3 Market-Leading Dividend Growth Stocks

Includes: FLO, SRCE, VFC
by: Scott's Investments

Equity markets have felt like a roller coaster this spring and summer, with major US indices bouncing between technical highs and lows. While we continue to trade in a broad range, I thought it would be helpful to identify dividend stocks that have bucked the trend and have show relative strength over the past three, six, and 12 months.

I started with the US Dividend Champions and Contenders as compiled by DRIP Investing. Dividend Champions are stocks which have raised their dividends for at least 25 consecutive years and Contenders have raised dividends for the past 10-24 years. This differs from my High Yield/High Momentum strategy, which simply looks for the highest-yielding high momentum stocks in the S&P 500. The objective here is to find stocks with a history of dividend increases, which is an indication of managements commitment to rewarding shareholders via their dedication to dividend payments.

I then ranked the stocks based on the average of their total returns over the past quarter, half year, and year. Polar Industries (NYSE:PII) was the top stock, with an average return of 55.76%. However, given that its yield is 1.52%, it may not appeal to those seeking a higher yield.

Three stocks in the top 14 are worth a further look since they yield more than 2% and have reasonable payout ratios.

Data Source: DRIP Investing & Finviz.

VF Corp. (NYSE:VFC) designs and manufactures or sources from independent contractors various apparel products. VFC yields 2.16% with a payout ratio of 43.13%. The company trades at a forward P/E of 13.48 and is projected to grow earnings at 12.78% next year. The company reported earnings on July 21 and beat expectations and raised earning guidance to $7.50/share from $7.25/share for 2011.

Flowers Foods (NYSE:FLO) produces and markets bakery products in the United States. FLO yields 2.73% with a payout ratio of 53.04%. It will announce earnings on August 17 and is currently projected to grow EPS by over 17% next year. It currently trades at a forward P/E of 15.28. It has a five-year dividend growth rate of 24.8% and a 10 year growth rate of 22.1%.

1st Source (NASDAQ:SRCE) operates as the holding company for 1st Source Bank, which offers commercial and consumer banking services to individuals and businesses in Indiana and Michigan. SRCE yields 2.76% with a payout ratio of 37.35%. Its five-year dividend growth rate is a more modest 6.5% and the 10-year dividend growth rate is 7.2%. On July 21 the company announced second quarter net income of $0.61/share, up 144% over the same period last year. Non-performing assets also decreased 12.79% from the same period last year.

Below are the top 15 stocks based on the average of their three-, six-, and 12-month returns.

Company Ticker Average 3,6,12 Mo Return Yield Payout
Polaris Industries PII 55.76% 1.52% 31.97%
CARBO Ceramics CRR 41.95% 0.62% 0.00%
VF Corp. VFC 36.21% 2.16% 24.74%
Royal Gold Inc. RGLD 33.44% 0.67% 35.50%
Helmerich & Payne Inc. HP 30.38% 0.41% 7.29%
Flowers Foods FLO 27.38% 2.73% 53.04%
Bank of the Ozarks Inc. OZRK 26.30% 1.44% 12.79%
Hingham Institution for Savings HIFS 24.03% 1.82% 23.62%
Nu Skin Enterprises Inc. NUS 23.63% 1.71% 26.42%
Gorman-Rupp Company GRC 23.42% 1.09% 24.59%
Raven Industries RAVN 22.93% 1.37% 27.51%
Ross Stores Inc. ROST 22.86% 1.15% 14.21%
W.P. Carey & Co. LLC WPC 22.77% 5.71% 92.01%
1st Source Corp. SRCE 21.91% 2.76% 37.35%
Albemarle Corp. ALB 21.73% 0.99% 13.99%

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