10 Dividend Growth Stocks For May 2022

May 25, 2022 9:30 AM ETAPD, BLK, CMCSA, CSCO, HD, ITW, MA, SPY, TXN, UNP, V20 Comments45 Likes
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FerdiS
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Summary

  • This monthly series ranks a selection of dividend growth stocks in Dividend Radar and presents the ten top-ranked stocks for consideration.
  • To rank stocks, I use DVK Quality Snapshots to obtain quality scores, sort them in descending order, and break ties with additional metrics.
  • This month I'm presenting high-quality stocks with favorable Chowder numbers trading below fair value.

Golden top 10 list. 3D icon isolated

Bedrin-Alexander/iStock via Getty Images

In my monthly series, 10 Dividend Growth Stocks, I rank a selection of Dividend Radar stocks and present the ten top-ranked stocks for further research and possible investment. Dividend Radar is a weekly automatically generated spreadsheet of dividend growth stocks [DG] with dividend increase streaks of five or more years.

I use a ranking system based on DVK Quality Snapshots, which employs five widely used quality indicators from independent sources to assess the quality of DG stocks. I apply different screens every month to highlight various aspects of dividend growth investing.

This month, I decided to rank high-quality DG stocks with favorable Chowder Numbers trading below my fair value estimates. By high-quality, I mean DG stocks with quality scores in the range of 19-25

Screening and Ranking

The latest Dividend Radar (dated May 20, 2022) contains 741 DG stocks. Of these, 149 have quality scores in the range 19-25, and 285 have favorable Chowder Numbers. Given the recent market turmoil, no fewer than 617 Dividend Radar stocks are trading below my fair value estimates.

Favorable Chowder Numbers

The Chowder Number [C#] is a popular metric for screening DG stocks for possible investment. Named after a SA member with the pseudonym Chowder, the metric favors DG stocks likely to produce annualized returns of 8%. To obtain a stock's C#, you add its forward dividend yield and its 5-year dividend growth rate [DGR] together. Chowder proposed using 8 as a minimum number for utilities yielding at least 4%, 12 for stocks yielding at least 3%, and 15 for stocks yielding less than 3%. Such stocks are likely to deliver annualized returns of at least 8%.

Fair Value Estimates

I use a survey approach to estimate fair value [FV], collecting fair value estimates and price targets from several sources, including Portfolio Insight, Morningstar, and Finbox. Moreover, I estimate fair value using each stock's five-year average dividend yield. With up to 11 estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

Ranking by Quality

Only 31 DG stocks in Dividend Radar pass all three of this month's screens. I sorted these candidates in descending order by DVK quality scores and used the following tie-breakers to rank them:

  1. SSD Dividend Safety Scores
  2. S&P Credit Ratings
  3. Dividend Yield

Each stock's Rank is shown in the tables that follow.

Top 10 Dividend Growth Stocks for May

Here are this month's ten top-ranked DG stocks in rank order:

Top 10 Dividend Growth Stocks for May 2022
Tickers of ten top-ranked DG stocks for May

Created by the author

Click here to review the April Edition of 10 Dividend Growth Stocks.

I own all of these stocks in my DivGro portfolio.

The following company descriptions are my summary of company descriptions sourced from Finviz.

1. Visa (V)

Headquartered in San Francisco, California, V operates worldwide as a payments technology company. The company facilitates commerce through the transfer of value and information among consumers, merchants, financial institutions, businesses, strategic partners, and government entities. V provides its services under the Visa, Visa Electron, Interlink, V PAY, and PLUS brands.

2. Mastercard (MA)

MA, a technology company, provides transaction processing and other payment-related products and services in the United States and internationally. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MA was founded in 1966 and is headquartered in Purchase, New York.

3. Cisco Systems (CSCO)

CSCO designs, manufactures, and sells Internet protocol-based products and services. The company also delivers integrated solutions to develop and connect networks around the world. CSCO serves businesses of various sizes, public institutions, governments, and communications service providers. The company was founded in 1984 and is headquartered in San Jose, California.

4. Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors globally to electronics designers and manufacturers. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force, distributors, and its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

5. Union Pacific (UNP)

Omaha, Nebraska-based UNP operates the largest public railroad in North America, with 32,000 miles of track linking 23 states in two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of the Mexican railroad Ferromex. The company was founded in 1862.

6. Home Depot (HD)

Founded in 1978 and based in Atlanta, Georgia, HD is a home improvement retailer that sells an assortment of building materials, home improvement products, and lawn and garden products. HD provides installation, home maintenance, and professional service programs to do-it-yourself and professional customers.

7. BlackRock (BLK)

BLK is an investment management company that provides a range of investment and risk management services to institutional and retail clients across the world. The company’s offerings include single and multi-asset class portfolios investing in equities, fixed income, alternatives, and money market instruments. BLK was founded in 1988 and is based in New York City.

8. Air Products and Chemicals (APD)

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), specialty gases, and equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

9. Comcast (CMCSA)

Founded in 1963 and headquartered in Philadelphia, Pennsylvania, CMCSA is a global media and technology company. The company operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and Sky segments. CMCSA delivers broadband, wireless, and video connectivity; creates, distributes, and streams entertainment, sports, and news; and operates theme parks and resorts.

10. Illinois Tool Works (ITW)

Founded in 1912 and headquartered in Glenview, Illinois, ITW is a diversified, global company that manufactures and sells industrial products and equipment worldwide. ITW operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products.

Please note that the top ten DG stocks are candidates for further analysis, not recommendations.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

  • Yrs: years of consecutive dividend increases

  • Qual: DVK Quality Snapshots quality score

  • Fwd Yield: forward dividend yield for a recent share Price

  • 5-Avg Yield: 5-year average dividend yield

  • 5-DGR: 5-year compound annual growth rate of the dividend

  • 5-YOC: the projected yield on cost after five years of investment

  • C#: Chowder Number, a popular metric for screening dividend growth stocks

  • 5-TTR: 5-year compound trailing total returns

  • VL Safety Rank: Value Line's Safety Rank

  • VL Fin Stren: Value Line's Financial Strength ratings

  • MS Econ Moat: Morningstar's Economic Moat

  • S&P Cred Rating: S&P Global's Credit Ratings

  • SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores

  • Buy Below: my risk-adjusted buy below price

  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price

  • Price: recent share price

Color-coding

  • Ticker: highlighted for stocks I own in my DivGro portfolio

  • Qual: for color scheme, see DVK Quality Snapshots

  • Fwd Yield: green if Fwd Yield5-Avg Yield

  • 5-YOC: green if 5-YOC ≥ 4.0%, yellow if 5-YOC ≥ 2.5% (but less than 4.0%), and red if 5-YOC < 2.5%

  • C#: colored based on the likelihood of delivering annualized returns of 8%, according to the Chowder Rule: green means likely, yellow means less likely, and red means unlikely

  • Price: green if PriceBuy Below

Key metrics and fair value estimates of ten top-ranked DG stocks for May

Created by the author from a personal spreadsheet

Rank Company (Ticker) Sector Supersector
1 Visa (V) Information Technology Sensitive
2 Mastercard (MA) Information Technology Sensitive
3 Cisco Systems (CSCO) Information Technology Sensitive
4 Texas Instruments (TXN) Information Technology Sensitive
5 Union Pacific (UNP) Industrials Sensitive
6 Home Depot (HD) Consumer Discretionary Cyclical
7 BlackRock (BLK) Financials Cyclical
8 Air Products and Chemicals (APD) Materials Cyclical
9 Comcast (CMCSA) Communication Services Sensitive
10 Illinois Tool Works (ITW) Industrials Sensitive

Commentary

Here's a comparative analysis of an equal-weighted portfolio of this month's top ten DG stocks, courtesy of Finbox.com:

A comparative analysis of an equal-weighted portfolio of this month's top ten DG stocks

Finbox.com

From a price-performance perspective, the portfolio would have outperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, returning 76% versus SPY's 61%.

According to Finbox.com, all the stocks have fair value upsides, with BLK (+47%), CMCSA (+44%), and CSCO (+42%) having the highest upsides of the ten top-ranked DG stocks for May.

CSCO (3.54%), BLK (3.25%),and APD (2.73%) offer the highest forward yields and are strong candidates for Income Investors.

TXN (19.8%), MA (19.0%), and HD (18.3%) top the list of high 5-year dividend growth rates.

TXN (22), HD (21), and MA (20) have the highest C#'s.

MA (26.7%), UNP (23.4%), and TXN (21.0%) have the highest 5-year TTRs. However, if we consider the 10-year TTRs chart, we note that HD outperformed UNP. All three stocks (MA, TXN, and HD) easily outperformed SPY over the 10-year time frame:

Three top-performing stocks based on TTRs over the past 10 years, all easily topping SPY's performance over the same period

Portfolio-Insight.com

Eight stocks pass all five of my stock selection criteria for adding new positions to my DivGro portfolio:

  1. Stock Quality: Quality scores ≥ 19 (Exceptional, Excellent, or Fine ratings)
  2. Stock Valuation: Price ≤ Buy Below price (trades below my risk-adjusted Buy Below price)
  3. Growth Outlook: Green CDNs (likely to deliver annualized returns of 8%)
  4. Income Outlook: 5-year YoC ≥ 4.00% (likely to have high YoCs after 5 years of ownership)
  5. Dividend Safety: Dividend Safety Scores > 60 (dividends deemed Very Safe or Safe)

The exceptions are V and MA, which both fail criterium 4 primarily due to their very low forward yields.

I like BLK, CMCSA, and CSCO here. All three stocks are trading significantly below my risk-adjusted Buy Below prices.

BlackRock (BLK)

BLK is a Dividend Contender with a dividend increase streak of thirteen consecutive years. The stock yields 3.15% at $620 and has a strong 5-year dividend growth rate [DGR] of 13.0%.

BLK's non-GAAP EPS and dividends paid (<a href='https://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>), with stock price overlay

Portfolio-Insight.com

Although BLK's earnings and dividend growth histories are impressive, the stock's earnings payout ratio is "edging high for asset managers" (according to Simply Safe Dividends):

Earnings and Free Cash Flow Payout Ratios of BLK

Simply Safe Dividends

The company has room to continue paying and raising its dividend, likely at a low double-digit rate. With a Dividend Safety Score of 98, Simply Safe Dividends deem the dividend to be Very Safe.

Let's consider BLK's valuation.

Snapshot of BLK's valuation and key metrics, courtesy of Portfolio Insight

Portfolio-Insight.com

According to Portfolio Insight, BLK's fair value [FV] estimate is $763. The P/E and Yield-based methods of estimating FV agree that BLK is undervalued, and a one-year upside of 20% is probable.

My own FV estimate of BLK is $784. For stocks with quality scores of 23-24, I allow a premium of 5% when setting my Buy Below price, which is $825 for BLK.

My BLK position is slightly overweight by about 9 shares. I determine ideal portfolio target weights using a flexible and dynamic system that supports my investment goals.

Comcast (CMCSA)

With its dividend increase streak of fourteen consecutive years, CMCSA also is a Dividend Contender. The stock yields 2.53% at $42.71 and has a strong 5-year dividend growth rate [DGR] of 12.7%.

The stock has performed really well since CMCSA started paying dividends:

CMCSA's non-GAAP EPS and dividends paid (<a href='https://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>), with stock price overlay

Portfolio-Insight.com

While CMCSA's dividend growth is impressive, its non-GAAP earnings are a little more erratic. Nevertheless, the stock's earnings payout ratio is "low for most companies," according to Simply Safe Dividends:

Earnings and Free Cash Flow Payout Ratios of CMCSA

Simply Safe Dividends

The company has plenty of room to continue paying and raising its dividend, and the dividend is deemed Very Safe with a Dividend Safety Score of 89.

Let's consider CMCSA's valuation.

Snapshot of CMCSA's valuation and key metrics, courtesy of Portfolio Insight

Portfolio-Insight.com

According to Portfolio Insight, CMCSA's fair value [FV] estimate is $56. A one-year upside of 27% is probable, with a target price of around $55 per share. Based on the P/E FV method, CMCSA is trading within the FV range, but the stock is considered undervalued based on the Yield FV method.

My own FV estimate of CMCSA is $54, but I allow a premium of 5% when setting my Buy Below price, which is $57 for CMCSA.

My CMCSA position is underweight by about 130 shares, so I'll be looking to add more shares to my current position.

Cisco Systems (CSCO)

Having increased its dividend for twelve consecutive years, CSCO is a Dividend Contender, too. The stock yields 3.51% at $43.31 per share and has a 5-year dividend growth rate [DGR] of 9.2%.

CSCO's non-GAAP EPS and dividends paid (<a href='https://seekingalpha.com/symbol/TTM' title='Tata Motors Limited'>TTM</a>), with stock price overlay

Portfolio-Insight.com

CSCO's earnings and dividend growth histories are impressive, and the stock's earnings payout ratio is "low for most companies," according to Simply Safe Dividends.

Earnings and Free Cash Flow Payout Ratios of CSCO

Simply Safe Dividends

The company has plenty of room to continue paying and raising its dividend, most likely at low to mid-single-digit rates. With a Dividend Safety Score of 91, the dividend is deemed Very Safe by Simply Safe Dividends.

Let's consider CSCO's valuation.

Snapshot of CSCO's valuation and key metrics, courtesy of Portfolio Insight

Portfolio-Insight.com

According to Portfolio Insight, CSCO's FV estimate is $50.49. The P/E and Yield-based methods of estimating FV agree that CSCO is undervalued, and a one-year upside of 13% is probable.

My own FV estimate of CSCO is $52, but since I allow a premium of 5% for stocks with quality scores of 23-24, my Buy Below price is $55 for CSCO.

My CSCO position is underweight by about 96 shares, so I'll be looking for a good opportunity to add shares to my existing position.

Concluding Remarks

In this article, I ranked 31 Dividend Radar stocks with quality scores in the range 19-25, favorable Chowder numbers, and trading below fair value.

I own every stock in this month's top 10. I like BLK, CMCSA, and CSCO here and will consider adding shares to my CMCSA and CSCO positions as they both are underweight. My BLK position is slightly overweight so I won't be adding shares to that position at this time.

Based on your investment style, you may want to focus on the following stocks first:

  • For income investors: CSCO and BLK
  • For value investors: BLK, CMCSA, and CSCO
  • For dividend growth-oriented investors: TXN, MA, and HD
  • For very safe dividends: V, MA, and BLK

As always, I encourage readers to do their due diligence before buying any stocks I cover

Thanks for reading, and take care, everybody!

This article was written by

FerdiS profile picture
25.88K Followers
FerdiS invests in dividend growth stocks and writes options to boost dividend income. He manages DivGro, a portfolio of mainly dividend growth stocks created in January 2013. With investment and trading experience spanning nearly 20 years, FerdiS enjoys writing articles about dividend growth investing, options trading, stock selection, portfolio management, and passive income generation. His DivGro blog hosts more than 1,000 posts and a live, public spreadsheet with full details of his DivGro portfolio, allowing readers to follow along in his investment journey. FerdiS is collaborating with the founders of Portfolio Insight, an online platform for portfolio management and investment analysis. Together, we maintain and publish Dividend Radar, a free spreadsheet of dividend growth stocks, on a weekly basis.
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Disclosure: I/we have a beneficial long position in the shares of V,MA,CSCO,TXN,UNP,HD,BLK,APD,CMCSA,ITW 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.

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