10 Dividend Growth Stocks For July 2016

by: FerdiS


Every month, I rank a selection of the CCC dividend growth stocks to identify top candidates worthy of further analysis.

I use different screens every month to trim the CCC list of more than 750 stocks to a more manageable number of candidates.

Using a multi-stage dividend discount model and fundamental analysis, I rank the remaining stocks and assign a 7-star rating to the top 10 ranked stocks.

This article reveals the top 10 ranked stocks for July.

The CCC list is an invaluable source for dividend growth investors. Compiled and updated by David Fish every month, the list contains U.S. companies with at least 5 consecutive years of increasing dividends. The accompanying spreadsheet provides key statistics of the CCC stocks.

The CCC stocks are divided into 3 categories based on the number of consecutive years of increases: Champions are stocks with 25 or more years of increasing dividends. Contenders have 10-24 consecutive years of dividend increases. And Challengers have a streak of 5-9 years of increasing dividends. The latest list (dated 6/30/16) contains 778 stocks, with 108 Champions, 242 Contenders, and 428 Challengers.

The Ranking Process

Ranking 778 stocks would be quite daunting, so I first apply some screens to reduce the number of stocks to something more tractable. I use different screens every month to introduce some variation. Typically, I consider fewer than 300 stocks.

I perform a preliminary ranking of the candidate stocks using a proprietary system that favors established dividend paying stocks with strong fundamentals. This process is based entirely on data available in the CCC spreadsheet.

The final ranking is done for the best 24 stocks and a selection of the best stocks in each sector. I use data from other sources like Morningstar, S&P Capital IQ, and F.A.S.T. Graphs for the final ranking. Because this is a manual process, I do it only for a limited number of stocks.

A part of the final ranking involves assigning a 7-star rating to each stock. Stocks with a 5-star rating or better is worthy of further analysis and only the very best stocks would earn a 7-star rating.

Trimming the CCC list

This month, I applied a single screen to trim the CCC list. Having recently subscribed to The Value Line 600, I decided to screen for CCC stocks with a Financial Strength Rating of A++, A+, or A.

Only 171 CCC stocks pass the screen. By definition, these candidates have strong financials and are stable companies with good income and long-term capital gain prospects.

Ranking and Ratings

From the preliminary ranking results, I selected the best 24 stocks as well as the best 2 stocks in each sector (outside the best 24 stocks), for a total of 43 stocks. After adding data from other sources, the final ranking produced these top 10 ranked stocks for July 2016:

Rank 1 2 3 4 5 6 7 8 9 10
Click to enlarge

The following table presents the top 10 ranked stocks by sector, along with star ratings for each stock. Stocks I own in my DivGro portfolio are highlighted: Click to enlargeAccording to my star rating system, the 3 top ranked stocks earned a 7-star rating this month, while the others on the list each earned 6 stars. I consider stocks with a 5-star rating or better worthy of further analysis.

In the following, yield is calculated based on closing prices on 8 July 2016, payout is the EPS (earnings per share) payout ratio, and debt is the debt to equity ratio. Morningstar's moat and Standard and Poor's credit ratings are also provided, and Value Line's safety and financial strength ratings round out the descriptions.

• General Dynamics (NYSE:GD)
streak 25 yrs | 5-yr growth rate 10.4% | yield 2.16%@ $140.48
payout 33% | debt 32% | moat wide | credit rating A+ |
safety 1 | financial strength A++

Headquartered in Falls Church, Virginia, Dividend Champion GD is an aerospace and defense company offering products and services in business aviation; land and expeditionary combat systems, armaments and munitions; shipbuilding and marine systems; and information systems and technologies. Formed in 1952, GD has grown steadily through the acquisition of many businesses and employs about 100,000 people worldwide. GD trades 7% below my fair value estimate of $150.60.

• V.F. Corp. (NYSE:VFC)
streak 43 yrs | 5-yr growth rate 17.0% | yield 2.31%@ $64.05
payout 53% | debt 52% | moat wide | credit rating A
| safety 2 | financial strength A

Dividend Champion VFC is a global leader in the design, manufacture, marketing and distribution of branded lifestyle apparel, footwear and accessories. The company owns powerful brands including The North Face, Vans, Timberland, Wrangler, Lee and Nautica. VFC was founded in 1899 and is headquartered in Greensboro, North Carolina. My fair value estimate for VFC is $61.29, so the stock is trading at a premium of 4%.

• Franklin Resources (NASDAQ:BEN)
streak 36 yrs | 5-yr growth rate 15.4% | yield 2.12%@ $33.98
payout 26% | debt 18% | moat wide | credit rating AA-
| safety 2 | financial strength A++

Founded in 1947 and based in San Mateo, California, Dividend Champion BEN is a global investment management company operating as Franklin Templeton Investments. The company provides global and domestic investment management to retail, institutional and sovereign wealth clients in over 150 countries. BEN invests in the public equity, fixed income, and alternative markets and has approximately $790 billion in assets under management above November 2015. My fair value estimate for BEN is $30.51, so the stock is trading at a premium of 11%.

• Apple Inc. (NASDAQ:AAPL)
streak 5 yrs | 3-yr growth rate 38.9% | yield 2.36%@ $96.68
payout 25% | debt 61% | moat narrow | credit rating AA+
| safety 2 | financial strength A++

Headquartered in Cupertino, California, AAPL designs, manufactures, and markets mobile communication and media devices, personal computers, and portable digital music players. The company also sells a variety of related software, services, peripherals, networking solutions, and third-party digital content. AAPL was founded in 1977. AAPL is trading at a discount of 19% to my fair value estimate of $118.80.

• Lowe's Companies (NYSE:LOW)
streak 54 yrs | 5-yr growth rate 20.6% | yield 1.70%@ $82.34
payout 47% | debt 214% | moat wide | credit rating A-
| safety 2 | financial strength A++

Dividend Champion LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also offers installation services through independent contractors in various product categories; extended protection plans; and in-warranty and out-of-warranty repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina. My fair value estimate for LOW is $77.98, so the stock is trading at a premium of 6%.

• CVS Health Corp. (NYSE:CVS)
streak 13 yrs | 5-yr growth rate 32.0% | yield 1.76%@ $96.74
payout 37% | debt 76% | moat wide | credit rating BBB+
| safety 1 | financial strength A++

Founded in 1892 and headquartered in Woonsocket, Rhode Island, CVS, provides integrated pharmacy health care services. The company offers a range of products and services, including advising patients on their medications at CVS Pharmacy locations; providing cost control programs through CVS Caremark; delivering care to patients with conditions through CVS Specialty; and pharmacy care for the senior community through Omnicare. The stock trades at a discount of 12% to my fair value estimate of $109.68.

• The Travelers Companies (NYSE:TRV)
streak 12 yrs | 5-yr growth rate 11.0% | yield 2.27%@ $118.08
payout 25% | debt 26% | moat narrow | credit rating A
| safety 1 | financial strength A++

TRV was founded in 1853 and is based in New York, New York. Through its subsidiaries, TRV provides various commercial and personal property, and casualty insurance products and services to businesses, government units, associations, and individuals primarily in the United States. TRV trades at a premium of 5% to my fair value estimate of $112.06.

• Target Corp. (NYSE:TGT)
streak 49 yrs | 5-yr growth rate 20.8% | yield 3.37%@ $71.31
payout 45% | debt 113% | moat none | credit rating A
| safety 1 | financial strength A

Dividend Champion TGT sells a range of general merchandise and discount food products in about 1,800 stores in the United States. The company offers both everyday essentials and fashionable, differentiated merchandise at discount prices. TGT operates as a single business segment and has a fully integrated online business, Target.com. TGT was founded in 1902 and is headquartered in Minneapolis, Minnesota. The stock is trading at a discount of 11% to my fair value estimate of $79.76.

• Expeditors International (NYSE:EXPD)
streak 22 yrs | 5-yr growth rate 12.5% | yield 1.60%@ $49.92
payout 34% | debt 0% | moat wide | credit rating n/a
| safety 2 | financial strength A+

EXPD is a logistics company that purchases cargo space from airfreight and ocean freight carriers and resells that space to its customers. The company provides a range of customer solutions, including order management, time-definite transportation, warehousing and distribution, temperature-controlled transit, cargo insurance and customized logistics solutions. EXPD was founded in 1979 and is headquartered in Seattle, Washington. The stock is trading at a premium of 7% to my fair value estimate of $46.47.

• The Boeing Company (NYSE:BA)
streak 5 yrs | 5-yr growth rate 16.7% | yield 3.35%@ $130.09
payout 59% | debt 246% | moat wide | credit rating A
| safety 1 | financial strength A++

BA is an aerospace firm. The company designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. BA was founded in 1916 and is based in Chicago, Illinois. My fair value estimate for BA is $145.87, so the stock is trading at a discount of 11% to fair value.

Please note that the top 10 ranked stocks are candidates for further analysis, not recommendations.

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Disclosure: I am/we are long AAPL, GD, TGT, TRV.

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.