One of the best ways to generate stable income in any market environment is through dividend growth investing. Thankfully, this strategy is not rocket science and it is fairly simple for anyone to implement. Ideally, you want to build a portfolio of dividend paying stocks that have a track record of increasing their dividends every year. This way, not only are you generating stable income, but you are also able to maintain the purchasing power of your dollar (as long as your dividends are at least rising at the rate of inflation).
All Dividend Stocks Are Not Created Equal
We love analyzing dividend stocks and we built our investment process to help us find the cream of the dividend stock crop (using a combination of dividend stock rankings, Buy Zones, and Action Ratings).
Our whole strategy is built around buying high-quality dividend stocks at good prices.
Our rankings are derived by ranking each stock in our universe based on 30 key fundamental and technical data points across four rating categories: (1) Dividend, (2) Safety, (3) Value, and (4) Momentum. Click here to learn more about our rankings and how we use them for stock selection.
We then combine these rankings with our Buy Zones and Action Ratings to help us decipher which stocks are trading at reasonable price. Click here to learn more about our entry strategy.
That said, we have a standard screener in the Dividend Investors Club called the All-Retirement Team and there are currently 32 stocks that meet the criteria below:
- Consecutive Years of Dividend Increases >= 20 years
- Dividend Yield > 2.0%
- 1-year Dividend Growth > 4.0%
- 5-year and 10-year Dividend CAGRs > 4.0%
- Parsimony Dividend Rating: >= 7
- Parsimony Momentum Rating >= 2 (to avoid "value traps")
We then ranked these stocks using a Dividend/Safety/Value (DSV) blend. The DSV blend is a blend of our individual Dividend, Safety, and Value ratings for each stock using equal weightings: Dividend (33.33% weight), Safety (33.33%), Value (33.33%). We used this blend so that the most well-rounded stocks would be ranked higher on the list.
We will highlight each of these stocks over the course of an eight-part series. Below is a schedule of the entire series. Please make sure to"follow" us so that you will be notified when we publish future articles.
- Part 1: Honorable Mention (stocks #29-32)
- Part 2: Seventh Team (stocks #25-28)
- Part 3: Sixth Team (stocks #21-24)
- Part 4: Fifth Team (stocks #17-20)
- Part 5: Fourth Team (stocks #13-16)
- Part 6: Third Team (stocks #9-12)
- Part 7: Second Team (stocks #5-8)
- Part 8: First Team (stocks #1-4)
The All-Retirement Team: Honorable Mention
This article highlights the four stocks that made Honorable Mention (stocks #29-32). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
Source: Dividend Investors Club / Parsimony Investment Research
#32 New Jersey Resources Corp. (NJR)
Founded in 1922, New Jersey Resources Corporation provides regulated gas distribution services and retail and wholesale energy services. The company's Natural Gas Distribution segment offers regulated retail natural gas services to approximately 504,300 residential and commercial customers in central and northern New Jersey.
NJR has a current dividend yield of 2.4% with a 10-year annual growth rate of 7.3% and a payout ratio of 54%. The company has increased its dividend for 21 consecutive years.
Based on valuation, we currently have a Profit rating on NJR (which means we do not recommend buying it at current levels and believe that it is a good profit-taking candidate if that is part of your long-term investment plan).
#31 Telephone and Data Systems (TDS)
Founded in 1968, TDS provides wireless, wireline, cable, and hosted and managed services in the United States. The company serves approximately 5.0 million wireless customers and 1.2 million wireline and cable connections.
TDS has a current dividend yield of 2.2% with a 10-year annual growth rate of 5.7% and a payout ratio of 92%. The company has increased its dividend for 43 consecutive years.
We currently have a Neutral rating on TDS (which means it is a "hold" at current levels if you own it, but we would wait for a it to get closer to the "Buy Zone" before considering a purchase).
#30 Dover Corporation (DOV)
Founded in 1947, Dover Corporation manufactures and sells a range of equipment and components, specialty systems, and support services in the United States. The company operates in four segments: Energy, Engineered Systems, Fluids, and Refrigeration and Food Equipment.
Dover has increased its dividend for 61 consecutive years, giving it one of the longest records of consecutive annual dividend increases of all listed companies. In addition, the company has a relatively low payout ratio (47%). We expect that Dover will continue increasing its annual dividend to shareholders for years to come.
Based on valuation, we currently have a Profit rating on DOV (which means we do not recommend buying it at current levels and believe that it is a good profit-taking candidate if that is part of your long-term investment plan).
#29 The Coca-Cola Company (KO)
Coca-Cola generates a dividend yield of 3.3% and has increased its payout to shareholders at a compound annual rate of 8.5% over the past 10 years. KO operates a recession resilient business model thus the company can operate with a higher payout ratio than other businesses (~73%). The company has increased its dividend for 55 consecutive years - highlighting the ability the protect its dividend through multiple economic cycles.
If you are looking to generate stable income for a retirement portfolio, dividend growth investing is a great way to accomplish this goal and any one of these dividend machines would make a nice addition to your portfolio.
Note that identifying good stocks is only the starting point of building a dividend portfolio and investors should pay close attention to valuation as well when deciding whether or not to buy a stock as many stocks right now are overvalued (i.e., good stocks can often trade at bad prices).
Please make sure to "follow" us so that you will be notified when we publish future articles.
About the Triple Income Formula Course
As you know, we are partnering with Seeking Alpha on a new online investing course that teaches you how to use our Triple Income Formula - which seeks to maximize income through high-quality dividend stocks and conservative option strategies (cash-secured puts and covered calls). The course goes deep into stock selection as that is one of the key drivers of the formula's success. I encourage you to enroll in the course if you are interested in learning more about analyzing dividend stocks as well as these conservative option strategies. Click here to learn more.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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.