Seeking Alpha

Undervalued Dividend Growth Stocks: April 2019

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Includes: PFG
by: The Part-time Investor
Summary

I have developed my KISS screen for identifying undervalued dividend growth stocks.

I run the screen each month to look for buying opportunities.

I present here the stocks that passed the KISS screen this month.

Over the past 6 years, I have developed my K.I.S.S. system for investing in dividend growth stocks. The KISS system is a screen that I use each month to identify undervalued dividend growth stocks that I might consider adding to my portfolio. I post my portfolio update each quarter to show all the transactions I make and how the portfolio is doing. My next update will be out in a few days, but the one from the fourth quarter of 2018 can be found here: 4th quarter 2018 update.

Up until a few months ago, I have only shown the stocks I decided to purchase. But now I have decided that I'm going to start sending out the list of all the stocks that passed the KISS screen, so that people can see how the screen works, all the stocks that passed the screen and have a good list of some potentially undervalued stocks for them to research.

Having said that, let me stress that nothing I present here is, or should be considered to be, a recommendation to buy any of these stocks. Every investor should do their own research before buying any stock, including the ones presented here.

Before I present the list of passing stocks, let me present the actual screening system I use.

The K.I.S.S. System

For the Purchase of Regular Stocks

  • The stock must be on the Dividend Champions, Contenders and Challengers ("CCC") list (as previously compiled by David Fish, but now compiled by Justin Law); (Thank you, David. You will be missed. I couldn't have done any of this without you.)
  • The payout ratio is < 60%;
  • For stocks with a yield between 2.0% and 2.5%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >16;
  • For stocks with a yield between 2.5% and 3.0%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >14;
  • For stocks with a yield greater than 3.0%, the Chowder Number (Dividend yield + 5-yr dividend growth rate) >12;
  • A credit rating of BBB- or better from S&P (found on F.A.S.T. Graphs); and
  • F.A.S.T. Graphs shows a 10-year uptrend in earnings and shows that the stock is not overvalued.
  • A dividend safety rating of 60 or more from SimplysafeDividends.com.

The Chowder number is the 5-year dividend growth rate plus the present dividend yield. The use of different Chowder Number requirements is a change I made to my criteria over the past few years. I prefer to have stocks with higher yields, but if the rest of the story is compelling enough, I am willing to buy stocks with yields in the 2.0% to 3.0% range if their DGRs and Chowder Numbers are higher, as shown in my criteria above. Please see a previous article I wrote about different yields, DGRs and Chowder Numbers to read about my thinking on this topic.

For Purchase of MLPs, REITs, Utilities, and Telecoms (High Yielders)

  • The stock is on CCC list;
  • Yield > 4%;
  • Chowder Number > 8%;
  • DGR for all time periods (1-yr., 3-yr., 5-yr. and 10-yr.) at least 4.0%;
  • F.A.S.T. Graph shows a 10-year uptrend (or for the life of the company, if less than 10 years) in funds from operations ("FFO"); and
  • F.A.S.T. Graph shows that the stock is not overvalued based on its FFO.
  • Dividend Safety Score of 61 or more from Simplysafedividends.com.

The safety rating of 61 or above is a new criterion I added last month. To make the cut all the stocks must have a score of 61 or above from “Simply Safe Dividends."

The time it takes to run this screen is only about 2 hours per quarter since most of the work has already been done for me by way of the CCC list, F.A.S.T. Graphs, Simply Safe Dividends and S&P.

The evaluation of the FAST Graph part of the screen is a very subjective component of the system. One person could look at the FAST Graph of a stock and say it passed, while someone else could look at it and say it failed. I need to see a steady increase in the earnings over the past 10 years (or more), while seeing that the stock price is below the fair valuation for that stock. Here are a few examples of the FAST Graphs for some of the stocks below to show what I consider to be a passing stock.

Principal Financial Group (PFG)

The stock above shows a steady uptrend in earnings (the blue and orange lines), and the price (the black line) has dropped below these lines, indicating that the stock is undervalued.

So, after running the above screens, here are the stocks that passed this month:

April Passing Stocks

Company

Ticker

3/29/2019

Div.

EPS%

Chowder

Dividend

Name

Symbol

Price

Yield

Payout

Rule

Safety

Archer Daniels Midland

ADM

43.13

3.25

44.59

15.3

95

Assurant Inc.

AIZ

94.91

2.53

57.97

21.4

61

Amgen Inc.

AMGN

189.98

3.05

46.03

26.0

87

Ameriprise Financial Inc.

AMP

128.10

2.81

25.39

14.7

91

TD Ameritrade Holding Corp.

AMTD

49.99

2.40

38.34

21.4

92

Bank of America Corp

BAC

27.59

2.17

22.99

70.5

82

BB&T Corp.

BBT

46.53

3.48

41.75

14.0

73

Best Buy Corp.

BBY

71.06

2.81

38.02

24.3

78

BlackRock Inc.

BLK

427.37

3.09

49.66

15.4

95

Comcast Corp.

CMCSA

39.98

2.10

33.20

16.3

87

Cummins Inc.

CMI

157.87

2.89

35.02

17.5

93

Delta Air Lines Inc.

DAL

51.65

2.71

24.69

64.0

67

Eastman Chemical Co.

EMN

75.88

3.27

33.56

16.6

75

Eaton Vance Corp.

EV

40.31

3.47

43.34

12.8

85

Hubbell Inc.

HUBB

117.98

2.85

52.26

14.1

88

Ingredion Inc.

INGR

94.69

2.64

40.39

14.3

89

JPMorgan Chase & Co.

JPM

101.23

3.16

35.60

15.9

73

Lockheed Martin

LMT

300.16

2.93

50.46

14.3

82

Lincoln National Corp.

LNC

58.70

2.52

20.00

24.9

82

ManpowerGroup Inc.

MAN

82.69

2.44

23.33

19.5

91

NetApp Inc.

NTAP

69.34

2.31

41.45

34.3

93

Omnicom Group Inc.

OMC

72.99

3.56

43.62

13.4

90

Principal Financial Group Inc.

PFG

50.19

4.30

40.37

20.8

77

PNC Financial Services Group Inc.

PNC

122.66

3.10

35.41

17.7

76

Prudential Financial Inc.

PRU

91.88

4.35

43.81

20.1

61

Snap-on Inc.

SNA

156.52

2.43

31.83

19.1

99

State Street Corp.

STT

65.81

2.86

29.70

14.6

74

Target Corp.

TGT

80.26

3.19

47.15

13.0

78

Tyson Foods Inc.

TSN

69.43

2.16

29.76

43.6

98

Unum Group

UNM

33.83

3.07

43.88

15.3

82

Webster Financial Corp.

WBS

50.67

2.61

35.68

20.4

62

High Yield Stocks

Company

Ticker

3/29/2019

Div.

DGR

DGR

DGR

DGR

Dividend

Name

Symbol

Price

Yield

1-yr

3-yr

5-yr

10-yr

Safety

Simon Property Group Inc.

SPG

182.21

4.50

10.5

9.3

12.6

8.8

72.00

Conclusion

For those interested in dividend growth investing, I believe the key to being successful is addressing the following criteria:

  • The dividend history
  • The dividend growth rate
  • The dividend yield
  • The dividend safety
  • The payout ratio
  • The earnings history
  • Valuation

I believe my KISS screen successfully incorporates all of these. Every month, I will post the stocks which pass my screen, so that readers can evaluate it and perhaps get some benefit from it.

Thank you for reading. I welcome your comments and criticisms.

Disclosure: I am/we are long amgn amp blk emn. 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.