How to Identify 10 Dividend Growth Stocks to Consider Now for Free
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At any given time there are literally thousands of different dividend stocks to consider an investment in. Of course, not all of them are worthy of your hard earned money. In this article, I am going to help you develop a list of potential dividend stocks that you can add to your portfolio.
It is important to note that through this process you will not know whether the stock is worthy of investment at this time. It is to generate a list of potential investments that you can then dive into for a deeper review. Think of it like a weeding out exercise![ad#tdg-embedded]
You can see my results in the Google spreadsheet attached at the bottom of this post.
1. Start with a Broad List
For dividend stocks, this is easiest done via either the Dividend Achievers or Dividend Aristocrats lists. The former is a list of dividend stocks that have increased their dividends for at least 10 years and the later has increased dividends for at least 25 years. If you are in the hunt for dividend stocks, then these two lists are the best places to start. I have used the Dividend Aristocrats list as my starting point.
2. Enter the 5-Year and 3-Year Dividend Growth Rates
This step takes a bit of work because it is manual. However, I have done a an initial stab at the work for you in the attached spreadsheet.
I had to go out to the internet to find a dividend growth rate that I could work with. One of the best resources I have seen is the one available at the Motley Fool Caps site. Here is the link:
http://caps.fool.com/Ticker/MMM/EarningsGrowthRates.aspx?source=icasittab0000008
On the page this link takes you to is a chart that shows the dividend growth rates for 1-yr, 3-yr, and 5-yr periods. To get to the specific site for each of the stocks on the Dividend Aristocrats list, simply substitute the bolded ticker symbol in the middle of the link with the ticker symbol for each stock. The link above is for 3M. For Coca-Cola the link would become:
http://caps.fool.com/Ticker/KO/EarningsGrowthRates.aspx?source=icasittab0000008
Now enter both the 5-year and 3-year dividend growth rates into your spreadsheet.
3. Sort that list by 5-year dividend growth
The next step is to do some sorting of that broader list. I want to see a longer term trend so I like to sort by the 5-year dividend growth rate.
4. Determine if Dividend Growth is Accelerating
Now we can do one last test before developing moving on. I think that many of the best stocks to consider now are the ones that are actually increasing their rate of dividend growth. That is easily determined by comparing the 5-year and 3-year dividend growth rates. If the 5-year dividend growth rate is higher than the 3-year growth rate then we can safely say that dividend growth has been accelerating. That is a positive sign.
5. Remove all stocks with a negative EPS for any period
With just that dividend growth screen we did, we managed to take the list of stocks from 41 to 29. Not bad, but I want to see the list of stocks that I move forward with to be even smaller.
One of the easiest ways to do this is to look at another important stock analysis metric: earnings per share. Using exactly the same page we used to identify dividend growth for our list of initial companies, have a look at the EPS Growth Rate chart and record the results. If any of the growth rates are negative, mark that down as a “No”.
6. Examine the Results and Move on to Further Analysis
With this set of real quick and initial criteria I have managed to weed the list of potential stocks for our dividend watch list from 41 down to 13. This is a much more manageable list.
What we know now is that we have a list of stocks with strong dividend growth, accelerating dividend growth, and no 1-yr, 3-yr, or 5-yr periods where EPS was negative. In my opinion, that creates a good starting point for intial analysis.
Where to Now
Your next step as a dividend investor is to now really dive into each stock and do a full analysis to determine if the company is worthy of your investment. One suggestion I have for you is the book, Fire Your Stock Analyst. This is a very comprehensive book that lays out a great process for full-fledged stock research.
You are interested in dividend investing? Check out my Free Dividend Investing eBook and don't forget to sign-up to my RSS Feeds!
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9 Comments on this post
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chemkrafty said:
I am failing to understand how the 5 yr div growth being higher than the 3 yr means accelerating growth. For example, the 3 yr is looking at 2007-2009 and the 5 yr is looking at 2005-2009. For the 5 yr average to be higher, 2005 and 2006 rates must be HIGHER than the rates in later years (which are the same in both). That means you are actually lowering in growth in later years. Shouldn’t you want the 3 yr to be higher?
Am I missing something????
April 7th, 2010 at 10:07 am -
Bill said:
excellant information as previous articles
Good the Google Sheet be available in a full page
as you have done in the past for usAlso I tried the link and it does not work
Thanks
April 7th, 2010 at 9:41 pm -
David said:
Thank you for the post and the Motley Fool link. I did not know the site had that feature; it’s very useful.
Also #4 is important and something I don’t always consider – Is the dividend growth accelerating? If it’s slowing, that can certainly be a warning sign.
April 8th, 2010 at 5:01 pm -
Financial Cents said:
Nice post! I like starting with the Dividend Aristocrats as well, although I make exceptions sometimes, since not every stock that doesn’t increase its dividend every year, is worth dismissing.
I really like #3 and #4; I use those measures almost exclusively after #1, but not to a fault. Great stuff!
April 9th, 2010 at 1:49 pm -
livesinhiscar said:
chemkrafty is correct……accelerating div growth should be if the 3yr is > 5yr……author has it reversed…oops
April 11th, 2010 at 10:55 am -
Bruce said:
Thanks for the post, especially the screening criteria.
I wonder if #5 means negative EPS Growth Rate instead of negative EPS? My guess is that these companies would not have made into the list if they have any negative EPS in the past 10 to 25 years. How can they have increased dividend for over 25 years if they have negative EPS? Am I missing something?
April 11th, 2010 at 11:09 pm
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