs | yield 3.61% @ $68.63 | 5-yr CAGR 10.6% | 10-yr CAGR 22.3%
BHP is one of the world's largest diversified natural resources companies. It is involved in mineral exploration, production and processing; oil and gas exploration and development; and steel production and merchandising. BHP trades at a discount of 12.2%% to my fair value estimate is $77.

Raytheon Company (NYSE:RTN) | growth 10 yrs | yield 2.51% @ $96.34 | 5-yr CAGR 14.4% | 10-yr CAGR 10.4%
Established in Cambridge, Mass., in 1922, as the American Appliance Company, today RTN is a leading U.S. military contractor, offering defense and aerospace systems from intelligence and information to missiles. The stock is trading at about fair value.

Mattel Inc. (NASDAQ:MAT) | growth 5 yrs | yield 4.41% @ $34.49 |5-yr CAGR 13.9%
Headquartered in El Segundo, CA, MAT is the world's largest manufacturer of toys. The company's products are sold directly to retailers and wholesalers, and through agents and distributors in countries where MAT has no direct presence. My fair value estimate is $37.15, so MAT is trading at a discount of about 8%.

Medtronic Inc. (NYSE:MDT) | growth 37 yrs | yield 1.91% @ $63.85 | 5-yr CAGR 11.6% | 10-yr CAGR 14.9%
Founded in 1949 and based in Minneapolis, Minnesota, Dividend Champion MDT is one of the world's leading medical technology companies. The company specializes in implantable and interventional therapy devices and products. MDT is trading at about fair value.

Avista Corp. (NYSE:AVA) | growth 12 yrs | yield 3.91% @ $32.46 | 5-yr CAGR 12.2% | 10-yr CAGR 9.6%
AVA is a diversified energy company engaged in the generation, transmission and distribution of energy in North America. AVA also operates Avista Capital, which owns all the company's non-regulated energy and non-energy businesses. My fair value estimate for AVA is $33.11, so it's trading at a discount of about 2% to fair value.

General Mills (NYSE:GIS) | growth 11 yrs | yield 3.07% @ $53.38 | 5-yr CAGR 11.5% | 10-yr CAGR 9.9%
Founded in 1928 and based in Minneapolis, Minnesota, GIS is a global manufacturer and marketer of branded consumer foods sold through retail stores. The company also service food-service and commercial baking industries. The stock trades at a premium of 5% to my fair value estimate of $50.75.

Daktronics Inc. (NASDAQ:DAKT) | growth 10 yrs | yield 3.04% @ $13.16 | 5-yr CAGR 27.2%
Incorporated on December 9, 1968, DAKT is one of the world's largest suppliers of electronic scoreboards, computer-programmable displays, and large screen video displays and controls systems. My fair value estimate is $11.27, so DAKT is trading at premium of 15% to fair value.

BCE Inc. (NYSE:BCE) | growth 5 yrs | yield 5.07% @ $45.02 | 5-yr CAGR 25.6%
BCE is Canada's largest communications service provider and serves as the holding company for Bell Canada. The company provides wireless, data communications, telephone, high-speed Internet, direct-to-home satellite television and voice over IP services. My fair value estimate for BCE is $47, which means BCE trades at a discount of 4.4% to fair value.

Considering my usual position size of $2,500, I have enough cash for a single non-MLP buy. DivGro is under-represented in Consumer Discretionary, so I'll look at MAT first. Not too many of the other candidates excite me. BHP would be a great candidate, but I already own the substantially similar BBL.

Disclosure: The author is long BBL, COP, CVX, DE, JNJ, PMT, SNP, XOM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.