10 Dividend Growth Stocks For September 2016

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Includes: DIS, EXPD, GD, HRL, MMM, NKE, RHI, TJX, TRV, VFC
by: FerdiS

Summary

I rank a selection of the CCC dividend growth stocks every month. The top 10 ranked stocks are great candidates for further analysis.

The CCC list is an invaluable source for dividend growth investors. Every month I use different screens to trim the list before doing a preliminary ranking.

For the top ranked stocks from the preliminary round, I do a final ranking using additional data and assign a 7-star rating.

This article reveals the top 10 ranked stocks for September, as well as their ratings.

The CCC list is an invaluable source for dividend growth investors. The list is compiled by David Fish and updated every month. It 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 8/31/16) contains 790 stocks, with 110 Champions, 239 Contenders, and 441 Challengers.

Trimming The CCC List

Ranking nearly 800 stocks would be quite daunting, so I first apply some screens to reduce the number of stocks to a manageable number. By using different screens every month, I can focus on different criteria and also introduce some variation. Typically, I consider fewer than 300 stocks.

In July, I screened for stocks with a Financial Strength Rating of A++, A+ or A, as determined by Value Line. By definition, these candidates have strong financials and are stable companies with good income and long-term capital gain prospects.

This month I decided to repeat July's screen and to add another screen from Value Line, the Safety Rank. Stocks with a Safety Rank of 1 are the safest, most stable, and least risky investments relative to the Value Line universe. Stocks with a Safety Rank of 2 are safer and less risky than most stocks in the Value Line universe (but not as safe as stocks with a Safety Rank of 1).

Only 150 CCC stocks pass both screens.

The Ranking Process

Since 150 stocks are still too many stocks to process manually, I perform a preliminary ranking of these 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.

From the preliminary ranking results, I select the best 24 stocks as well as a few of the top ranked stocks in each sector. This month, I considered a total of 38 stocks during the final ranking process, using data from additional sources like Morningstar, S&P Capital IQ, and F.A.S.T. Graphs.

Here are the top 10 ranked stocks for September 2016: Click to enlarge

Stocks I own in my DivGro portfolio are highlighted.

There are 6 new stocks this month. For each of the repeaters, a subscript indicates the stock's ranking last month. For example, HRL1 means that HRL was the top ranked stock last month.

7-Star Ratings

Part of the final ranking process 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.

The following table presents the top 10 ranked stocks by sector, along with my star ratings for each stock: Click to enlarge

In the following descriptions, yield is calculated based on closing prices on 16 August 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.

• General Dynamics (NYSE:GD)
streak 25 yrs | 5-yr growth rate 10.4% | yield 1.98%@ $153.81
payout 32% | debt 31% | moat wide | credit rating 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 95,000 people worldwide. GD trades at about fair value.

• Hormel Foods Corp. (NYSE:HRL)
streak 50 yrs | 5-yr growth rate 18.9% | yield 1.51%@ $38.46
payout 38% | debt 9% | moat narrow | credit rating AA

Dividend Champion HRL is a multinational manufacturer and marketer of consumer-branded food and meat products. The company sells its products through sales personnel, as well as through independent brokers and distributors. Customers include retailers, hospitals, nursing homes and marketers of nutritional products. HRL was founded in 1891 and is based in Austin, Minnesota. My fair value estimate for HRL is $33.24, so the stock is trading at a premium of 16%.

• TJX Companies Inc. (NYSE:TJX)
streak 20 yrs | 5-yr growth rate 23.1% | yield 1.34%@ $77.68
payout 30% | debt 36% | moat narrow | credit rating A+

TJX operates as an off-price apparel and home fashions retailer in the United States and internationally. The company operates more than 3,600 stores in 9 countries. The company sells family apparel, home fashions, seasonal items, jewelry and other merchandise. TJX was founded in 1956 and is headquartered in Framingham, Massachusetts. The stock is trading at a premium of 13% to my fair value estimate of $68.52.

• Nike Inc. (NYSE:NKE)
streak 14 yrs | 5-yr growth rate 14.9% | yield 1.10%@ $58.02
payout 30% | debt 17% | moat wide | credit rating AA-

NKE is engaged in the design, development, marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company sells its products to retail accounts, through NIKE-owned retail stores and Internet Websites, and through a mix of independent distributors and licensees throughout the world. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NKE was founded in 1964 and is headquartered in Beaverton, Oregon. The stock trades at a premium of 3% to my fair value estimate of $56.14.

• Walt Disney Company (NYSE:DIS)
streak 6 yrs | 5-yr growth rate 31.0% | yield 1.50%@ $94.42
payout 25% | debt 46% | moat wide | credit rating A

DIS, more commonly known as Disney, is a diversified international family entertainment company based in Burbank, California. Founded on October 16, 1923, by Walt Disney and Roy O. Disney, the company established itself as a leader in the American animation industry before diversifying into live-action film production, television, and theme parks. Today, Disney operates in five business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive media. The stock is trading at a discount of 6% to my fair value estimate of $100.52.

• V.F. Corp. (NYSE:VFC)
streak 43 yrs | 5-yr growth rate 17.0% | yield 2.47%@ $60.03
payout 54% | debt 60% | moat wide | credit rating 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. VFC is trading at a discount of 7% to my fair value estimate of $64.86.

• 3M Company (NYSE:MMM)
streak 58 yrs | 5-yr growth rate 14.3% | yield 2.46%@ $180.81
payout 57% | debt 99% | moat wide | credit rating AA-

Dividend Champion MMM is a diversified technology company with worldwide operations. The company has leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation and other businesses. MMM is an integrated enterprise characterized by substantial inter-company cooperation in research, manufacturing and marketing of products. MMM was founded in 1902 and is headquartered in St. Paul, Minnesota. My fair value estimate for MMM is $159.95, so the stock is trading at a premium of 13% to fair value.

• Expeditors International (NASDAQ:EXPD)
streak 22 yrs | 5-yr growth rate 12.5% | yield 1.56%@ $51.32
payout 33% | debt 0% | moat wide | credit rating N/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 trades at a premium of 12% to my fair value estimate of $45.90.

• Travelers Companies (NYSE:TRV)
streak 12 yrs | 5-yr growth rate 11.0% | yield 2.26%@ $118.84
payout 26% | debt 26% | moat narrow | credit rating 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 6% to my fair value estimate of $112.32.

• Robert Half International Inc. (NYSE:RHI)
streak 13 yrs | 5-yr growth rate 9.0% | yield 2.29%@ $38.50
payout 32% | debt 0% | moat narrow | credit rating N/A

Founded in 1948 and headquartered in Menlo Park, California, RHI provides specialized staffing and risk consulting services in more than 400 locations worldwide. The company's specialized staffing divisions include Accountemps, Robert Half Finance & Accounting and Robert Half Management Resources, OfficeTeam, Robert Half Technology, Robert Half Legal, The Creative Group and Protiviti. RHI markets its staffing services to clients as well as to employment candidates. RHI trades at a discount of 12% to my fair value estimate of $43.52.

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

Concluding Remarks

Of the stocks I don't own, only VFC and RHI are trading at a discount to fair value. GD and DIS are also worth considering. Personally, I wouldn't buy shares of the other top ranked stocks at these levels.

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Disclosure: I am/we are long GD, NKE, DIS, MMM, 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.