7 Dividend Growth Stocks For March 2022
These high-quality Dividend Radar stocks are undervalued and may deliver annualized returns of 8% or more, according to the Chowder Rule.
In my monthly 7 Dividend Growth Stocks series, I present seven dividend growth stocks from my Dividend Radar watch list for further analysis and possible investment. I use different screens every month to highlight specific elements of dividend growth [DG] investing.
To compile this month’s candidates, I screened for undervalued stocks with Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher. Value and growth-oriented dividend investors will find some high-quality candidates worth consideration.
I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.
In case you missed previous articles in this series, here are links to them:
7 Dividend Growth Stocks For February 2022
7 Dividend Growth Stocks For January 2022
7 Dividend Growth Stocks For December 2021
7 Dividend Growth Stocks For November 2021
7 Dividend Growth Stocks For October 2021
7 Dividend Growth Stocks For September 2021
7 Dividend Growth Stocks For August 2021
Screening and Ranking
For this month’s article, I used the following screens:
High-quality stocks (DVK Quality Scores of 19-25)
Discounted by at least 3% relative to my fair value [FV] estimate
Stocks likely or somewhat likely to deliver annualized returns of at least 8%
I use a survey approach to estimate FV, collecting fair value estimates and price targets from several sources, including Portfolio Insight, Morningstar, and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With up to eleven 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.
The latest Dividend Radar (dated March 25, 2022) contains 750 stocks. Of these, 159 are high-quality DG stocks with quality scores in the range of 19-25. Moreover, 217 stocks yield at least 3% and 330 are discounted by at least 3% relative to my FV estimate. Furthermore, 517 are likely or somewhat likely to deliver annualized returns of at least 8%, according to the Chowder Rule (see below).
Only 35 stocks pass all three screens.
I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:
Forward Dividend Yield
The Chowder Rule
The so-called Chowder Rule postulates that DG stocks with a certain mix of forward dividend yield and 5-year dividend growth rate [DGR] likely will deliver annualized returns of at least 8%.
Specifically, we determine the C# by adding a stock’s forward dividend yield to its 5-year DGR. Stocks likely will deliver annualized returns of at least 8% if the following conditions hold:
For stocks yielding less than 3%: C# ≥ 15
For stocks yielding at least 3%: C# ≥ 12
For utilities yielding at least 4%: C# ≥ 8
I use a somewhat nuanced version of the Chowder Rule, color-coding cells in my spreadsheets according to the likelihood of delivering annualized returns of at least 8%:
Green indicates stocks likely to deliver annualized returns of 8%
Yellow indicates stocks are somewhat likely to deliver annualized returns of 8%
Red indicates stocks are unlikely to deliver annualized returns of 8%
To differentiate between yellow and red candidates, I use the following C# thresholds:
For stocks yielding less than 3%: red < 10 ≤ yellow < 15 ≤ green
For stocks yielding at least 3%: red < 8 ≤ yellow < 12 ≤ green
For utilities yielding at least 4%: red < 5 ≤ yellow < 5 ≤ green
For this month’s article, I allowed only green and yellow C#’s.
7 Top-Ranked Dividend Growth Stocks for March
Here are top-ranked dividend growth stocks that passed this month’s screens:
I own all of these stocks in my DivGro portfolio.
Below, I provide a table with key metrics of interest to dividend growth investors:
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
The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.
Next, let's look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.
Note that the valuations below from Portfolio Insight differ from my risk-adjusted Buy Below prices because I allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.
Visa Inc (V)
Headquartered in San Francisco, California, V operates as a payments technology company worldwide. 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.
V is rated Exceptional (quality score: 25) and its payout ratio is “very low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, V has a 1-year upside of 35%. Given its discount of 15% relative to my Buy Below price, I believe the stock is suitable for both value and growth-oriented dividend investors.
Merck & Co, Inc (MRK)
Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.
MRK is rated Excellent (quality score: 23-24) and its payout ratio is “low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, MRK has a 1-year upside of 17%. MRK’s discount of 17% relative and forward yield of 3.39% make the stock suitable for value and income-oriented dividend investors.
Mastercard Incorporated (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.
MA is rated Excellent (quality score: 23-24) and its payout ratio is “very low for most companies”, according to Simply Safe Dividends. According to Portfolio Insight, MA has a 1-year upside of 42%. Given its discount of 10% relative to my Buy Below price, the stock should be attractive to both value and growth-oriented dividend investors.