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 (with links to past articles). 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: Seventh Team
This article highlights the four stocks that made the Seventh Team (stocks #25-28). 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
#28 Enterprise Products Partners L.P. (EPD)
Founded in 1968, Enterprise Products Partners L.P. provides midstream energy services to producers and consumers of natural gas, natural gas liquids, crude oil, petrochemicals, and refined products. The company operates approximately 19,670 miles of NGL pipelines, 5,400 miles of crude oil pipelines, 19,120 miles of natural gas pipeline systems, and 4,250 miles of refined products pipelines.
EPD has a current dividend yield of 6.2% with a 10-year annual growth rate of 5.8%. The company has not only increased its dividend for 20 consecutive years...it has increased it payout for 51 consecutive quarters!
We currently have a Neutral rating on EPD (which means it is a "hold" at current levels if you own it, although it is trading very close to its "Buy Zone" of $24.00-$26.00 and investors could consider starting a position).
#27 PepsiCo, Inc. (PEP)
Founded in 1898, PepsiCo, Inc. is a multinational provider of food and beverages. The company's global brands include: Pepsi, Lay's, Tropicana, Quaker, and Gatorade. The company's long operating history has provided shareholders with a strong and stable dividend.
PEP has a current dividend yield of 2.8% with a 10-year annual growth rate of 9.8% and a payout ratio of 64%. The company has increased its dividend for 45 consecutive years.
As shown in the table below, PEP's valuation is stretched right now and the stock is trading at a significant premium to its long-term historical valuation metrics.
Based on valuation, we currently have a Profit rating on PEP (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).
#26 Praxair, Inc. (PX)
Founded in 1907, Praxair produces and distributes industrial gases, including atmospheric gases, such as oxygen, nitrogen, argon, and rare gases; and process gases comprising carbon dioxide, helium, hydrogen, electronic gases, specialty gases, and acetylene.
Note that PX recently announced that it signed a business combination agreement with Linde AG to form a new holding company. Subject to pending closing conditions, the parties involved anticipate closing the transaction in the second half of 2018.
PX has a current dividend yield of 2.3% with a 10-year annual growth rate of 11.6% and a payout ratio of 57%. The company has increased its dividend for 24 consecutive years (only one year away from Aristocrat status!).
We currently have a Neutral rating on PX (which means it is a "hold" at current levels if you own it, but we would wait for a little more information about the upcoming merger before considering a new purchase).
#25 Eaton Vance Corp. (EV)
EV has a current dividend yield of 2.3% with a 10-year annual growth rate of 9.9% and a payout ratio of 47%. The company has increased its dividend for 36 consecutive years.
Based on valuation, we currently have a Profit rating on EV (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).
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, but may initiate a long position in EPD over 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.