How about we help you narrow your research and focus on high-quality stocks? The Dividend Rock Star lists companies with solid metrics and robust business models.
What’s a Dividend Rock Star
A Dividend Rock Star is a company that shows a DSR PRO Rating and a Dividend Safety Score minimum of 3. This ensures a certain level of quality while not discarding too many stocks because of a different perception only. I have included my interpretation of these ratings below.
Then, a positive Dividend Triangle was added. This means positive Revenue Growth, Earnings Per Share Growth, and Dividend Growth over the past 5 years. Investors will avoid most dividend cutters and sleep well at night.
Finally, to help you identify strong dividend growers, I applied a Chowder Rule of a minimum of 8. This rule identifies a robust growth dividend stock by adding the dividend yield (we use the forward dividend yield) and the 5-year CAGR dividend growth.
For example, targeting a Chowder score of a minimum of 9-12% (where the yield and the dividend growth could replace each other). Therefore, if you have a higher yield (let us say 5%), you may accept this company offering a 4% dividend growth rate to have a Chowder score of 9%. If you have a yield of 7%, you should request a 5-year dividend growth rate of a minimum of 2%.
PRO Rating Score
This rating gives you a score from 1 to 5 “stars” that can be interpreted as follows:
- 5 = Exceptional Buy – Everything is there; a robust business model, several growth vectors and an undervalued price.
- 4 = Buy – It’s a good company; the short-term upside is good but not flabbergasting.
- 3 = Hold – A classic “right company at the right price”.
- 2 = Sell – If we were you, we would seriously consider getting rid of this one.
- 1 = Screaming Sell – Enough said.
Dividend Safety Score
This score, from 1 to 5, tells you which kind of dividend policy you should expect. It can be interpreted as follows:
- 5 = Stellar dividend – Past, present, and future dividend growth perspectives are marvelous.
- 4 = Good dividend – The company shows sustainable dividend growth perspectives.
- 3 = Decent dividend – Don’t expect more than a 3-5% dividend growth.
- 2 = Dividend is safe but – Not likely to increase this year. May suffer from a dividend cut.
- 1 = Dividend Trash – It has been cut, or this situation is not sustainable.
If you’re still unsure about what’s a Dividend Rock Star, here’s a podcast episode to help your understanding.
Download the Dividend Rock Star List
The list is updated monthly.
After subscribing to our mailing list, you will receive an exclusive link to download the Dividend Rock Star List which includes the following metrics:
- Symbol
- Company Name
- Market
- Sector
- PRO Rating
- Dividend Safety Score
- Current Price
- DDM
- Dividend Yield Fwd
- 5 yr. EPS growth
- 5 yr. Revenue growth
- 5 yr. Dividend growth
- Payout ratio
- Cash Payout ratio
- P/E ratio
- DSR Favorite (yes or no)
- 5 yr. Dividend Yield
Financial data is updated monthly, but I suggest you download it every quarter after all companies have reported their earnings (and hopefully have announced dividend increases!).
How to Pick the Right Rock Star for Your Portfolio
There are myriads of investing studies showing that dividend growth stocks usually outperform the stock market. Those companies won’t let you down during the next recession and will likely recover faster upon a market correction. I’m not the one saying this, even Vanguard established that dividend growers outperform the market with less volatility.
However, this doesn’t mean that because you pick a dividend grower for your portfolio, it will do well. The Dividend Rock Star List shows over 300 stocks.
That said, a broad diversification to search into is an advantage. Having to select dividend growth stocks from amongst a list of over 300 candidates is a luxury. You’ll find companies offering yields as low as 0.50% and as high as 10%.
The key to picking the best dividend growers from that long list is to cross reference your results with the dividend triangle (revenue growth, earnings growth and dividend growth).
My exclusive list includes 5-year annualized metrics for all revenue, EPS and dividend growth. This will allow you to select holdings showing a great combination of all three metrics. You can read more about the dividend triangle here.
A Quick Note on Sector Allocation
The list also covers all sectors. Sector allocation is a key component in a sound investment strategy. But how many should an investor hold? And which ones?
Since I focus on total return and long-term growth, I will pick more companies in tech, industrials and consumer discretionary sectors. If you are looking to generate income, Health Care, Utilities, Communication Services and Financials (along with REITs) would possibly be better options.
You can find more information about sector allocation here.
You can download the Dividend Rock Star List here:
Best Opportunities from the Dividend Rock Star List [Podcast]
My Top 3 Dividend Rock Stars
If I had to list all the dividend rock stars in my portfolio, this article would be too long. Therefore, I decided to share with you 3 of my favorites.
Apple (AAPL)
There is continued interest among consumers in premium products. AAPL’s first growth vector remains its iPhone. It also sees double-digit growth in its Services division, which generates higher margins; services such as Apple Pay, Apple Music and Apple TV represent just the tip of the iceberg. The company reported record sales ($20B+) for this segment in Q1 2023.
As more iPhones are purchased, their users are inclined to purchase the services related to them. The company recently reported it crossed the 2B active devices mark in early 2023. Apple’s iPhones and IOS are beloved by customers and are a symbol of stability and security in terms of technology. Management has become increasingly shareholder-friendly, as evidenced by strong dividend growth and massive share buybacks. AAPL is among the rare companies that don’t need to be first movers in a new market. It has the cash flow and expertise to develop products and gain market shares once the market is developed (think of the Apple Watch’s success).
Alimentation Couche-Tard (ATD.TO)
In the long term, dividend payouts should grow in the double digits, and investors should see strong stock price growth. ATD’s potential is directly linked to its capacity to acquire and integrate additional convenience stores. Management has proven its ability to pay the right price and generate synergies for each acquisition. ATD exhibits a solid combination of the dividend triangle: revenue, EPS, and strong dividend growth. The company counts on multiple organic growth vectors such as Fresh Food Fast, pricing & promotion, assortment, cost optimization and network development. In their latest quarter, ATD also announced the firm’s offer to acquire 2,193 stores from TotalEnergies for €3.1B (100% of retail assets in Germany and the Netherlands as well as a 60% controlling interest in the Belgium and Luxembourg entities). This will significantly expand its exposure to the European market and grow its total convenience stores above 16,000 across the world.
Canadian National Railway (CNR.TO / CNI)
CNR has been known for being the “best-in-class” for operating ratios for many years. CNR has continuously worked on improving its margins and was among the first to do so. Today, peers have caught up and all railroads are managed in the same way. CNR also owns unmatched-quality railroad assets. It has a very strong economic moat as railways are virtually impossible to replicate so we can therefore count on increasing cash flows each year. Plus, there isn’t any more efficient way to transport commodities than by train. The good thing about CNR is that an investor can always wait for a down cycle to make an investment. We can often spot a good occasion around the corner since we see railroads as attractive investments. Finally, the cancellation of the Keystone XL pipeline will drive demand for oil transport via railroads and CNR will benefit. Management is being challenged and we should see more growth emerging from this challenging period.
Metrics are Not Everything
I can’t stress enough the importance of not depending on a single or a few metrics to invest in a company. I don’t believe there are 300+ amazing companies you should buy. The Dividend Rock Star List is a very good start, but further analysis is mandatory before deciding to buy or sell.
Let me know if this list is helpful and how I can improve it for your effective use!
Don’t You Hate Not Knowing When to Buy? When to Sell?
Market fluctuations often create confusion that may leave you with the impression that you will lose all your savings. You then start reading as much as possible and then run the risk of overthinking your holdings. This is how you can suffer from “paralysis by analysis”. It doesn’t have to be this way.
My Recession-Proof Portfolio Workbook gives you the actionable tools you need to invest with discipline and to focus on your Financial Independence.
Disclaimer: I hold AAPL, ATD.TO, CNR.TO in my DSR portfolios.
