Top Dividend Growth Stocks

[Kerim]

I’m happy to share my top 10 dividend growth stocks, but I have to preface with a ton of caveats:

• I’m just a guy. I have no training or expertise in this stuff whatsoever. Take me seriously at your own peril.
  
• This is only a WATCH LIST. A jumping off point for further thought and research.
  
• You would laugh your butt off if you saw the inner workings of my rating system.
  
• On top of its crudeness, it omits lots of important things, like balance sheet information. That is stuff I research when I get closer to actually making a purchase.
  
• My universe of stocks is extremely small – at present there are only 29 companies that I am watching. So these are MERELY to top 10 of those 29.
  
• I update my data for each underlying stock haphazardly. For example, I haven’t bothered to update my numbers for SO since May.

Ok, with all of that out of the way, here they are, as of 11/13/13:

Ticker -- Score (out of 100)
1. AFL -- 78
2. PM -- 75
3. MO -- 73
4. COP -- 72
5. DE -- 72
6. XOM -- 70
7. WFC -- 68
8. CSCO -- 67
9. MSFT -- 65
10. LMT -- 64

Would love to see other folks' top 5 or 10 lists. Also, would love input as to which stocks I should add to my watch list universe of 29.

[fiveoh]

You may have posted it somewhere else, but what are your ranking criteria?

[EricL]

(11-13-2013, 08:34 PM)Kerim Wrote: Ticker -- Score (out of 100)
1. AFL -- 78
2. PM -- 75
3. MO -- 73
4. COP -- 72
5. DE -- 72
6. XOM -- 70
7. WFC -- 68
8. CSCO -- 67
9. MSFT -- 65
10. LMT -- 64

I'm long all but XOM and CSCO on your list and have been eyeing CSCO myself. I'd be interested to see what metrics you use to rank them. Its always good to see how others think on potential investments.

Some others to consider could be APPL, BAX, TGT, WMT, IBM, PSX and CVX at current prices.

[Kerim]

Ok, don’t laugh, but here is a rough description of my system:

Dividend streak is worth a possible 20 points.
Current yield is worth a possible 20 points.
Payout ratio is worth a possible 15 points.
P/E ratio is worth a possible 15 points.
Earnings growth is worth a possible 10 points.
Dividend growth is worth a possible 10 points.
Simplicity of business model / Brand / Moat is worth a possible 10 points.

Within each category, I do some mumbo-jumbo to decide how many out of the total possible points it gets. For example, I use a blended P/E ratio (average of the current price divided by 2012 earnings, ttm earnings, and forecast 2013 earnings), and then have a scale for assigning points (zero points if P/E is over 20, a few points if P/E is between 16 and 20, and so on, with highest points going to P/Es in the 10 to 12 range). Similar schemes for the other metrics.

The last category is discretionary really. A company like KO gets 9 or 10, while banks and tech companies get much lower scores in that category.

I am planning to tweak the scoring system a bit – I think the most glaring problem with it is too much emphasis on current yield and not enough on dividend growth. But I am hesitant to change it because I like seeing how the companies rise and fall over time, and changing the scoring would require a reset. Still, I’ll probably do it at some point.

I said right up front that it is crude, but again, it is just a way for me to keep track of these companies and decide when a deeper dive is warranted. I would not invest on these metrics alone.

[Kerim]

(11-13-2013, 10:45 PM)EricL Wrote: Some others to consider could be APPL, BAX, TGT, WMT, IBM, PSX and CVX at current prices.

AAPL, TGT, and PSX are all on my list (but not in the top 10 at the moment). BAX and IBM will be added someday. Unlikely to bother scrutinizing WMT or CVX as my job prohibits me from owning shares in those.

[EricL]

(11-13-2013, 11:15 PM)Kerim Wrote: Ok, don’t laugh, but here is a rough description of my system:

Dividend streak is worth a possible 20 points.
Current yield is worth a possible 20 points.
Payout ratio is worth a possible 15 points.
P/E ratio is worth a possible 15 points.
Earnings growth is worth a possible 10 points.
Dividend growth is worth a possible 10 points.
Simplicity of business model / Brand / Moat is worth a possible 10 points.

Within each category, I do some mumbo-jumbo to decide how many out of the total possible points it gets. For example, I use a blended P/E ratio (average of the current price divided by 2012 earnings, ttm earnings, and forecast 2013 earnings), and then have a scale for assigning points (zero points if P/E is over 20, a few points if P/E is between 16 and 20, and so on, with highest points going to P/Es in the 10 to 12 range). Similar schemes for the other metrics.

The last category is discretionary really. A company like KO gets 9 or 10, while banks and tech companies get much lower scores in that category.

I am planning to tweak the scoring system a bit – I think the most glaring problem with it is too much emphasis on current yield and not enough on dividend growth. But I am hesitant to change it because I like seeing how the companies rise and fall over time, and changing the scoring would require a reset. Still, I’ll probably do it at some point.

I said right up front that it is crude, but again, it is just a way for me to keep track of these companies and decide when a deeper dive is warranted. I would not invest on these metrics alone.

I like it.

I personally don't have a quantitative scoring system like this but I look at much of the same metrics. Some other things I like to look at are return on equity, debt levels, and free cash flow/market cap.

I may have to do some playing around with a spreadsheet and see if I can come up with a scoring system as well =).

[fiveoh]

Not a bad system.

Currently I'm watching DE, CVX, PSX, T. If I didn't already own large positions in AAPL and AFL I would be looking at them as well.

I just eased into a small DE position last week and will buy some more if it drops. I really think we are due for an overall correction so I don't want to put too much money to work at the moment.... although I thought this in Feb of this year as well and look what happened.

[ChadR]

I like your rating system. I've never put a system on what my next purchase should be. I do like PM as it's my largest holding.

[cannew]

I have broken my analysis into two parts:

1. Develop a list of stocks which meet my criteria as a good long term dividend growth stock. My number is 20 to 30 max.

- History of dividend payments, min 10 years, most 25 years
- History of dividend growth, 8 of last 10 years, most 20 of 25 years
- Size and stability of the company (ones which I believe will be just as strong in 25 years)
- Find companies in at least five sectors (don't care if all sectors are not covered)
- Yield must be near 3% or higher, would consider less if the dividend growth history is good
- If I was young I'd want companies which offer DRIP & Share Purchase Plans
- Avoid cyclical companies or one's that have not grown the dividend regularly.
* I do even less number analysis the Kerim (no p/e, book value, price to book, 200 day average, BS, IS, Cash flow).

2. Monitor and buy only stocks from the list when they are value priced.

- Compare current price to my Average Cost
- Compare current yield to my overall yield
- Compare current price to a buy price I maintain for each stock
- Watch market conditions to see if a correction is expected, then wait to buy
- Re-invest all dividends.

Rule: “It’s not which stock to buy from my list, but the price I am able to buy it at.”

Example: I believe GE should have been on most dividend growth lists. But in June 2009 it cut the dividend from .31 to .10 cents and it's average price dropped from $35 to $12. Therefore if I still believed in the company at that time, I would have bought more shares during its low $7 to $12 (thereby reducing average cost). The price is up to $27 while the dividend is up to 19 cents.

PG, JNJ & WMT would be on my list as well.

[ChadR]

Not sure that I follow your rule on having a dividend history longer than 25 years. So PG isn't on your list since their dividend history and dividend growth history is longer than 25 years? And will you sell a company that hits a 26 year history that you currently own? It's late so I could be reading your list wrong.

[cannew]

(11-18-2013, 10:51 PM)ChadR Wrote: Not sure that I follow your rule on having a dividend history longer than 25 years. So PG isn't on your list since their dividend history and dividend growth history is longer than 25 years? And will you sell a company that hits a 26 year history that you currently own? It's late so I could be reading your list wrong.

My criteria is: MUST have paid a dividend for at least 10 yrs, while most of what I own have paid for 25 yrs or longer.

Said that PG, JNJ & WMT would be ON my list.

[ChadR]

Thanks. I read it wrong. I was thinking that you only wanted 10-25 year dividend payers. Thanks for the claification.