Dividend Growth Stock Watchlist - January 2022
Summary
- There are 23 stocks on my dividend growth watchlist for January 2022.
- Six of the stocks on my watchlist are currently undervalued based on dividend yield theory.
- An equally-weighted portfolio of these stocks would have outperformed the Vanguard Dividend Appreciation ETF by nearly 10% during 2021.
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Dividend Growth Watchlist Criteria
The companies listed on this watchlist are stable with a track record of raising their dividends consistently. Each of the companies listed below has a market cap of at least $20 billion. The company must also have a "Wide" economic moat, according to Morningstar. This ensures a company I consider for investment has a sustainable competitive advantage for the foreseeable future. An S&P Capital IQ Earnings and Dividend Ranking of A or A+ helps to establish the company has achieved and should continue to achieve lower price volatility when compared to the broader market.
Next, since this is a dividend growth watchlist, it would logically make sense to measure a company's dividend growth. In this case, a company needs to have a 10-year dividend growth rate of 7% or greater to ensure growth in the dividend itself, in addition to being a quality company. The company should have room to grow their dividend too, so a payout ratio of 50% or less is used as the final filter.
I use the dividend yield theory to determine if a stock is potentially overvalued or undervalued. This idea suggests a company's yield will revert to the norm over time. An example below is General Dynamics (GD); the current yield is 2.28% while its five-year average is just 2.16%. The difference being 12 basis points or about 6%, which suggests it could be undervalued.
| Company | 10 Year DGR | Dividend Yield (12/31/21) | Div. Yield(5 Yr Avg.) | Overvalued/ Undervalued |
| Accenture PLC (ACN) | 14.61% | 0.94% | 1.46% | 36% |
| Applied Materials Inc (AMAT) | 11.49% | 0.61% | 1.22% | 50% |
| Bank of New York Mellon Corp (BK) | 13.16% | 2.34% | 2.12% | -10% |
| BlackRock Inc (BLK) | 13.76% | 1.80% | 2.41% | 25% |
| Comcast Corp (CMCSA) | 17.15% | 1.99% | 1.80% | -11% |
| Costco Wholesale Corp (COST) | 12.50% | 0.56% | 0.85% | 34% |
| CSX Corp (CSX) | 12.28% | 0.99% | 1.46% | 32% |
| Ecolab Inc (ECL) | 11.38% | 0.87% | 1.05% | 17% |
| Expeditors International of Washington Inc (EXPD) | 10.03% | 0.86% | 1.30% | 34% |
| General Dynamics Corp (GD) | 9.91% | 2.28% | 2.16% | -6% |
| Home Depot Inc (HD) | 20.30% | 1.59% | 2.11% | 25% |
| Hershey Co (HSY) | 9.44% | 1.86% | 2.25% | 17% |
| Lockheed Martin Corp (LMT) | 14.02% | 3.15% | 2.65% | -19% |
| Lowe's Companies Inc (LOW) | 18.28% | 1.24% | 1.63% | 24% |
| Mastercard Inc (MA) | 38.83% | 0.55% | 0.55% | 0% |
| McCormick & Company Inc (MKC) | 9.08% | 1.53% | 1.56% | 2% |
| Northrop Grumman Corp (NOC) | 11.91% | 1.62% | 1.61% | -1% |
| Roper Technologies Inc (ROP) | 17.90% | 0.50% | 0.56% | 11% |
| Charles Schwab Corp (SCHW) | 11.61% | 0.86% | 1.04% | 17% |
| T Rowe Price Group Inc (TROW) | 12.79% | 2.20% | 2.59% | 15% |
| US Bancorp (USB) | 23.72% | 3.28% | 2.63% | -25% |
| Visa Inc (V) | 13.41% | 0.69% | 0.59% | -17% |
| West Pharmaceutical Services Inc (WST) | 7.18% | 0.15% | 0.47% | 68% |
Goal
The goal of my dividend growth watchlist is to discover companies to add to my dividend growth portfolio in an attempt to consistently exceed the market return of the Vanguard Dividend Appreciation ETF (VIG). During 2021, an equally weighted portfolio of these 23 stocks mentioned above would have outperformed the VIG by nearly 10%. VIG gained 23.77% during 2021, while the stocks above returned 33.66%.
| Symbol | December | YTD Return through Dec. |
| ACN | 15.99% | 60.66% |
| AMAT | 6.91% | 83.61% |
| BK | 6.00% | 40.54% |
| BLK | 1.68% | 29.41% |
| CMCSA | 0.70% | -2.22% |
| COST | 5.25% | 51.81% |
| CSX | 8.48% | 25.70% |
| ECL | 6.16% | 9.39% |
| EXPD | 10.42% | 42.52% |
| GD | 10.32% | 43.74% |
| HD | 4.02% | 59.50% |
| HSY | 9.00% | 29.55% |
| LMT | 6.63% | 3.19% |
| LOW | 5.68% | 63.33% |
| MA | 14.10% | 1.16% |
| MKC | 13.01% | 2.68% |
| NOC | 10.97% | 28.76% |
| ROP | 5.97% | 14.68% |
| SCHW | 8.67% | 60.21% |
| TROW | -1.11% | 34.88% |
| USB | 2.33% | 24.31% |
| V | 11.84% | -0.32% |
| WST | 5.95% | 65.88% |
| VIG | 6.52% | 23.77% |
Top 2 Stocks
The best-performing stock on the watchlist was Applied Materials Inc. (AMAT) which saw its stock rise more than 83% in 2021. AMAT's 10 year dividend growth rate is 11.49% which is solid but does trail the watchlist average of 15.01%. Lastly, Applied Materials does have one of the lower dividend yields on the watchlist at just 0.61%; however, it also has the second lowest payout ratio on the watchlist at 14.45%, leaving ample room for it to grow its dividend.
The second best-performing stock on the watchlist is West Pharmaceutical Services Inc. (WST) appreciating nearly 66% during 2021. Similar to Applied Materials, WST has an extremely low dividend yield at 0.15%; however, it also has the lowest payout ratio at 8.20%, also leaving plenty of room for future dividend growth.
| 2021 Returns by Month | AMAT | WST | VIG |
| January | 12.03% | 5.77% | -2.92% |
| February | 22.47% | -6.29% | 1.58% |
| March | 13.04% | 0.40% | 6.03% |
| April | -0.67% | 16.65% | 4.03% |
| May | 4.27% | 5.78% | 1.76% |
| June | 3.09% | 3.34% | -0.14% |
| July | -1.73% | 14.71% | 3.18% |
| August | -3.26% | 9.69% | 1.67% |
| September | -4.74% | -6.00% | -4.99% |
| October | 6.15% | 1.26% | 6.93% |
| November | 7.89% | 3.02% | -1.38% |
| December | 6.91% | 5.95% | 6.52% |
Final Thoughts
This dividend growth watchlist is used to identify companies worthy of further research. Stock prices fluctuate continuously, and although there are legitimate reasons for a price increase or decrease, occasionally there are times the market is just overreacting to a short-term issue. I believe if you can identify the reason(s) and determine for yourself if a decline in stock price is justified, you can minimize risk in your portfolio by purchasing a company's stock when their yield is higher than average.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of COST, GD, HD, MA, V either through stock ownership, options, or other derivatives. 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.
The above-mentioned information should not be construed as investment advice. Every investor's situation is different and you should only invest in a company after doing your own due diligence.
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