10 Dividend Growth Stocks For April 2016

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Includes: ACN, LAZ, LOW, PII, PRU, TGT, TROW, TRV, VFC, VLO
by: FerdiS

Summary

Every month, I rank a selection of David Fish's CCC stocks to identify top candidates worthy of further analysis.

Using several screens, my selection process trims the CCC list of more than 750 dividend growth stocks to a manageable number of candidates.

I rank these stocks using fundamental analysis and a multi-stage dividend discount model and assign a 7-star rating to each of the top-ranked stocks.

This article reveals April's top 10.

CCC list of U.S. companies with at least 5 consecutive years of increasing dividends. The accompanying spreadsheet is a wonderful resource for dividend growth investors. It provides key statistics of all CCC stocks.

The CCC list is dividend into 3 categories, based on the number of consecutive years of dividend 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 3/31/16) contains 773 stocks, with 108 Champions, 247 Contenders and 418 Challengers.

The Ranking Process

Ranking 773 stocks would be a daunting task, so I apply a series of screens to reduce the number of stocks to something more manageable. I use different screens every month to ensure some variation. Typically, I consider fewer than 300 stocks.

I rank stocks using a proprietary system that favors established dividend-paying stocks with strong fundamentals. The process is based entirely on data available in the CCC spreadsheet and assigns a preliminary score to each stock.

For the best stocks, I collect data from other sources like Morningstar, S&P Capital IQ and F.A.S.T. Graphs. Because it is a manual process, I do this only for the best 24-36 stocks.

The final step is to rank the best stocks again, this time using all available data. I also assign a 7-star rating to each stock.

Trimming the CCC list

This month, I applied the following screens to trim the CCC list:

  1. Debt/Equity ≤ 1.5 (removes 187 stocks)
  2. Number of Years of Dividend Increases > 5 (removes 136 stocks)
  3. Chowder Rule > 9.0 (removes 120 stocks)
  4. 1.25 ≤ Dividend Yield ≤ 9.75 (removes 51 stocks)
  5. No stocks being acquired and no over-the-counter stocks (removes 4 stocks)

Together, the 5 screens remove 498 stocks, leaving 275 candidates to be considered.

Ranking and Rating

This month, the final list contained 35 stocks. I used the 24 best stocks and added 11 stocks from sectors that were not represented. Here are the top 10 ranked stocks for April 2016:

Stocks I own in my DivGro portfolio are highlighted. There are 4 new stocks. For each of the repeaters, a subscript indicates the stock's ranking in last month's list.

Following is a table presenting the top 10 ranked stocks by sector, along with star ratings for each stock:

According to my star rating system, one company earned 6 stars and the other stocks earned 5 stars each. I consider stocks with a 5-star rating or better worthy of further analysis.

In the following descriptions, yield is calculated based on closing prices on 22nd April, 2016, payout is the EPS (earnings per share) payout ratio and debt is the debt-to-equity ratio. Morningstar's moat and Standard & Poor's credit ratings are also provided.

  • Lowe's Companies (NYSE:LOW)

streak 53 yrs. | 5-yr. growth rate 20.6% | yield 1.47%@ $76.05
payout 35% | debt 150% | moat wide | credit rating 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. The company was founded in 1946 and is based in Mooresville, North Carolina. LOW trades at a discount of 5% to my fair value estimate of $79.64.

  • Polaris Industries (NYSE:PII)

streak 21 yrs. | 5-yr. growth rate 21.5% | yield 2.19%@ $100.55
payout 33% | debt 47% | moat wide | credit rating n/a

PII designs, engineers, manufactures and markets off-road vehicles, snowmobiles, motorcycles and small vehicles. These products are sold through dealers and distributors located in the United States, Canada and Europe. The company also produces and supplies replacement parts for its product lines. It was founded in 1987 and is headquartered in Medina, Minnesota. My fair value estimate for PII is $109.55, so the stock is trading at a discount of 9%.

  • Target Corp. (NYSE:TGT)

streak 48 yrs. | 5-yr. growth rate 20.8% | yield 2.72%@ $82.33
payout 42% | debt 98% | moat none | credit rating 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. It operates as a single business segment and has a fully integrated online business, Target.com. The company was founded in 1902 and is headquartered in Minneapolis, Minnesota. TGT is trading at a discount of 5% to my fair value estimate of $86.70.

  • V.F. Corp. (NYSE:VFC)

streak 43 yrs. | 5-yr. growth rate 17.0% | yield 2.31%@ $64.07
payout 52% | debt 35% | 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. It was founded in 1899 and is headquartered in Greensboro, North Carolina. My fair value estimate for VFC is $66.00, so the stock is trading at a discount of 3% to fair value.

  • Valero Energy Corp. (NYSE:VLO)

streak 6 yrs. | 5-yr. growth rate 56.2% | yield 3.92%@ $61.23
payout 30% | debt 36% | moat narrow | credit rating BBB

Founded in 1955 and based in San Antonio, Texas, VLO is an independent petroleum refining and marketing company. Its refineries produce conventional and premium gasoline, including gasoline meeting the specifications of the California Air Resources Board. The company's ethanol segment produces ethanol and distillers grain. VLO trades at a discount of 14% to my fair value estimate of $69.62.

  • T. Rowe Price Group (NASDAQ:TROW)

streak 30 yrs. | 5-yr. growth rate 14.0% | yield 2.78%@ $77.58
payout 46% | debt 0% | moat wide | credit rating n/a

Founded in 1937 and based in Baltimore, Maryland, Dividend Champion TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, as well as through variable annuity life insurance plans. The stock is trading at a discount of 4% to my fair value estimate of $80.39.

  • Lazard Limited (NYSE:LAZ)

streak 8 yrs. | 5-yr. growth rate 22.0% | yield 3.75%@ $37.31
payout 19% | debt 77% | moat narrow | credit rating n/a

LAZ is a Bermuda-based holding company founded in 1848 in New Orleans. The company operates as a preeminent international financial advisory and asset management firm, serving corporations, governments, institutions, partnerships and high net-worth individuals in 41 cities across 26 countries. LAZ trades 34% below my fair value estimate of $49.93.

  • Travelers Companies (NYSE:TRV)

streak 11 yrs. | 5-yr. growth rate 11.0% | yield 2.20%@ $110.84
payout 22% | debt 27% | moat narrow | credit rating A

TRV was founded in 1853 and is based in New York, New York. Through its subsidiaries, the company provides various commercial and personal property and casualty insurance products and services to businesses, government units, associations and individuals primarily in the United States. The stock is trading at a discount of 5% to my fair value estimate of $116.20.

  • Accenture plc (NYSE:ACN)

streak 11 yrs. | 5-yr. growth rate 20.8% | yield 1.93%@ $113.95
payout 38% | debt 0% | moat wide | credit rating A+

Founded in 1989 and based in Dublin, Ireland, ACN is engaged in providing management consulting, technology and outsourcing services. The company's business is structured around five segments, namely Communications, Media & Technology, Financial Services, Health & Public Service, Products and Resources. ACN trades 9% above my fair value estimate of $103.23.

  • Prudential Financial Inc. (NYSE:PRU)

streak 7 yrs. | 5-yr. growth rate 16.2% | yield 3.52%@ $79.58
payout 23% | debt 71% | moat none | credit rating A

PRU is a financial services company, which, through its subsidiaries and affiliates, provides a range of financial products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. The company has more than $1 trillion of assets under management. It was founded in 1875 and is headquartered in Newark, New Jersey. My fair value estimate for PRU is $92.20, so the stock is trading at a discount of 16% 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 TGT,TROW,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.

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