In my monthly series, 10 Dividend Growth Stocks, I present ten picks from Dividend Radar for further analysis and possible investment. Every month, I use different screens to highlight various aspects of Dividend Growth [DG] investing. For example, value investors look for discounted stocks, and income investors look for high-yielding stocks.
Last week, I ranked the 64 Dividend Aristocrats and provided a downloadable spreadsheet with fundamental and added value data of all 64 stocks, courtesy of Portfolio Insight.
The Dividend Aristocrats is an elite list of companies in the S&P 500 that have paid higher dividends every year for at least 25 consecutive years. But there's another list of stocks with dividend increase streaks of at least 25 years, the Dividend Champions. Dividend Radar currently contains 130 Dividend Champions.
This month, I decided to screen for discounted Investment-Grade Dividend Champions with Very Safe dividends and good income and growth prospects. Each stock is discounted based on my fair value [FV] estimate, trades below my risk-adjusted Buy Below price, and has a forward yield that tops the stock's 5-year average yield.
I usually rank candidates using the quality scores obtained from DVK Quality Snapshots.
Here are this month's screens:
My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:
My Buy Below prices recognize that the highest-quality stocks rarely trade at discounted valuations. As a dividend growth investor with a long-term investment horizon, I'm more interested in owning quality stocks than getting a bargain on lower-quality stocks.
To estimate FV, I use a survey approach by collecting fair value estimates and price targets from several online sources, including Portfolio Insight, Morningstar, and Finbox. Additionally, I estimate FV by dividing each stock's annualized dividend by its historical 5-year average dividend yield. With as many as 11 available estimates per stock, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate. Averaging the mean (average) and median (middle value) helps to adjust for skewness in the surveyed estimates.
The latest Dividend Radar (dated June 3, 2022) contains 738 stocks. Of these, 101 stocks are Investment-Grade Dividend Champions, 82 have Very Safe dividends, 42 have good income prospects, and 17 have good growth prospects.
Only 14 stocks pass all these screens and are trading at discounted valuations.
I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:
I rarely need to use the forward dividend yield in my ranking process.
Here are this month's ten top-ranked DG stocks in rank order:
Top 10 Dividend Growth Stocks for June 2022
Click here to review the May Edition of 10 Dividend Growth Stocks.
I own all of the highlighted stocks in my DivGro portfolio.
The following company descriptions are my summary of company descriptions sourced from Finviz.
MDT manufactures and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group, and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.
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, advanced coatings, and adhesives.
HRL is a multinational manufacturer and marketer of consumer-branded food and meat products. The company sells its products through sales personnel, as well as through independent brokers and distributors. Customers include retailers, hospitals, nursing homes, and marketers of nutritional products. HRL was founded in 1891 and is based in Austin, Minnesota.
CNI was founded in 1922 and is headquartered in Montreal, Canada. The company operates the largest railroad in Canada and the only coast-to-coast railroad in North America. CNI offers transportation services that include rail, intermodal container, and trucking services. It also provides warehousing and distribution, logistics parks, freight forwarding, customs brokerage services, industrial development, and marine services.
Founded in 1906 and headquartered in Dallas, Texas, ATO and its subsidiaries are engaged in the distribution, transmission, and storage of natural gas in the United States. The company delivers natural gas to residential, commercial, public authority, and industrial customers in nine states in the southern USA. ATO also operates intrastate gas pipelines in Texas.
Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios and through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.
LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also provides installation services through independent contractors and extended protection plans, and repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina.
PPG manufactures and distributes a variety of coatings, specialty materials, and glass products. The company's Performance Coatings segment provides light industrial and specialty coatings, protective and marine coatings and finishes, and sealants. The company also operates in two additional segments: Industrial Coatings and Glass. PPG was founded in 1883 and headquartered in Pittsburgh, Pennsylvania.
Using advanced technologies in natural and synthetic fibers, non-wovens, and absorbency, KMB manufactures a range of personal care, consumer tissue, and professional products. Brands include Huggies, Kleenex, Scott, and Cottonelle. The company sells its products directly to retail outlets and through e-commerce. KMB was founded in 1872 and is headquartered in Dallas, Texas.
Founded in 1929 and based in San Dimas, California, AWR provides water and electric services to residential and industrial customers in California through a holding company, Golden State Water Company. AWR provides water and wastewater services to military installations in the United States through American States Utility Services, another holding company.
Please note that the top ten DG stocks are candidates for further analysis, not recommendations.
Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:
|1||Medtronic plc (MDT)||Health Care||Defensive|
|2||Air Products and Chemicals (APD)||Materials||Cyclical|
|3||Hormel Foods (HRL)||Consumer Staples||Defensive|
|4||Canadian National Railway (CNI)||Industrials||Sensitive|
|5||Atmos Energy (ATO)||Utilities||Defensive|
|6||T. Rowe Price (TROW)||Financials||Cyclical|
|7||Lowe's (LOW)||Consumer Discretionary||Cyclical|
|8||PPG Industries (PPG)||Materials||Cyclical|
|9||Kimberly-Clark (KMB)||Consumer Staples||Defensive|
|10||American States Water (AWR)||Utilities||Defensive|
Here's a comparative analysis of an equal-weighted portfolio of this month's top ten DG stocks, courtesy of Finbox:
From a price-performance perspective, the portfolio would have underperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, returning 51% versus SPY's 70%. Collectively, the stocks have a fair value upside of 15.5%, according to Finbox.
Last December, I reworked my system for determining target weights for DivGro. The system is dynamic and flexible and allows me to calibrate factors when my goals change. Following is a chart showing the current and target weights of dividend-paying stocks in DivGro:
I have a spreadsheet that calculates the current weight of each position in my portfolio. Given the target weight as calculated above, I can quickly determine whether I need to buy or sell shares to move a position to its target weight. I use the current stock price to determine the exact number of shares I would need to buy or sell to reach the target weight.
Here's a table showing the current situation for this month's stocks:
My ATO and LOW positions are overweight, while the remaining positions are underweight.
I don't own shares of PPG and KMB, and I'm not interested in these stocks right now.
I don't like trimming positions to bring them back into "compliance," especially for positions in my taxable account. Instead, I favor buying more shares of underweight positions to fill any gaps from below.
APD and MDT are the most underweight positions in my portfolio. I'll look for good opportunities to add some shares.
In this article, I ranked 14 discounted investment-grade Dividend Champions stocks with Very Safe dividends and good income and growth prospects.
I own all except two of the stocks in this month's top 10. Neither PPG nor KMB interests me at this time.
I'm considering adding shares to APD and MDT, as both are underweight in my portfolio.
Based on your investment style, you may want to focus on the following stocks first:
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
Disclosure: I/we have a beneficial long position in the shares of MDT, APD, HRL, CNI, ATO, TROW, LOW, AWR 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.