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When considering a dividend stock, yield is often the first number we consider. While yield is an essential component of any dividend stock, dividend growth and the sustainability of dividends should also be high priorities when selecting dividend stocks.

Recently I have been spending a substantial amount of time focusing on stocks exclusively on the Dividend Champion list as well as my high yield/high momentum trading strategy, which will be updated tomorrow here. While stocks with 25 years of raising dividends (as in the case of Dividend Champions) is a great place to start any research, it is possible to find quality high yield dividend growth stocks elsewhere.

Using Stockscreen123 I started with the entire universe of stocks excluding over-the-counter, I ran the following screen to generate a list of 12 potential high yield, dividend growth stocks.

  • Stocks must have a yield greater than 2.5%. While 2.5% is a relatively low number, in the otherwise low yield environment it provides a minimum base level from which to hopefully find some higher yielding stocks.
  • Payout Ratio < 50%. While not infallible, payout ratios can be a good gauge for determining sustainability of a company's dividend. The lower the payout ratio, the smaller percentage of earnings a company is paying out in the form of dividends. This percentage gives perspective on how much margin for error a company has to continue to pay/increase its dividend in the event of an earnings decline or stagnation.
  • 5 year dividend growth rate among the top 5% in its respective sector. This allows, for example, a technology stock's dividend growth rate to be evaluated against other companies in its sector. We are looking for only the best dividend growers when compared to other similar companies.
  • 3 year dividend growth rate > 5% and a 1 year growth rate > 5%. This requirement helps identify stocks with recent histories of dividend growth.
  • 1 year dividend growth rate > 3 year dividend growth rate. This requirement helps identify stocks that have raised recent dividends at a rate greater than the longer term dividend growth rate. We want to identify stocks with a positive recent trend of raising dividends.
  • Finally, I set a very small liquidity requirement in the event that a stock which has little or no volume makes the list (more on that later)

Below are the qualifying companies, along with a proprietary Quality-Value-Growth score ("Rank") as determined by Stockscreen123:

TickerNameRankMktCapYieldPay Ratio TTM
INTCIntel Corporation92.22115961.43.4330.54
ETNEaton Corporation90.818299.92.5339.07
SSLSasol Limited (ADR)89.8635927.822.6741.3
TWXTime Warner Inc.89.6639811.912.5835.13
BLKBlackRock, Inc.87.1538129.682.7715.78
PBRPetroleo Brasileiro SA (ADR)84.82249755.912.7928
AZNAstraZeneca plc (ADR)82.9666864.65.3243.39
STRAStrayer Education, Inc.80.581844.622.8833.9
MOCOMOCON, Inc.76.7268.483.0744.47
WYWeyerhaeuser Company74.8812559.382.5747.46
JNJJohnson & Johnson66.34166054.83.5643.5
HASHasbro, Inc.63.396486.122.5434.91

There are some names on the list that warrant further attention. First, this is a list, not a blanket buy recommendation. MOCON (MOCO), for example, has a market cap of $68 million and is relatively thinly traded. It may still be worth considering, but given the small market capitalization, it could be difficult to enter/exit trades and be more volatile and susceptible to dividend fluctuations.

Strayer (STRA) is another interesting name on the list. The data looks at historical and current information, not future projections For-profit education stocks have a cloud of uncertainty weighing on their share prices as investors worry about the potential for litigation and additional regulation (STRA also appeared in one my recent Seeking Alpha article here where I discussed its recent performance). I would tread carefully with STRA although it could make for an interesting contrarian pick for those with a high appetite for risk who have an exit strategy in place in case the stock continues to slide.

Finally, Weyerhaeuser (WY) recently paid a special one-time dividend of $5.6 billion as a step to converting to a REIT. This special dividend skewed dividend growth figures and it is difficult to project its future dividend growth. However, as a REIT it is required to pay at least 90% of its net taxable income so I think it remains a dividend candidate worth watching closely.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: 12 High Ranked, High Yield Dividend Growth Stocks