Dividend Strategists Rewind: 7 Dividend Growth Stocks For January 2022
The latest dividend news, strategies and investing ideas.
My monthly 7 Dividend Growth Stocks series present seven high-quality dividend growth stocks for further analysis and possible investment.
I apply different screens every month to narrow down my watch list of more than 700 dividend growth stocks, Dividend Radar. Changing the screens from month to month highlights various aspects of dividend growth [DG] investing. For example, income investors prefer higher-yielding stocks, growth-oriented investors favor higher DG rates, and value investors look for deep discounts.
I screened for discounted stocks yielding at least 3% to compile this month’s candidates. I also required stocks to have Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher.
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:
About the Chowder Rule
The Chowder Number (C#) is a popular growth-oriented metric for screening DG stocks for possible investment. Named for Seeking Alpha author Chowder, the metric favors DG stocks likely to produce annualized returns of at least 8%.
To obtain the C#, you sum a stock’s forward dividend yield and five-year annual dividend growth rate.
Chowder required a C# of 8 for utilities yielding at least 4%, a C# of 12 for stocks yielding at least 3%, and a C# of 15 for stocks yielding less than 3%. According to the Chowder Rule, such stocks are likely to deliver annualized returns of at least 8%.
I've added a C# column to my spreadsheets and color-code cells as follows:
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 5 as the threshold for utilities yielding at least 4%, 8 for stocks yielding at least 3%, and 10 for stocks yielding less than 3%. Specifically:
For utilities yielding at least 4%: red < 5 ≤ yellow < 5 ≤ green
For stocks yielding at least 3%: red < 8 ≤ yellow < 12 ≤ green
For stocks yielding less than 3%: red < 10 ≤ yellow < 15 ≤ green
Screening and Ranking
For this month’s article, I used the following screens:
Investment Grade stocks (DVK Quality Scores of 15-25)
Forward Dividend Yield is at least 3.0%
Stocks likely or somewhat likely to deliver annualized returns of at least 8%
Current share price is below my fair value [FV] estimate
I use a survey approach to estimate FV, collecting fair value estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. 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 December 14, 2022) contains 709 stocks. Of these, 158 are Investment Grade, 166 yields at least 3%, and 315 are discounted. Furthermore, 477 are likely or somewhat likely to deliver annualized returns of at least 8%. Only 35 stocks pass all four 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
7 Top-Ranked Dividend Growth Stocks for January
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
My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks.
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.
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.
Lockheed Martin Corporation (LMT)
Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.
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Also read:
Top 7 Dividend Growth Stocks Picks For 2022
8 Best Defensive Dividend Growth Stocks
4 High Yield Closed-End Funds For Your Income Portfolio
2 Dividend Stocks On My Buy List
Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making
18 Dividend Stocks To Consider For The Next Decade