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What Are The Highest Quality Dividend Growth Stocks?

Mar. 05, 2018 11:16 AM ETMMM, ADP, KO, JNJ, MRK, MSFT, NKE, ORCL, PFE, PG, WMT684 Comments
David Van Knapp profile picture
David Van Knapp


  • Many dividend growth investors seek the highest-quality companies.
  • Independent data providers such as S&P and Morningstar offer various rankings of quality factors.
  • A simple scoring system using independent factors is applied.
  • 11 companies got perfect scores.

Many dividend growth investors try to stick to really high-quality stocks. There are many ways to define quality, of course, but many investors utilize independent gauges of quality as part of their process.

In this article, I employ four of the most widely used quality indicators:

  • Value Line's Safety Rank0
  • Value Line's Financial Strength rating
  • Morningstar's Moat rating
  • S&P Credit ratings

I applied the indicators to stocks in David Fish's Dividend Champions, Contenders, and Challengers document (CCC), which requires five straight years of increasing dividend payouts to be listed.

You will find complete descriptions of the proprietary quality factors at the end of the article.

Scoring System

To identify the highest-quality companies, I used only the top grade levels for each of the four factors. Companies falling below those levels on any factor were eliminated.

The top companies got 5 points on every factor for a maximum score of 20. The lowest qualifying companies got 4 points on every factor for a total of 16.

I often use 5-point grading systems. For this exercise, qualifying companies must be in one of the top two grading levels on every factor. That is, they must get 4 or 5 points on each of the four factors. A 3 on a single factor knocks a company out.

These are stringent tests. Many well-known companies of undoubted quality did not make the cut. Examples would be Altria (MO), American Express (AXP), AT&T (T), CVS Health (CVS), General Mills (GIS), Goldman Sachs (GS), Lockheed Martin (LMT), McDonald's (MCD), and Verizon (VZ) (Most of the failures were on account of credit ratings).

I created charts for each of the qualifying point levels (20-19-18-17 or 16 points) to show how each company scored. In the charts, the following data fields are also provided, but they did not play a role in

This article was written by

David Van Knapp profile picture
“Top 30 Dividend Growth Stocks for 2021: A Sensible Guide to Dividend Growth Investingl is the premier source on how to be a dividend growth investor. Learn more at https://www.davevanknapp.com/home .My mission is to help self-directed individual investors profit from stock investing. I contribute articles and studies to both Seeking Alpha and Daily Trade Alert, as well as videos on YouTube. I hold an undergraduate degree in physics from Holy Cross College and a JD from Georgetown University. My wife and I live in Canandaigua, NY.

Analyst’s Disclosure: I am/we are long KO, JNJ, MSFT, PG, AMGN, BA, CVX, CSCO, EMR, PEP, SBUX, AAPL, IBM, KMB, LOW, QCOM. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (684)

mjtroll1 profile picture
diversification is the only protection that investors have to protect portfolio...dgi investors have put in many cases all the eggs in the dividend artistocrat basket relying on the dividend growth to in most cases to fund retirement ...the covid-19 black swan has put that strategy into signficant doubt in that not only do we have large erosion of principal but now real risk of no or signficant reductions of dividends 60/40 portfolio is down about 20% ytd which assuming a 3% withdrawal rate is a reduction of 6% in income
wigan4 profile picture
This is a tremendous article; I've seen you do it before. I'd argue that for truly long-term investors--Buffett-term horizon investors--corporate quality is the only alpha generating factor there is.
Hello David,
I've followed this portfolio since 5/1/18. It has rec'd $2,738.43 in dividends. It has had one purchase from the dividends on 12/23/2019. Bought 5 shrs of MMM @ $177.84. The CAGR (through this morning @ 1000) is 4.84%. Winner so far is MSFT @ 22.82%, losser is MMM @ (-19.88%). Joe
germangirl2000 profile picture
Just found this article, wow very helpful for a beginner! Thanks :)
SleepyInSeattle profile picture
Excellent article...thanks. I appreciate every article you have provided and look forward to more.
salmon1952 profile picture
Very insightful and helpful article- thanks!
as10675 profile picture
I like articles like this one because it causes me to evaluate investing choices that I have made in the past. I do analysis to determine if my decisions at the time were goods ones. Or do I need to make changes to my portfolio?

Here are the results of a quick comparison between the Highest Quality Dividend Growth stocks and some commonly known Quality Growth stocks.


The results, I guess it depends on what the investor is looking for.
mjtroll1 profile picture
regarding this statement

Today, Quicken shows an ARR of 41.37%. Will accumulate divvys for a year and purchase shrs of the trailing co. Will be interesting to see how this portfolio does in the next recession.

while I have not validated this number I can say that the market (spy) has an ARR (annualized rate of of return) of 28.57% (9.86 total return)..

I now surmise that this portfolio is now the new "flavor of the day" for dgi'ers
mjtroll1 I have numerous "shadow portfolios" like this. Approximately 11 and counting with Quicken software. I review them when a divvy comes in.

All of these ports will show me how the different cos do in a down draft of prices in the hope of picking up great companies at value prices. Currently I'm a little skittish of opening new positions at this time in the bull market because I don't need the income from them now. Waiting for the price cliff to show it's head. May your investing be prosperous.
David FYI Started a portfolio on Quicken with these 11 cos on 5/1/2018 with a starting amt of $55,000. Today, Quicken shows an ARR of 41.37%. Will accumulate divvys for a year and purchase shrs of the trailing co. Will be interesting to see how this portfolio does in the next recession.
David Van Knapp profile picture
Retire, The recession seems to be here. Are you still around?
Hi David.....still here. This portfolio shows a CAGR of 6.08 through 3/21/20. Dividends rec'd: 2018 was a short year =$849; 2019=$1,495; 2020(so far)=$395. Current yield is 2.63%. YOC is 2.87%. MMM is the dog at (-34.87%). MSFT is the King @ 42.96%. My trigger finger is starting to get itchy. May you prosper. Joe
Nothing like a recession to stress test your portfolio and resolve ... trigger finger on the buy side is itchy, and I've scratched it a bit when the public scratches their other sell finger.
What was it about Texas Instruments that didn’t make it
wigan4 profile picture
They make it into the second group with 19 points, so that's not bad at all. Their credit rating was a notch too low.

I'm interested in why some version of ABBV/ABT is missing? Did they fall through the cracks due to the split, or is there some factor holding them back?
David Van Knapp profile picture
They didn't fall thru the cracks. They have ratings (which may surprise you):

ABBV: A .....3 …..Narrow …..A-
ABT: A++..1 …..Narrow …..BBB

Neither qualifies. Neither comes close to qualifying. Obviously, other ways of scoring might have different results.

Johnny Ancich profile picture
Very interesting article, but are there alternative sources of information for these indicators? I'd be hard pressed to justify paying $598 for a value line subscription yearly. A lot of us are just not in that economic echelon.
as10675 profile picture
When I did a quick review of the "High Quality Dividend Growth Stock" I knew right a way that many of those stocks are barely raising the dividend. Similar to add a penny to the cookie jar.

Stock, last dividend increase %
$EMR, 1%
$CAT, 1%
$CVX, 1%
$MRK, 2%
$PG, 2%
$WMT, 2%
$XOM, 3%
$CL, 3%

I no longer own $MRK, $PG, $XOM, and $EMR. Trimmed way back on $WMT and $CL. Bought $CAT for the ride up. $CVX is the last of my major oil companies, probably soon to be trimmed/sold if the price does not advance.

To me my personal inflation rate is above 3% so these dividend incomes don't keep up with inflation. So these stocks come closer to stocks that have not frozen or cut their dividend than a "dividend growth stock" classification.

mjtroll1 profile picture
regarding this statement

When I did a quick review of the "High Quality Dividend Growth Stock" I knew right a way that many of those stocks are barely raising the dividend. Similar to add a penny to the cookie jar.

amen..bottom line is whenever you see "high quality dividend (plug your own adjective here) run as fast as possible in opposite direction as you likley have identified a large group of market underperformers
Morningstar has two types of moat ratings "Analyst" and "Quantitative". Which one do you use?
David Van Knapp profile picture
Analyst. I wasn’t aware of the other.
i thought morningstar has narrow and wide?
chap107 profile picture
Great article.
whatever you do dont overpay, its the easiest way to lose money according to graham
wildpitcher profile picture

Excellent article. Definitely a resource to be saved and reviewed periodically. Thanks for this great contribution.

Thx for an excellent discussion
Dividends#1 profile picture
I can't take the pain anymore of owning EEQ.

I even tried to own ENB as I bought about 1000 shares last week and sold today for a loss in my taxable non retirement account!

I sold ALL my EEQ and ENB today and took a loss of about $2K.

I used the proceeds to buy MO!

MO is the only company that when it trades lower, I feel confident that it will eventually go much higher and pay me a rising dividend!

Anyone who has read my past articles or comments knows that I am 100% invested in MO in my retirement accounts!

I tried to diversify a little buying EEQ and ENB, but as soon as they drop, I run for the hills because I have no faith in what the hell is going on with these businesses!!!!

I am now 100% MO in retirement accounts and non -retirement taxable brokerage account and will sleep well tonight!!!

Warren Buffett on Tobacco:
Choosing Investments With Long-Term Value
In 1987, Buffett famously stated, "I'll tell you why I like the cigarette business. It costs a penny to make. Sell it for a dollar. It's addictive. And there's fantastic brand loyalty."
He would have made a fortune on Phillip Morris, but he had to protect his reputation and did not buy a "sin stock"!!! He made a fortune anyway, he is Warren Buffett!
Good1 profile picture
The original Wall Street Crash
... and yet I see some investors on SA recommend buying stocks on margin ... some never learn the lessons of history and are doomed to repeat them.
geekette profile picture
no,never, no, I will never ever buy stock with borrowed money. I can be flexible with some rules but never that one. I may be classed as an aggressive investor but that is because I am an equities-only investor, not because I take big risks. Margin is a huge risk I won't take.
mjtroll1 profile picture
regarding this statement

would someone, please, do an article on what they think would be a good entry point or fair value for each of the stocks presented?

yesterday I bot WMT as the WMT/SPY pair was testing multiyear trendline support ..assuming no change in market would be wrong with close below 81.61
Contraria2 profile picture
<would someone, please, do an article on what they think would be a good entry point or fair value for each of the stocks presented?

yesterday I bot WMT as the WMT/SPY pair was testing multiyear trendline support ..assuming no change in market would be wrong with close below 81.61>>


Great article.
mjtroll1 profile picture
thank u ..looking forward to yours
SleepyInSeattle profile picture
and now, after reading one of the very best articles ever on SA.............
would someone, please, do an article on what they think would be a good entry point or fair value for each of the stocks presented?
I know.... I am asking too much, but one can dream ah?
For the younger folks it would probably not matter much if they cost average, but for older folks who need to buy value, this article plus a fair-value article, would be a holy grail.
geekette profile picture
You can look up Fair Value (I like M*), FastGraphs gives you the visual.

Providing one person's range of entry point is dicey, and won't be relevant for long. SA has plenty of articles that are company-specific, where one might find buy range in that author's opinion.
IZZKUBE2.5 profile picture
@the rose lady...
Do you really need to know the 'fair' value of ALL of them?
Do you have any in mind. I'd give you my opinion, but keep in mind that I'm retired and very, very thrifty. I don't like paying 'retail' for anything!
ZAAN profile picture
Dear Rose Lady,

I do not have the skill or the time to write an article, but in the spirit of the "Toasta Fairy" and to keeping the conversation going I share with you the companies that I own on DVK's list.

I also list the current price, the Morning Star Fair Value as well as PEG (Price to Earnings Growth Ratio) I like to look at these together. The PEG ratio puts the so called fair value in perspective. For example BA, JPM and APPL have the best PEG ratios' but are over valued according to M*

It's all so fascinating.
Have fun, learn heaps!


MMM 237.33 197.00 2.56
ADP 117.16 89.00 3.43
KO 43.46 48.50 2.71
JNJ 133.68 123.00 2.91
MSFT 94.60 106.00 2.30
NKE 65.91 66.00 1.85
PFE 36.78 43.50 2.02
PG 78.97 98.00 2.38


AMGN 188.24 198.00 3.02
BA 329.78 284.00 1.00
CSCO 45.01 40.00 3.02
DIS 102.87 130.00 3.11
HD 178.96 165..00 1.43
HON 151.78 150.00 1.97
MA 182.55 156.00 1.82
MDT 81.29 105.00 2.21
PEP 111.64 123.00 2.67
SBUX 59.00 68.00 1.81
SYK 167.51 123.00 2.69
V 124.53 118.00 2.17


AAPL 177.89 170.00 1.17



JPM 115.44 96.00 0.87
QCOM 60.58 75.00 1.74
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