I generate investment ideas from different sources.
- I look at the list of weekly dividend increases.
- I also try to identify companies for research based on my everyday spending patterns. In other words, I try to unleash my inner Peter Lynch.
- I also review the list of dividend achievers/champions/aristocrats for bargains.
- From time to time, I also try to apply different screening parameters to identify companies for further research.
Today, I decided to do just that. My screening criteria were as followed:
1) A company has increased dividends for 25 years in a row
2) A company yields at least 2% today
3) The company has a 10 year annualized dividend growth of at least 6%/year
4) The company has a 1, 3 and 5 year annualized dividend growth of at least 6%/year
|
Ticker |
Company |
Dividend Streak |
Dividend Yield |
10 year Dividend Growth |
|
AFL |
Aflac Incorporated |
40 |
2.89% |
7.94% |
|
AOS |
A. O. Smith Corporation |
28 |
2.05% |
21.60% |
|
APD |
Air Products and Chemicals, Inc. |
40 |
2.69% |
10.11% |
|
ATO |
Atmos Energy Corporation |
38 |
2.43% |
6.47% |
|
CNI |
Canadian National Railway Company |
27 |
2.06% |
11.59% |
|
CSVI |
Computer Services, Inc. |
50 |
2.92% |
16.04% |
|
ENB |
Enbridge Inc. |
26 |
6.38% |
10.48% |
|
ERIE |
Erie Indemnity Company |
32 |
2.31% |
7.23% |
|
FFMR |
First Farmers Financial
Corporation |
32 |
2.80% |
15.39% |
|
GD |
General Dynamics Corporation |
31 |
2.28% |
9.82% |
|
GRC |
The Gorman-Rupp Company |
49 |
2.40% |
8.41% |
|
ITW |
Illinois Tool Works Inc. |
47 |
2.68% |
12.89% |
|
LANC |
Lancaster Colony Corporation |
59 |
2.48% |
8.49% |
|
LOW |
Lowe's Companies, Inc. |
60 |
2.40% |
18.80% |
|
MDT |
Medtronic plc |
45 |
3.03% |
9.98% |
|
NEE |
NextEra Energy, Inc. |
28 |
2.19% |
10.84% |
|
NJR |
New Jersey Resources Corporation |
26 |
3.26% |
6.57% |
|
PEP |
PepsiCo, Inc. |
50 |
2.76% |
7.74% |
|
PH |
Parker-Hannifin Corporation |
66 |
2.16% |
10.75% |
|
PPG |
PPG Industries, Inc. |
50 |
2.06% |
7.18% |
|
PSBQ |
PSB Holdings, Inc. |
29 |
2.13% |
7.14% |
|
SJW |
SJW Group |
55 |
2.31% |
7.02% |
|
SRCE |
1st Source Corporation |
34 |
2.73% |
7.60% |
|
TGT |
Target Corporation |
55 |
3.06% |
11.13% |
|
TROW |
T. Rowe Price Group, Inc. |
36 |
4.22% |
13.29% |
|
WTRG |
Essential Utilities, Inc. |
29 |
2.34% |
7.49% |
This is a list for further research, not an automatic buy recommendation of course.
As part of my initial review, I would look at each company individually first.
I look for:
1) A minimum streak of annual dividend increases
2) Growth in earnings per share over the past decade
3) Growth in dividends per share over the past decade
4) Trends in the dividend payout ratio
5) Business model and determining if company can grow the bottom line in the future
After a business passes through these filters, I would then have to determine the right valuation to invest at.
That's the fun part, because it is dependent on various factors as well. It depends on interest rates, growth in earnings, dependability of the earnings stream, overall valuations etc. Other factors such as existing portfolio weights can also affect my decision to invest in companies. For example, I may decide against buying a stock yielding 2%, selling at a P/E of 15 and growing dividends at 7%, but may buy another stock that may appear more expensive because I want to diversify and manage risk.
You may check my analysis of General Dynamics (GD) for more information on what I look for when I review a company.
The above list was inspired by the fact that a company that yields 2% today but grows dividends at 6%/year would generate a higher dividend income over time, than a company that yields 4% today but doesn't grow dividends at more than 2% - 3%/year. This effect is particularly noticeable if you start reinvesting those dividends too. Of course, investing is the intersection between yield and growth, purchased at the right entry price too. Life is full of trade-offs, and investing and portfolio construction are not exceptions.
In my portfolio, I try to hold companies with different yield/growth characteristics. As a result, it is a mixture of:
1) Companies that have higher yield, but I expect slower dividend growth
2) Companies in the sweet spot, which have average yields but the expectation is for an average dividend growth
3) Companies that have lower yields today, but are expected to deliver higher dividend growth over time.
Relevant Articles:
- Types of dividend growth stocks
- How to value dividend stocks