Seeking Alpha

5 Safe And Cheap Dividend Stocks To Invest (January 2020)

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Includes: APD, CHRW, CMA, CSCO, ET, GD, HD, PRU, VIAC, WBA
by: Financially Free Investor
Financially Free Investor
Long-term horizon, dividend growth investing, portfolio strategy
Summary

This article is part of our monthly series where we highlight five companies that are large cap, relatively safe, dividend paying, and also are offering large discounts to their historical norms.

It's always a good idea to keep your wish list ready by separating the wheat from the chaff.

We go over the filtering process to select just five such stocks from more than 7,500 companies that are traded on U.S. exchanges, including OTC networks. This month, the selected five companies, as a group, would offer an average of 55% more dividends compared to two years ago.

Markets have been on a tear last few months, breaking new all-time high records multiple times. The catalysts during the last few months have been a better than expected earnings season, good job reports, multiple rate cuts by the Feds, and finalization of the agreement on phase-1 of the trade deal with China. Further progress may now depend on the earnings season that's due to start mid January. However, earlier this week, the market took a little pause when it slumped for a couple of days due to geopolitical tensions with Iran, though the situation de-escalated rather quickly, or at least that's the impression for now. But we must remember that there always will be some wall of worry for the market to climb. As long as we do not have a real possibility of a near-term recession or some serious geopolitical shocks, markets should continue to chug along.

S&P 500 ETF (SPY) six-month chart, courtesy Yahoo Finance

Fortunately, as long-term dividend investors, we need not pay too much attention to the day-to-day movements of the market. We need to pay attention to the quality of companies that we buy and buy them when they are being offered relatively cheap. The markets may be expensive at a given point in time, but they're always are some stocks that are being traded cheap in relation to their intrinsic valuation, but at the same time remain fundamentally strong. And that's the focus of this series of articles.

Irrespective of the market's day-to-day gyrations, we remain on the constant lookout for companies that offer sustainable and growing dividends and maybe trading cheap on a relative basis to the broader market as well as to their respective 52-week highs. We believe in keeping a buy list handy and dry powder ready so that we can use the opportunity when the time is right. Besides, we think, every month, this analysis is able to highlight some companies that otherwise would not be on our radar.

This article is part of our monthly series where we scan the entire universe of roughly 7,500 stocks that are listed and traded on US exchanges, including over-the-counter (OTC) networks. We usually highlight five stocks that may have temporary difficulties and/or lost favor with the market and offering deep discounts on a relative basis. However, that's not the only criteria that we apply. While seeking cheaper valuations, we also demand that the companies have an established business model, solid dividend history, manageable debt, and investment-grade credit rating. Please note that these are not recommendations to buy, but should be considered as a starting point for further research.

We start with a fairly simple goal. We want to shortlist five companies that are large cap, relatively safe, dividend paying, and trading at relatively cheaper valuations in comparison to the broader market. The objective here is to highlight and bring to the notice of value-oriented readers some of the dividend-paying and dividend-growing companies that may be offering juicy dividends due to a temporary decline in their share prices. The excess decline may be due to an industry-wide decline or some kind of one-time setbacks like some negative news coverage or missing quarterly earnings expectations. We adopt a methodical approach to filter down the 7,500-plus companies into a small subset. Also, to select five stocks, we will choose at least two stocks that have high current yields and the remaining ones that have had high dividend growth.

Note: Please note that when we use the term "safe" regarding stocks, it should be interpreted as "relatively safe" because nothing is absolutely safe in investing. Also, in our opinion, for a well-diversified portfolio, one should have 15-20 stocks at a minimum.

Goals For The Selection Process

We want to emphasize our goals before we get to the actual selection process. Our primary goal is income, and the secondary goal is to grow capital. These goals are by and large in alignment with most retirees and income investors as well as DGI investors. A balanced DGI portfolio should keep a mix of high-yield, low-growth stocks along with some high-growth but low-yield stocks. That said, how you mix the two will depend upon your personal situation, including income needs, time horizon, and risk tolerance.

A well-diversified portfolio would normally consist of more than just five stocks and preferably a few stocks from each sector of the economy. However, in this periodic series, we try to shortlist and highlight just five stocks that may fit most income and DGI investors, but at the same time, are trading at attractive valuations. However, as always, we recommend you do your due diligence before making any decision on them.

Selection Process

The S&P 500 yields less than 1.80% currently. Since our goal is to find companies for our dividend income portfolio, we should logically look for companies that pay yields that are at least better than the S&P 500. Of course, the higher, the better, but at the same time, we should not try to chase high yield. If we try to filter for dividend stocks paying at least 1.90% or above, there are nearly 2,000 such companies trading on US exchanges, including OTC networks. If we further limit our choices to companies that have a market cap of at least $10 billion and daily trading volume over 100,000 shares, the number comes down to less than 400 companies.

We also want stocks that are trading at relatively cheaper valuations, so we will apply an additional filter with a forward P/E of no more than 25 but preferably less than 20. However, a P/E of 25 is not really that cheap, so in our quest for not paying too high a price, we add one more criterion that the close price is at least 5% below the 52-week high (previously 7% below). After applying these additional criteria, we got a smaller set of about 130 companies.

Criteria to Shortlist

  • Market cap >=$10 Billion
  • Daily average volume > 100,000
  • Dividend yield >= 1.90%
  • Dividend growth past five years >= 0%
  • Forward P/E <= 25
  • Distance from 52-week high < -5% (previously -7%**)

** We reduced this condition to -5% this time because most stocks have moved higher with the rising market. However, we wanted to keep a sizable number of stocks in our broad-base filtering criteria at this first stage.

By applying the above criteria, we got roughly 130 companies. The number is still too large to meaningfully present here, so we will narrow down the list further.

Narrowing Down the List

As a first step, we will like to eliminate stocks that have less than five years of dividend history. We cross check our list of 130 stocks against that the CCC list (list of Dividend Champions, Contenders, and Challengers created by David Fish and now maintained by Justin Law). The CCC list currently has 866 stocks in all the above three categories, which includes 138 Champions with more than 25 years of dividend increases, 265 Contenders with more than ten but less than 25 years of dividend increases and 463 Challengers with more than five but less than 10 years of dividend increases. After we apply this filter, we are left with 82 companies on our list. However, CCC-list is quite strict in terms of how it defines dividend growth. If a company had a stable record of dividend payments but did not increase the dividends from one year to another, it would not make to CCC list. We also wanted to look at companies that had a stable dividend history of more than five years but maybe they did not increase the dividend every year. So, by relaxing this condition, a total of 23 additional companies made to our list, which otherwise met our criteria. After including them, we had a total of 105 (82+23) companies that made to our first list.

We then import the various data elements from various sources, including CCC-list, GuruFocus, Fidelity, Morningstar, and Seeking Alpha among others and assign weights based on different criteria as listed below:

  • Current yield: Indicates the yield based on the current price.
  • Dividend growth history (number of years of dividend growth): This indicates the dividend growth rate during the last five years.
  • Payout ratio: This indicates how comfortably the company can pay the dividend from its earnings. This ratio is calculated by dividing the dividend amount per share by the EPS (earnings per share).
  • Past five and 10-year dividend growth: Even though it's the dividend growth rate from the past, this does tell how fast the company has been able to grow its earnings and dividends in the recent past. The recent past is the best indicator that we have to know what to expect in the next few years.
  • EPS growth (mean of previous five years of growth and expected next five years growth): As the earnings of a company grow, more than likely, dividends will grow accordingly. We will take into account the previous five years' actual EPS growth and the estimated EPS growth for the next five years. We will add the two numbers and assign weights.
  • Chowder number: This is a data point that's available on the CCC list. So, what's the Chowder number? This number has been named after well-known SA author Chowder, who first coined and popularized this factor. This number is derived by adding the current-yield and the past five years' dividend growth rate. A Chowder number of "12" or more ("8" for utilities) is considered good.
  • Debt/equity ratio: This ratio will tell us about the debt load of the company in relation to the company's equity. We all know that too much debt can lead to major problems, even for well-known companies. Lower this ratio, better it is. Sometimes, we find this ratio to be negative or unavailable, even for well-known companies. This can happen for a myriad of reasons and not always a reason for concern. This is why we use this ratio in combination with the debt/asset ratio (covered next).
  • Debt/asset ratio: This data is not available in the CCC list, but we add it to the table. The reason we will add this because, for some companies, the debt/equity ratio is not a reliable indicator.
  • S&P's credit rating: Again, this data is not available in the CCC list, and we will add manually. We get it from the S&P website.
  • PEG ratio: This also is called the price/earnings-to-growth ratio. The PEG ratio is considered to be an indicator if the stock is overvalued, undervalued, or fairly priced. A lower PEG may indicate that a stock is undervalued. However, PEG for a company may differ significantly from one reported source to another, depending on which growth estimate is used in the calculation. Some use past growth while others may use future expected growth. We are taking the PEG from the CCC list. The CCC list defines it as the price/earnings ratio divided by the five-year estimated growth rate.
  • Distance from 52-week high: We want to select companies that are good, solid companies but also are trading at cheaper valuations currently. They may be cheaper due to some temporary down cycle or some combination of bad news or simply had a bad quarter. This criterion will help bring such companies (with a cheaper valuation) near the top, as long as they excel in other criteria as well. This factor is calculated as (current price - 52-week high) / 52-week high.

Below is the table (presented in two parts) with the list of 105 companies with weights assigned to each of the 10 criteria. The first table shows the raw data for each criterion, whereas the second table shows the weights for each criterion and the total weight. Please note that both tables are sorted on the total weight.

Table 1A:

Ticker

Market Cap (in $Billions)

Div. Yield %

Last Close 01/03/ 2020

52 Week High

Distance from 52WK High

Yrs Div

DGR 5

DGR 10

Payout Ratio

Chowder number

Past 5-YR Growth

Est. 5YR Growth

Debt/ Equity

Debt/ Asset

S&P Credit Rating

PEG Ratio

Ticker

PRU

37.5

4.29

93.26

105.71

-11.78%

11

13.01

19.04

42.87

17.28

52.30

6.91

0.33

0.03

A

1.45

PRU

CMA

10.2

3.79

70.66

88.31

-19.99%

10

27.99

18.45

34.05

31.72

20.10

3.60

0.49

0.09

BBB+

2.53

CMA

GD

52.1

2.26

180.18

192.67

-6.48%

28

10.52

10.35

35.36

12.83

9.80

8.28

1.01

0.29

A+

1.85

GD

LNC

11.5

2.55

57.97

67.15

-13.67%

10

18.25

19.95

41.24

20.97

10.30

9.80

0.32

0.02

A-

1.55

LNC

APD

49.8

2.05

226

241.31

-6.34%

37

8.69

9.85

58.88

10.66

11.30

11.79

0.30

0.20

A

2.53

APD

BEN

12.5

4.3

25.09

35.67

-29.66%

40

16.72

14.02

45.96

20.88

-9.10

-3.52

0.08

0.05

A+

n/a

BEN

PFG

15.2

4.01

54.91

60.68

-9.51%

11

10.55

15.86

46.61

14.55

12.70

6.00

0.26

0.01

A-

1.94

PFG

DFS

26.3

2.1

83.88

92.91

-9.72%

9

12.80

30.20

19.89

14.87

9.50

10.20

2.19

0.23

BBB-

0.94

DFS

VIAC

15.5

2.32

41.45

53.51

-22.54%

9

9.86

n/a

21.00

12.18

11.37

10.78

2.44

0.43

0.57

VIAC

WBA

52.5

3.1

59.08

74.43

-20.62%

44

6.58

13.63

42.56

9.69

14.50

2.31

0.72

0.26

BBB

5.95

WBA

ABC

17.3

1.9

84.01

91.7

-8.39%

15

9.97

20.89

41.67

11.85

26.40

7.27

1.56

0.11

A-

3.04

ABC

CSCO

202.1

2.94

47.63

58.05

-17.95%

9

13.27

n/a

51.47

16.19

13.50

6.99

0.54

0.25

AA-

2.52

CSCO

HD

238.8

2.48

218.93

238.85

-8.34%

10

23.68

19.42

53.91

26.17

20.80

8.38

n/a

0.00

A

2.59

HD

TRV

35.4

2.39

137.02

154.83

-11.50%

15

8.48

10.14

36.85

10.88

-1.00

9.70

0.26

0.06

A

1.59

TRV

MPC

37.8

3.64

58.23

68.02

-14.39%

9

18.17

n/a

45.49

21.69

9.70

16.20

0.85

0.30

BBB

0.8

MPC

HBAN

15.3

4.05

14.81

15.6

-5.06%

9

23.30

13.31

47.24

27.28

10.60

5.19

0.92

0.08

BBB+

2.29

HBAN

NTAP

14.1

3.11

61.7

77.69

-20.58%

7

22.81

n/a

47.64

25.89

19.80

7.86

3.07

0.21

BBB+

1.96

NTAP

BK

46.4

2.47

50.27

53.98

-6.87%

9

12.32

8.75

32.29

14.79

17.80

4.81

0.76

0.09

A

2.73

BK

CCL

26.3

4.01

49.89

58.85

-15.23%

5

14.87

n/a

45.25

18.80

26.70

5.00

0.42

0.26

A-

2.3

CCL

CHRW

10.5

2.62

77.74

92.18

-15.67%

22

7.05

7.67

42.50

9.66

12.40

5.52

0.78

0.29

BBB+

2.95

CHRW

GPC

15.2

2.92

104.31

115.14

-9.41%

63

5.51

6.58

55.96

8.38

4.60

4.60

0.94

0.32

A-

4.24

GPC

ET

35.6

9

13.55

15.74

-13.91%

10

8.01

n/a

90.26

17.01

47.70

16.47

2.27

0.52

0.89

ET

AFL

38.9

2.04

52.98

56.89

-6.87%

37

7.85

6.79

26.60

9.90

2.30

3.53

0.21

0.04

A-

3.69

AFL

MXIM

16.6

3.13

61.35

65.34

-6.11%

18

11.72

8.92

67.13

14.85

20.00

9.24

0.00

0.27

BBB+

2.32

MXIM

FNF

12.4

2.92

45.16

48.19

-6.29%

8

19.18

12.50

47.65

22.10

7.00

8.10

0.16

0.00

0

2.02

FNF

GM

51.9

4.19

36.32

40.88

-11.15%

5

4.84

n/a

26.29

9.03

18.58

10.86

2.55

0.45

0.34

GM

NUE

16.5

2.96

54.39

62.1

-12.42%

47

1.57

1.27

27.38

4.43

37.30

-3.32

0.43

0.24

A-

n/a

NUE

OMC

17.4

3.25

79.93

84.77

-5.71%

10

7.21

15.57

43.70

10.42

9.90

5.10

2.13

0.27

BBB+

2.67

OMC

HSY

30.4

2.13

145.26

161.4

-10.00%

10

7.95

9.65

51.28

10.05

9.00

8.04

2.58

0.56

A

3.03

HSY

MPLX

27.3

10.5

25.81

35.68

-27.66%

7

14.61

n/a

124.88

25.26

17.30

4.47

1.18

0.59

BBB

2.63

MPLX

VLO

37.6

3.93

91.52

101.4

-9.74%

9

27.94

20.70

65.81

31.79

7.90

4.36

0.45

0.18

BBB

3.93

VLO

AMTD

26.7

2.52

49.24

57.38

-14.19%

10

18.86

n/a

31.31

21.36

22.80

-8.72

0.41

0.09

A

n/a

AMTD

INFY

43.7

2

10.31

12.07

-14.58%

6

12.02

n/a

23.43

14.02

5.92

8.00

0.07

0.05

2.13

INFY

CE

14.5

2.07

119.78

127.39

-5.97%

10

20.88

31.10

34.30

22.89

5.20

4.10

1.36

0.38

BBB

4.15

CE

EPD

62.2

6.23

28.4

30.68

-7.43%

22

4.18

4.95

81.94

10.47

6.10

7.59

1.14

0.46

BBB+

1.71

EPD

MMP

14.3

6.5

62.75

67.36

-6.84%

19

10.00

11.01

89.08

16.49

17.90

3.28

1.76

0.55

BBB+

4.18

MMP

MMM

102.6

3.23

178.45

219.5

-18.70%

61

10.99

10.94

68.90

14.25

6.40

0.80

1.83

0.42

AA-

26.36

MMM

HPQ

29.8

3.43

20.53

23.91

-14.14%

10

17.36

15.56

35.06

20.79

5.70

3.06

n/a

0.16

BBB

3.34

HPQ

CAH

14.4

3.9

49.36

56.79

-13.08%

23

8.22

14.33

38.19

12.02

6.10

3.22

8.88

0.22

BBB+

n/a

CAH

HPE

20.4

3.04

15.77

17.46

-9.68%

5

21.54

n/a

42.86

24.58

5.10

8.36

0.81

0.27

BBB

1.69

HPE

SPG

46.6

5.78

145.35

185.85

-21.79%

10

10.67

16.12

116.34

16.31

16.60

8.60

10.13

0.75

A

2.4

SPG

QCOM

99.4

2.85

87.02

94.03

-7.46%

17

9.02

13.98

69.27

11.84

-4.00

27.03

3.25

0.48

A-

0.91

QCOM

LYB

30.5

4.59

91.55

97.49

-6.09%

9

8.98

n/a

43.80

13.42

12.30

2.95

1.53

0.33

BBB+

3.34

LYB

MCD

150.7

2.5

200.08

221.15

-9.53%

44

7.60

8.72

65.36

10.13

6.60

6.05

n/a

0.98

BBB+

4.27

MCD

TAP

11.5

4.27

53.38

66.61

-19.86%

6

9.03

n/a

53.12

13.30

10.90

5.45

0.74

0.33

3.63

TAP

PFE

215.4

3.7

38.93

44.4

-12.32%

10

6.72

6.05

55.88

10.60

1.00

4.30

0.81

0.30

AA-

3.35

PFE

GLW

22.8

2.7

29.6

35.08

-15.62%

9

14.87

14.87

58.82

17.62

-3.30

6.74

0.61

0.26

BBB+

3.18

GLW

PSX

48.2

3.32

108.49

119.7

-9.37%

8

13.12

n/a

35.71

16.35

14.90

-3.85

0.48

0.21

BBB+

n/a

PSX

DAL

37.5

2.77

58.06

63.16

-8.07%

7

38.06

n/a

22.55

40.82

-14.30

11.70

0.67

0.16

BBB-

0.7

DAL

CMI

27.1

2.97

176.81

186.44

-5.17%

14

-1.98

13.77

33.53

0.95

10.80

0.00

0.34

0.13

A+

n/a

CMI

UPS

100.1

3.29

116.72

124.3

-6.10%

10

7.46

7.87

66.78

10.74

3.60

7.58

4.30

0.45

A+

2.69

UPS

WU

10.9

3.07

26.1

27.87

-6.35%

5

9.86

29.57

30.42

12.84

6.20

2.61

n/a

0.00

0

3.91

WU

WEC

28.8

2.59

91.24

97.73

-6.64%

17

8.63

13.33

73.12

11.38

5.90

6.05

1.23

0.00

A-

4.41

WEC

CLX

19.2

2.77

152.91

166.33

-8.07%

42

6.86

7.72

67.30

9.62

7.50

3.44

5.00

0.51

A-

7.08

CLX

EMN

10.3

3.48

75.95

84.6

-10.22%

10

12.47

11.09

49.35

15.81

-0.10

4.26

1.03

0.39

BBB

3.48

EMN

BA

187.3

2.47

332.76

440.62

-24.48%

8

23.00

17.21

126.07

25.52

24.50

8.67

n/a

0.12

A

5.76

BA

MO

92.7

6.77

49.63

57.73

-14.03%

50

10.85

9.70

361.29

17.58

10.80

6.17

2.65

0.46

BBB

8.74

MO

IMO

19.8

2.49

26.55

30.08

-11.74%

5

11.10

n/a

30.16

13.59

-2.94

-7.39

0.22

0.13

-1.00

IMO

CINF

17.4

2.1

106.5

117.41

-9.29%

59

4.90

3.51

40.43

7.03

-10.90

4.05

0.09

0.00

BBB+

4.69

CINF

EXR

13.8

3.38

106.52

123.52

-13.76%

10

14.49

25.07

114.65

17.89

15.20

6.00

1.91

0.63

BBB

5.61

EXR

IBM

119.0

4.82

134.34

151.36

-11.24%

24

8.63

11.58

59.18

13.47

-5.20

1.39

3.69

0.51

A

8.79

IBM

XOM

297.6

4.95

70.33

83.38

-15.65%

37

4.90

7.53

101.46

9.89

-8.20

2.73

0.25

0.12

AA+

7.45

XOM

HST

12.9

4.43

18.04

20.14

-10.43%

5

0.00

n/a

38.86

4.43

40.34

5.00

0.59

0.38

1.04

HST

UL

66.5

3.14

56.94

64.83

-12.17%

10

4.01

n/a

61.02

7.15

10.96

8.42

2.28

0.45

1.13

UL

IP

17.5

4.58

44.72

47.76

-6.37%

10

6.92

19.96

58.74

11.37

0.70

-1.77

1.39

0.32

BBB

n/a

IP

EVRG

14.5

3.18

63.5

67.31

-5.66%

15

6.78

4.95

77.69

9.89

1.90

6.70

1.14

0.00

A-

3.74

EVRG

ED

29.5

3.34

88.63

94.65

-6.36%

45

3.27

2.29

69.81

6.54

4.80

2.78

1.16

0.00

A-

7.68

ED

PM

132.3

5.5

85.03

91.91

-7.49%

12

3.42

7.63

97.10

8.92

-0.60

5.95

n/a

0.80

A

2.97

PM

CL

58.3

2.53

68.02

75.57

-9.99%

56

3.79

7.11

61.65

6.29

3.60

0.89

n/a

0.52

AA-

27.65

CL

PNW

10.0

3.52

88.99

98.76

-9.89%

8

5.45

3.61

71.46

8.93

4.10

4.41

0.99

0.30

A-

4.66

PNW

RCI

25.3

3.04

49.54

55.72

-11.09%

5

1.79

n/a

32.68

4.83

4.38

6.60

2.12

0.55

1.87

RCI

ESS

19.9

2.59

301.2

332.54

-9.42%

25

8.96

6.49

120.00

11.55

13.00

7.90

0.97

0.47

BBB+

5.86

ESS

DUK

65.9

4.18

90.4

97.17

-6.97%

15

3.52

2.88

78.10

7.67

0.60

4.40

1.36

0.00

A-

4.29

DUK

OXY

39.0

7.25

43.61

68.37

-36.21%

16

3.01

9.49

227.34

10.68

-2.60

n/a

1.81

0.24

BBB

n/a

OXY

WPC

13.8

5.18

80.09

93.45

-14.30%

23

2.71

7.59

165.42

7.90

32.30

n/a

0.88

0.43

BBB

n/a

WPC

SLB

56.2

4.93

40.56

47.41

-14.45%

5

4.56

n/a

-6.08

9.49

-21.40

9.50

0.52

0.29

n/a

SLB

PSA

37.3

3.74

213.7

264.74

-19.28%

5

7.39

n/a

118.50

11.13

11.80

4.01

0.34

0.17

3.12

PSA

AEG

12.1

6.25

4.52

5.38

-15.99%

5

2.42

n/a

49.58

8.67

-8.71

0.00

0.46

0.03

2.74

AEG

HAS

13.3

2.59

105.05

126.07

-16.67%

16

9.58

12.81

127.10

12.15

-1.10

11.20

0.93

0.34

BBB

4.41

HAS

PEG

29.7

3.2

58.7

63.31

-7.28%

8

4.90

3.52

65.51

8.08

3.00

3.70

1.06

0.00

BBB+

5.56

PEG

IFF

13.5

2.37

126.35

152.15

-16.96%

17

12.54

11.46

80.00

14.86

-0.60

3.80

0.73

0.34

BBB

9.06

IFF

DRI

13.8

3.13

112.38

127.57

-11.91%

6

9.86

n/a

423.62

12.99

32.94

8.72

1.38

0.54

2.55

DRI

CNP

13.5

4.29

26.79

31.4

-14.68%

14

3.90

4.23

91.27

8.11

0.40

3.63

2.38

0.43

BBB+

5.96

CNP

AEE

18.7

2.6

76.08

80.38

-5.35%

6

3.58

2.23

60.92

6.16

9.60

4.30

1.18

0.00

BBB+

5.5

AEE

NI

10.2

2.92

27.4

30.56

-10.34%

8

14.83

8.27

65.04

17.70

-16.20

4.20

1.91

0.43

BBB+

5.4

NI

SJM

11.7

3.44

102.29

127.5

-19.77%

22

7.24

9.71

71.69

10.62

-3.50

1.15

0.71

0.36

BBB

18.44

SJM

EXC

44.3

3.18

45.57

50.95

-10.56%

5

3.18

n/a

45.41

6.36

0.69

3.42

1.22

0.31

4.91

EXC

O

24.0

3.7

73.79

81.94

-9.95%

27

4.34

4.68

214.96

8.05

11.80

5.45

0.76

0.42

A-

10.62

O

GILD

82.3

3.87

65.07

70.05

-7.11%

5

n/a

n/a

119.43

n/a

18.10

1.71

1.19

0.43

A

18.09

GILD

PKX

17.5

2.75

50.31

62.23

-19.15%

5

4.86

n/a

103.12

7.61

2.93

n/a

0.47

0.26

2.23

PKX

HSBC

157.1

5.11

38.76

44.7

-13.29%

5

0.80

n/a

56.07

5.91

-5.53

1.43

0.52

0.04

n/a

HSBC

REG

10.5

3.75

62.41

69.9

-10.72%

6

4.47

1.03

141.82

8.18

16.30

9.10

0.62

0.37

BBB+

4.2

REG

VTR

21.3

5.55

57.07

75.23

-24.14%

9

4.20

5.91

270.94

9.69

-5.70

-0.50

1.11

0.50

BBB+

n/a

VTR

HAL

21.7

2.91

24.76

32.3

-23.34%

5

0.00

n/a

53.56

2.91

-4.10

6.36

1.17

0.42

n/a

HAL

IMBBY

24.1

15.03

25.205

35.92

-29.83%

5.33

n/a

198.00

20.36

-11.54

n/a

2.76

0.40

4.70

IMBBY

AVB

29.2

2.91

209.23

222.04

-5.77%

8

5.79

5.38

84.56

8.69

73.00

2.54

0.68

0.39

0

11.48

AVB

UDR

13.6

2.95

46.49

50.36

-7.68%

9

5.87

3.41

159.30

8.80

171.30

n/a

1.23

0.47

0

n/a

UDR

DLR

25.0

3.6

119.94

135.74

-11.64%

15

5.06

12.15

432.00

8.67

-10.60

16.66

1.33

0.44

BBB

7.19

DLR

MAA

15.0

2.93

131.07

139.15

-5.81%

10

5.63

4.55

173.91

8.66

24.90

7.00

0.74

0.34

0

8.2

MAA

AIG

44.7

2.49

51.36

57.89

-11.28%

5

20.68

n/a

44.14

23.17

-63.39

10.00

0.63

0.07

0.38

AIG

BP

131.8

6.28

38.83

45.23

-14.15%

5

1.22

n/a

83.22

7.50

-17.64

9.50

0.77

0.26

7.86

BP

F

36.5

6.51

9.21

10.51

-12.37%

5

3.71

n/a

140.71

10.22

-12.17

7.30

4.35

0.60

n/a

F

BASFY

68.4

3.43

18.62

20.98

-11.25%

-0.90

n/a

88.47

2.53

-7.64

n/a

0.55

0.22

n/a

BASFY

CF

10.0

2.6

46.08

52.68

-12.53%

5

0.00

n/a

103.08

2.60

-24.18

6.00

1.64

0.39

0.63

CF

CPT

10.3

3.02

105.9

114.96

-7.88%

9

3.96

3.26

191.62

6.98

-0.60

3.60

0.69

0.37

0

17.69

CPT

Table-1B:

This second table shows the weights for each criterion and the total weight sorted on "Total Weight."

Ticker

WT. YLD

WT. Hist. (Div)

WT. Payout Ratio

WT. Choder number

WT. DGR-10

WT. Growth (Past+ future)

WT. Equity &Asset

WT. Credit/ Rating

WT. PEG

WT. Distance 52-WK HIGH

TOTAL WEIGHT

PRU

4.29

2.20

7.14

8.00

8.50

6.30

4.82

9.00

5.55

2.36

58.16

CMA

3.79

2.00

8.24

10.00

8.50

5.20

4.71

6.50

4.47

4.00

57.41

GD

2.26

5.60

8.08

7.50

7.50

6.03

4.35

9.50

5.15

1.30

57.26

LNC

2.55

2.00

7.35

9.00

8.50

6.70

4.83

8.00

5.45

2.73

57.11

APD

2.05

7.40

5.14

7.00

6.50

7.70

4.75

9.00

4.47

1.27

55.28

BEN

4.30

8.00

6.76

9.00

7.50

-4.21

4.94

9.50

3.00

5.93

54.72

PFG

4.01

2.20

6.67

7.50

8.00

6.00

4.87

8.00

5.06

1.90

54.21

DFS

2.10

1.80

10.00

7.50

10.00

6.57

3.79

4.00

6.06

1.94

53.76

VIAC

2.32

1.80

9.87

7.00

4.93

7.38

3.56

5.00

6.43

4.51

52.81

WBA

3.10

8.80

7.18

6.50

7.50

4.77

4.51

5.00

1.05

4.12

52.53

ABC

1.90

3.00

7.29

7.00

9.00

6.42

4.17

8.00

3.96

1.68

52.42

CSCO

2.94

1.80

6.07

8.00

5.00

6.33

4.61

9.60

4.48

3.59

52.41

HD

2.48

2.00

5.76

10.00

8.50

6.79

1.75

9.00

4.41

1.67

52.36

TRV

2.39

3.00

7.89

7.00

7.50

2.90

4.84

9.00

5.41

2.30

52.23

MPC

3.64

1.80

6.81

9.00

5.00

7.23

4.43

5.00

6.20

2.88

51.99

HBAN

4.05

1.80

6.59

10.00

7.50

5.26

4.50

6.50

4.71

1.01

51.93

NTAP

3.11

1.40

6.54

10.00

5.00

6.62

3.36

6.50

5.04

4.12

51.69

BK

2.47

1.80

8.46

7.50

6.50

5.60

4.58

9.00

4.27

1.37

51.56

CCL

4.01

1.00

6.84

8.50

5.00

5.67

4.66

8.00

4.70

3.05

51.43

CHRW

2.62

4.40

7.19

6.50

6.50

5.84

4.47

6.50

4.05

3.13

51.20

GPC

2.92

10.00

5.50

6.50

5.00

3.07

4.37

8.00

2.76

1.88

50.00

ET

9.00

2.00

1.22

8.00

4.00

8.00

3.60

5.00

6.11

2.78

49.72

AFL

2.04

7.40

9.17

6.50

5.00

1.94

4.88

8.00

3.31

1.37

49.62

MXIM

3.13

3.60

4.11

7.50

6.50

7.08

4.87

6.50

4.68

1.22

49.18

FNF

2.92

1.60

6.54

9.00

7.50

5.03

4.92

5.00

4.98

1.26

48.75

GM

4.19

1.00

9.21

6.50

2.42

7.62

3.50

5.00

6.66

2.23

48.33

NUE

2.96

9.40

9.08

4.43

1.27

2.89

4.67

8.00

3.00

2.48

48.18

OMC

3.25

2.00

7.04

7.00

8.00

5.00

3.80

6.50

4.33

1.14

48.06

HSY

2.13

2.00

6.09

7.00

6.50

5.68

3.43

9.00

3.97

2.00

47.80

MPLX

10.00

1.40

-3.11

10.00

5.00

5.49

4.12

5.00

4.37

5.53

47.80

VLO

3.93

1.80

4.27

10.00

9.00

4.09

4.69

5.00

3.07

1.95

47.79

AMTD

2.52

2.00

8.59

9.00

5.00

1.09

4.75

9.00

3.00

2.84

47.79

INFY

2.00

1.20

9.57

7.50

5.00

4.64

4.94

5.00

4.87

2.92

47.64

CE

2.07

2.00

8.21

9.00

10.00

3.10

4.13

5.00

2.85

1.19

47.56

EPD

6.23

4.40

2.26

7.00

4.95

4.56

4.20

6.50

5.29

1.49

46.88

MMP

6.50

3.80

1.36

8.00

7.50

5.09

3.85

6.50

2.82

1.37

46.79

MMM

3.23

10.00

3.89

7.50

7.50

2.40

3.88

9.60

-5.00

3.74

46.73

HPQ

3.43

2.00

8.12

9.00

8.00

2.92

1.67

5.00

3.66

2.83

46.62

CAH

3.90

4.60

7.73

7.00

7.50

3.11

0.45

6.50

3.00

2.62

46.40

HPE

3.04

1.00

7.14

9.00

5.00

4.49

4.46

5.00

5.31

1.94

46.38

SPG

5.78

2.00

-2.04

8.00

8.00

6.87

-0.44

9.00

4.60

4.36

46.12

QCOM

2.85

3.40

3.84

7.00

7.50

2.67

3.14

8.00

6.09

1.49

45.97

LYB

4.59

1.80

7.03

7.50

4.49

4.98

4.07

6.50

3.66

1.22

45.84

MCD

2.50

8.80

4.33

7.00

6.50

4.22

1.26

6.50

2.73

1.91

45.74

TAP

4.27

1.20

5.86

7.50

4.51

5.45

4.47

5.00

3.37

3.97

45.60

PFE

3.70

2.00

5.51

7.00

5.00

1.77

4.45

9.60

3.65

2.46

45.14

GLW

2.70

1.80

5.15

8.50

7.50

1.15

4.57

6.50

3.82

3.12

44.80

PSX

3.32

1.60

8.04

8.00

5.00

2.72

4.66

6.50

3.00

1.87

44.70

DAL

2.77

1.40

9.68

10.00

5.00

-0.87

4.59

4.00

6.30

1.61

44.48

CMI

2.97

2.80

8.31

0.95

7.50

3.60

4.77

9.50

3.00

1.03

44.42

UPS

3.29

2.00

4.15

7.00

6.50

3.73

2.63

9.50

4.31

1.22

44.32

WU

3.07

1.00

8.70

7.50

10.00

2.94

1.75

5.00

3.09

1.27

44.31

WEC

2.59

3.40

3.36

7.00

7.50

3.98

4.39

8.00

2.59

1.33

44.14

CLX

2.77

8.40

4.09

6.50

6.50

3.65

2.25

8.00

-0.08

1.61

43.68

EMN

3.48

2.00

6.33

8.00

7.50

1.39

4.29

5.00

3.52

2.04

43.55

BA

2.47

1.60

-3.26

10.00

8.00

6.89

1.69

9.00

1.24

4.90

42.53

MO

6.77

10.00

-5.00

8.50

6.50

5.66

3.45

5.00

-1.74

2.81

41.94

IMO

2.49

1.00

8.73

7.50

5.00

-3.44

4.83

5.00

8.00

2.35

41.45

CINF

2.10

10.00

7.45

5.00

3.51

-2.28

4.96

6.50

2.31

1.86

41.40

EXR

3.38

2.00

-1.83

8.50

10.00

6.00

3.73

5.00

1.39

2.75

40.92

IBM

4.82

4.80

5.10

7.50

7.50

-1.27

2.90

9.00

-1.79

2.25

40.81

XOM

4.95

7.40

-0.18

6.50

6.50

-1.82

4.82

9.90

-0.45

3.13

40.74

HST

4.43

1.00

7.64

4.43

0.00

5.67

4.51

5.00

5.96

2.09

40.73

UL

3.14

2.00

4.87

5.00

2.01

6.46

3.64

5.00

5.87

2.43

40.42

IP

4.58

2.00

5.16

7.00

8.50

-0.36

4.15

5.00

3.00

1.27

40.30

EVRG

3.18

3.00

2.79

6.50

4.95

2.87

4.43

8.00

3.26

1.13

40.11

ED

3.34

9.00

3.77

5.00

2.29

2.53

4.42

8.00

-0.68

1.27

38.94

PM

5.50

2.40

0.36

6.50

6.50

1.78

1.35

9.00

4.03

1.50

38.92

CL

2.53

10.00

4.79

5.00

6.50

1.50

1.49

9.60

-5.00

2.00

38.41

PNW

3.52

1.60

3.57

6.50

3.61

2.84

4.36

8.00

2.34

1.98

38.31

RCI

3.04

1.00

8.41

4.83

0.90

3.66

3.67

5.00

5.13

2.22

37.86

ESS

2.59

5.00

-2.50

7.00

5.00

6.63

4.28

6.50

1.14

1.88

37.53

DUK

4.18

3.00

2.74

6.50

2.88

1.67

4.32

8.00

2.71

1.39

37.39

OXY

7.25

3.20

-5.00

7.00

6.50

-0.87

3.98

5.00

3.00

7.24

37.30

WPC

5.18

4.60

-5.00

6.50

6.50

4.00

4.35

5.00

3.00

2.86

36.98

SLB

4.93

1.00

10.00

6.50

2.28

-3.97

4.60

5.00

3.00

2.89

36.23

PSA

3.74

1.00

-2.31

7.00

3.70

5.27

4.74

5.00

3.88

3.86

35.87

AEG

6.25

1.00

6.30

6.50

1.21

-2.90

4.76

5.00

4.26

3.20

35.57

HAS

2.59

3.20

-3.39

7.00

7.50

3.37

4.37

5.00

2.59

3.33

35.56

PEG

3.20

1.60

4.31

6.50

3.52

2.23

4.47

6.50

1.44

1.46

35.23

IFF

2.37

3.40

2.50

7.50

7.50

1.07

4.47

5.00

-2.06

3.39

35.13

DRI

3.13

1.20

-5.00

7.50

4.93

6.91

4.04

5.00

4.45

2.38

34.54

CNP

4.29

2.80

1.09

6.50

4.23

1.34

3.60

6.50

1.04

2.94

34.32

AEE

2.60

1.20

4.88

5.00

2.23

4.63

4.41

6.50

1.50

1.07

34.03

NI

2.92

1.60

4.37

8.50

6.50

-4.00

3.83

6.50

1.60

2.07

33.89

SJM

3.44

4.40

3.54

7.00

6.50

-0.78

4.47

5.00

-5.00

3.95

32.51

EXC

3.18

1.00

6.82

5.00

1.59

1.37

4.24

5.00

2.09

2.11

32.40

O

3.70

5.40

-5.00

6.50

4.68

5.75

4.41

8.00

-3.62

1.99

31.81

GILD

3.87

1.00

-2.43

10.00

5.00

4.57

4.19

9.00

-5.00

1.42

31.62

PKX

2.75

1.00

-0.39

6.50

2.43

0.98

4.63

5.00

4.77

3.83

31.50

HSBC

5.11

1.00

5.49

5.00

0.40

-1.37

4.72

5.00

3.00

2.66

31.01

REG

3.75

1.20

-5.00

6.50

1.03

7.03

4.51

6.50

2.80

2.14

30.46

VTR

5.55

1.80

-5.00

6.50

5.00

-2.07

4.20

6.50

3.00

4.83

30.31

HAL

2.91

1.00

5.81

2.91

0.00

0.75

4.21

5.00

3.00

4.67

30.25

IMBBY

10.00

0.00

-5.00

9.00

2.66

-3.85

3.42

5.00

2.30

5.97

29.50

AVB

2.91

1.60

1.93

6.50

5.00

4.85

4.47

5.00

-4.48

1.15

28.93

UDR

2.95

1.80

-5.00

6.50

3.41

4.00

4.15

5.00

3.00

1.54

27.35

DLR

3.60

3.00

-5.00

6.50

7.50

0.47

4.12

5.00

-0.19

2.33

27.32

MAA

2.93

2.00

-5.00

6.50

4.55

6.33

4.46

5.00

-1.20

1.16

26.74

AIG

2.49

1.00

6.98

9.00

5.00

-17.80

4.65

5.00

6.62

2.26

25.20

BP

6.28

1.00

2.10

5.00

0.61

-2.71

4.49

5.00

-0.86

2.83

23.73

F

6.51

1.00

-5.00

7.00

1.86

-1.62

2.52

5.00

3.00

2.47

22.74

BASFY

3.43

0.00

1.44

2.53

0.00

-2.55

4.61

5.00

3.00

2.25

19.72

CF

2.60

1.00

-0.38

2.60

0.00

-6.06

3.98

5.00

6.37

2.51

17.61

CPT

3.02

1.80

-5.00

5.00

3.26

1.00

4.47

5.00

-5.00

1.58

15.13

Selection of the Final 10

To select our final ten companies, we will follow a multi-step process:

  • Step 1: We will first take the top 10 names in the above table (based on total weight).
  • Step 2: Now, we will take the top 40 (based on total weight) and then sort the list based on dividend yield (highest at the top). We will take the top 10 after the sort to the final list.
  • Step 3: We will again take the top 40 (based on total weight) and sort the list based on five-year dividend growth (highest at the top). We will take the top 10 after the sort to the final list.
  • Step 4: We will again take the top 40 (based on total weight) and sort the list based on distance from 52-WK high (most negative at the top). We will take the top 10 after the sort to the final list.

From the above steps, we have a total of 40 names in our final consideration. The following stocks appeared more than once:

  • Appeared 3 times: BEN, CMA
  • Appeared 2 times: CCL, HBAN, LNC, MPLX, NTAP, PFG, PRU, VIAC, WBA

After removing 13 duplicates, we are left with 27 names. Even though BEN appeared three times, meaning it qualified in three out of four criteria, besides being a dividend aristocrat, but we dropped it due to the reason that it had negative growth for the last five years as well as negative growth estimates for the future. We also drop NTAP due to its short dividend history, company-specific headwinds, and uncertain growth going forward.

Also, since there are too many names from the financial sector, we remove LNC, BEN, PFG, DFS, and HBAN. We kept the top two, PRU and CMA. So, after these eliminations, our final list now consists of 11 stocks. Since we want to keep only 10 stocks at this stage, we introduce a bit of subjectivity at this stage and remove CCL.

Below is the list of final 10:

TABLE-2:

Ticker

Mkt Cap (in $Billions)

Div. Yield %

Last Close

52 Week High

Distance from 52WK High

Yrs Div

DGR 5

DGR 10

Ratio

S&P Credit Rating

TOTAL WEIGHT

Final Selection?

(PRU)

37.5

4.29

93.26

105.7

-11.78%

11

13.01

19.04

42.87

A

58.16

(CMA)

10.2

3.79

70.66

88.31

-19.99%

10

27.99

18.45

34.05

BBB+

57.41

YES

(GD)

52.1

2.26

180.18

192.7

-6.48%

28

10.52

10.35

35.36

A+

57.26

YES

(APD)

49.8

2.05

226

241.3

-6.34%

37

8.69

9.85

58.88

A

55.28

(VIAC)

15.5

2.32

41.45

53.51

-22.54%

9

9.86

n/a

21.00

52.81

YES

(WBA)

52.5

3.1

59.08

74.43

-20.62%

44

6.58

13.63

42.56

BBB

52.53

(CSCO)

202.1

2.94

47.63

58.05

-17.95%

9

13.27

n/a

51.47

AA-

52.41

(HD)

238.8

2.48

218.93

238.9

-8.34%

10

23.68

19.42

53.91

A

52.36

YES

(CHRW)

10.5

2.62

77.74

92.18

-15.67%

22

7.05

7.67

42.50

BBB+

51.20

(ET)

35.6

9

13.55

15.74

-13.91%

10

8.01

n/a

90.26

49.72

YES

Final Step: Narrowing Down to Just Five Companies

This step is mostly a subjective one and based solely on our perception. The readers could select any of the above 10 names according to their own choosing or as many as they like. This is how we chose five names:

  • PRU vs. CMA: They both are in the financial sector but operate in different industries. PRU operates in the insurance industry, whereas CMA is a regional bank. Each has its plus and minus. CMA is much more attractive right now on the valuation front, but investors will need to be patient on this one as it's likely to underperform in a low interest rate environment. However, the dividend appears to be safe and covered. PRU is no longer as cheap as it was just a few months ago but still is fairly valued. It has been coming at the top (or near the top) in our rating criteria for the past few months. We did select PRU in our list of five in months of September, October, and November 2019. This month, we will go with CMA.
  • GD vs. APD: GD and APD don’t have much in common, except that they both are solid companies in their respective industry/segments, and both can be good long-term investments from a DGI perspective. Incidentally, APD, which operates in the Chemical and Industrial Gases industry, is classified under the Materials sector, while GD operates in the Aerospace and Defense segment. They both provide similar dividends, but GD has a slight edge. In terms of valuation, GD is much cheaper with a forward-P/E of 15, whereas APD is kind of expensive at a forward P/E of 24. We will select GD from the valuation factor point of view.
  • VIAC, WBA, CSCO, and HD: We select VIAC and HD from this list. These four don’t have much in common. They all operate in different sectors or industry segments. WBA and CISCO provide a higher dividend of around 3%, while VIAC and HD both provide under 2.5%. We find VIAC and HD more attractive in terms of their growth potential which should translate in faster dividend growth.
  • CHRW and ET: We will select ET. One of our objectives is to aim for an average yield of 4% from this group of five stocks. To meet this goal, we normally go for at least one stock that has a higher yield but still fits our other selection criteria. Even though CHRW would be a good choice as well, but we will select ET as out high-yield pick.

The readers could certainly differ from our selections, and they may come up with their own set of five companies. Nonetheless, here's is our final list for this month:

Final List:

It goes without saying that each company comes with certain risks and concerns. Sometimes these risks are real, but other times, they may be a bit overblown and temporary.

Nonetheless, we think these five companies would form a solid group of dividend companies that would be appealing to income-seeking conservative investors, including retirees and near retirees. Our final list of five has, on average 13 years of dividend history (including one dividend-aristocrat), 16% of annualized dividend growth during the last five years, investment-grade debt rating, and trading on an average of 11% discount from their 52-week highs. Their average dividend/income (as a group) is attractive at 3.97%, which is nearly 55% higher than what it was at the beginning of 2018. Though we selected only five stocks based on several criteria, however, there are many other stocks on our extended list that may be equally appealing.

Below is a snapshot of five companies showing their current discount and dividend yield compared to the beginning of last year, i.e., January 2018.

Table-3A:

Ticker

Company name

Industry Segment

Close Price on 01/03/ 2020

52-Week High

Difference/ Discount

(CMA)

Comerica Incorporated

Financials/ Regional Bank

70.66

88.96

-20.57%

( GD)

General Dynamics Corporation

Aerospace & Defense

180.18

193.76

-7.01%

(VIAC)

ViacomCBS Inc

Communication Services/ Entertainment

41.45

53.71

-22.83%

(HD)

Home Depot Inc

Retail/ Home Improvement

218.93

239.31

-8.52%

(ET)

Energy Transfer LP

Energy Midstream - MLP

13.55

15.98

-15.21%

Average

104.95

118.35

-11.31%

Table-3B:

Ticker

Dividend Yield on 01/03/2020

Dividend Yield (Jan. 2018)

Difference in Yield (2 years)

(CMA)

3.79%

1.39%

173.6%

( GD)

2.26%

1.68%

35.1%

(VIAC)

2.32%

1.22%

90.3%

(HD)

2.48%

1.89%

31.2%

(ET)

9.00%

6.65%

35.4%

Average

3.97%

2.56%

54.88%

Conclusion

At the beginning of January 2018, the average dividend yield of these five stocks (as a group) was 2.56%. During the course of the last two years, all five of these companies have raised their dividend payouts, many of them twice. Also, the stock prices of four of these stocks have come down as well since then. If you were to buy these five companies today and invest equal amounts, you would get roughly a 3.97% (~4%) dividend, which is about 55% higher over what it was two years ago. Price wise, they are 11.3% below their 52-week highs, on an average. We believe that not much has changed with regard to the fundamentals or the quality of these companies, yet we are being offered a much higher dividend payout. So, we think that this group makes an excellent watch list for further research.

Disclosure: I am/we are long ABT, ABBV, JNJ, PFE, NVS, NVO, UNH, CL, CLX, GIS, UL, NSRGY, PG, KHC, ADM, MO, PM, BUD, KO, PEP, D, DEA, DEO, ENB, MCD, BAC, PRU, UPS, WMT, WBA, CVS, LOW, AAPL, IBM, CSCO, MSFT, INTC, T, VZ, VOD, CVX, XOM, VLO, ABB, ITW, MMM, LMT, LYB, ARCC, AWF, CHI, DNP, EVT, FFC, GOF, HCP, HQH, HTA, IIF, JPC, JPS, JRI, KYN, MAIN, NBB, NLY, NNN, O, OHI, PCI, PDI, PFF, RFI, RNP, STAG, STK, UTF, VTR, WPC, TLT. 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.

Additional disclosure: Disclaimer: The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. The author is not a financial advisor. Please always do further research and do your own due diligence before making any investments. Every effort has been made to present the data/information accurately; however, the author does not claim 100% accuracy. The stock portfolios presented here are model portfolios for demonstration purposes.