48 DGI Stocks Selected For Earnings Growth And Fundamental Strength

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Includes: ADP, AMNF, AOS, ATRI, BIG, BMI, BRC, BSET, CCF, CMD, COLM, CSVI, DOX, EXPD, FAST, FL, FLXS, GNTX, HAS, HURC, JOUT, KEQU, LMAT, LRCX, LSTR, LZB, MKSI, MKTX, MLR, NVDA, PAYX, PCAR, RMAX, RMD, ROST, RS, SCL, STLD, TEX, THO, TPL, TSCO, TTC, TXN, UFPI, WDFC, WST
by: Steven Miller
Summary

This is a new list using an improved screen consisting of dividend growth, earnings growth, fundamental strength, and employer/employee relations.

The stocks have been ranked by two PEG Ratios.

Investors of all types should find something to like here, whether they are value, GARP, income, or DGI investors.

This is an improved version to my previous published watch lists that I created for my own IRA portfolio. The companies on this list have the following characteristics:

  • Dividend Growth: All the stocks on this list are from David Fish's U.S. Dividend Champions list. To be included on the list, a company must have increased dividends for a minimum of five years. As many of you know, Mr. Fish died in May, and this uses his last published list.
  • Earnings Growth: Earnings must have increased a minimum of three of the past four years plus trailing twelve months. This ensures that a company has a stable record of increasing earnings and avoids value traps. A great many of the companies on the CCC list do not achieve this basic requirement.
  • Fundamental Strength: The companies have a positive Net Current Asset Value, meaning they can pay all their liabilities with just current assets. Such companies have little or no debt. They often reward investors with growing dividends and buybacks, and it is not unusual for them to acquire other companies. These companies typically have solid management teams.
  • Good Employer/Employee Relations. This is a new metric I am using for the list. I believe a company should take care of its employees. I also expect that a company of disgruntled employees probably indicates internal problems of some kind. Objectively measuring such relations is not as easy or precise as checking revenue growth. However, I have started to check ratings from Glassdoor.com. To be included in this list, a company must have an overall score of at least 3 out of 5. This is arguably not a very high bar, but I know of 29 companies that failed to make this basic cut. There are certainly more.

The companies that meet these four criteria tend to have break-outs to the upside or steady growth. Three that have been exceptionally good investments for me over the past year or so are Texas Pacific Land (TPL), Expeditors International of Washington (EXPD), and Columbia Sportswear (COLM).

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TPL data by YCharts

Chart

EXPD data by YCharts

Chart

COLM data by YCharts

How Results are Ranked, and What the Rankings Mean

I have used different ranking systems in the past, but I have not been entirely satisfied with them. This list takes a different approach. It uses two different PEG Ratios for ranking. One is a forward PEG from Morningstar, and the other is a TTM PEG Ratio from Zacks. If the forward PEG is not available, I used the TTM PEG Ratio to rank stocks. If neither PEG is available, I ranked by best current ratio (not shown here).

The PEG Ratio is not a precise metric. I once published an article showing the different PEG Ratios for a single company from different websites. In addition, if you look at the Zacks page that charts PEG Ratios, you can see how much a company's PEG Ratio can vary from month to month.

Ranking with PEG Ratios groups stocks into four categories:

  • Those with a PEG of 0.80 or less are probably value stocks. There are fewer of those now than I have had in the past.
  • Stocks that have a PEG Ratio between 0.80 and 1.80 tend to be GARP stocks (GARP is "growth at a reasonable price").
  • Those with a PEG of more than 1.80 tend to be dividend-paying income stocks. I tend to prefer growth stocks myself, but I am increasingly position trading stocks in this group.
  • Finally, those in the list without a PEG Ratio tend to be micro and small caps. I own five of these stocks, and they have all been good investments. One of these is Armanino Foods of Distinction (OTCPK:AMNF).

Chart

AMNF data by YCharts

Notable Stocks in the List

The list below includes:

  • 1 dividend king, a company that has increased dividend payouts for 50 years or more: Stepan (SCL).
  • 5 dividend aristocrats, companies that have increased dividend payouts for 25 years or more: A. O. Smith (AOS), Automatic Data Processing (ADP), Brady Corp. (BRC), Computer Services (OTCQX:CSVI), West Pharmaceuticals (WST)
  • 2 companies that are approaching dividend aristocrat status: Expeditors International and Ross Stores (ROST).

16 companies are members of the S&P 500.

24 companies are ranked by Fortune 500.

Caution

This is a watch list of screened stocks, not a list of stocks that has been marked as a buy. I use technical analysis to determine when to buy, and the vast majority of these stocks are not in that range. Those that are in that range change from week to week.

This list is meant to be used as a starting point. If technical entries look interesting, then I do further research on the companies. I look at SEC filings, company calls, and articles others have written. Please do your own due diligence.

The List

I have bolded dividends that have 10 or more straight years of growing. This highlights companies that were able to grow dividends through the Great Recession. While there is no guarantee that these companies will continue the practice in the next downturn, they are more likely to than other companies.

Company

Ticker

Morning-

star

Fwd PEG

Zack's TTM PEG

EPS up x (4 yr + TTM)

# Yrs Div Up

Glass Door

Terex

(TEX)

0.26

1.00

3

6

3.4

Big Lots

(BIG)

0.58

0.71

3

5

3.0

Thor

(THO)

0.82

-

5

8

3.6

MKS Instruments

(MKSI)

1.04

1.25

4

7

3.1

Lam Research

(LRCX)

1.08

0.71

5

5

4.0

Tractor Supply

(TSCO)

1.16

1.63

5

8

3.1

Reliance Steel & Aluminum

(RS)

1.27

1.67

3

8

3.7

Fastenal

(FAST)

1.30

1.83

4

18

3.3

Steel Dynamics

(STLD)

-

1.48

3

8

4.1

Gentex

(GNTX)

1.49

1.37

5

8

4.0

Texas Instruments

(TXN)

1.54

2.73

5

14

4.0

KLA-Tencor

(NASDAQ:KLAC)

1.55

0.94

3

8

3.6

Hasbro

(HAS)

1.56

1.48

3

15

3.9

Stepan

SCL

1.62

-

3

50

3.1

Landstar System

(LSTR)

1.71

1.93

3

15

3.6

ResMed

(RMD)

1.73

-

3

6

3.7

Cantel Medical

(CMD)

1.80

-

5

9

3.1

PACCAR

(PCAR)

1.87

1.32

4

5

3.1

Ross Stores

ROST

1.97

2.17

5

24

3.1

A. O. Smith

AOS

2.09

2.29

5

25

3.8

Toro

(TTC)

-

2.23

4

9

3.6

Foot Locker

(FL)

-

2.30

4

8

3.5

Amdocs

(DOX)

2.28

2.17

4

7

3.5

LeMaitre Vascular

(LMAT)

2.33

2.58

5

8

3.6

Expeditors International of Washington

EXPD

2.52

3.41

4

23

3.3

Brady Corp.

BRC

-

2.68

4

32

3.5

Columbia Sportswear

COLM

2.78

2.48

4

13

3.4

Paychex

(PAYX)

2.81

3.10

5

8

3.7

Automatic Data Processing

ADP

-

2.82

4

43

3.6

Universal Forest Products

(UFPI)

2.96

1.56

5

6

3.4

West Pharmaceuticals

WST

3.13

3.46

3

25

3.2

NVIDIA

(NVDA)

3.20

5.01

4

6

4.4

WD-40

(WDFC)

-

3.31

5

9

4.1

Badger Meter

(BMI)

-

4.26

3

25

3.4

Atrion

(ATRI)

-

-

3

15

3.8

Flexsteel Industries

(FLXS)

-

-

3

7

3.0

MarketAxess

(MKTX)

-

-

4

10

3.4

Chase

(CCF)

-

-

3

6

3.6

Hurco

(HURC)

-

-

4

6

3.5

Johnson Outdoors

(JOUT)

-

-

4

6

3.8

La-Z-Boy

(LZB)

-

-

4

5

3.0

Kewaunee Scientific

(KEQU)

-

-

4

5

4.0

Miller Industries

(MLR)

-

-

5

8

4.0

Computer Services

CSVI

-

-

5

46

3.7

Texas Pacific Land Trust

TPL

-

-

4

14

-

Bassett Furniture

(BSET)

-

-

3

7

3.1

RE/MAX

(RMAX)

-

-

3

5

4.1

Armanino Foods of Distinction

AMNF

-

-

4

13

4.0

In Summary

These 48 stocks were selected for dividend growth, earnings growth, fundamental strength, and good employer/employee relations. They range across a variety of sectors, and they vary in size from the smallest of the microcaps to well-known names. The list can provide a basis for further investigation.

Sources: Forward PEG Ratios and EPS histories are from Morningstar. TTM PEG Ratios are from Zacks. Glassdoor rankings are from glassd oor.com.

Disclosure: I am/we are long TPL, MLR, MKSI, AOS, AMNF, KAI, EXPD, COLM, LMAT, CCF, PAYX, ROST, TTC, THO, CMD, KEQU, TXN, LRCX. 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.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.