In my monthly series of 10 Dividend Growth Stocks, I rank a selection of dividend growth [DG] stocks in Dividend Radar and present the 10 top-ranked stocks for consideration. Dividend Radar, a weekly automatically generated spreadsheet listing stocks with dividend increase streaks of five years or more.
This month I decided to rank investment-grade DG stocks with a current dividend yield of a least 10% above the 5-year average dividend yield. Additionally, I screened for stocks with yields of at least 3% or with favorable Chowder Numbers [CDNs]. The CDN of a DG stock is the sum of its yield and 5-year dividend growth rate. These metrics are provided by Portfolio Insight.
I use DVK Quality Snapshots to assess the quality of DG stocks and break ties in quality scores by considering additional metrics. Stocks with quality scores of 15 or higher are considered to be investment-grade stocks.
Screening and Ranking
The latest Dividend Radar list (dated August 7, 2020) contains 762 stocks.
The first screen I applied looked for investment-grade DG stocks with a current dividend yield at least 10% above the 5-year average dividend yield.
Why is this screen interesting? Well, if a stock's current dividend yield is higher than its 5-year average dividend yield, then the stock likely is undervalued.
Of the 762 DG stocks in Dividend Radar, 141 stocks qualified.
The second screen I applied considered stocks yielding at least 3% or stocks with favorable CDNs. I consider stocks that are likely to deliver annualized returns of at least 8%, favorable. For stocks yielding less than 3%, a CDN of 15 or higher is required. Stocks that yield at least 3% require a CDN of at least 12. Utilities get a special dispensation if they yield more than 4%. In that case, the CDN only needs to equal 8 or higher.
