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Dividend Growth Watchlist Criteria
The companies listed on this watchlist are stable with a track record of raising their dividends consistently. The company must also have a “Wide” economic moat, according to Morningstar. This ensures a company I consider for investment has a sustainable competitive advantage for the foreseeable future. An S&P Capital IQ Earnings and Dividend Ranking of A or A+ helps to establish the company has achieved and should continue to achieve lower price volatility when compared to the broader market.
Next, since this is a dividend growth watchlist, it would logically make sense to measure a company’s dividend growth. In this case, a company needs to have a 10-year dividend growth rate of 10% or greater to ensure growth in the dividend itself, in addition to being a quality company. The company should have room to grow their dividend too, so a payout ratio of 50% or less is used as the final filter.
I use the dividend yield theory to determine if a stock is potentially overvalued or undervalued, and worthy of further research if undervalued. This idea suggests a company’s yield will revert to the norm over time. An example below is Texas Instruments Inc. (TXN) – the current yield is 2.80% while its five-year average is just 2.53%. The difference being 27 basis points or about 11%, which suggests it could be undervalued.
| Company | 10 Year DGR | Dividend Yield (01/31/23) |
Div. Yield (5 Year Avg.) |
Overvalued/ Undervalued |
| Apple Inc. (AAPL) | 25.26% | 0.64% | 0.89% | 28% |
| Accenture PLC (ACN) | 11.13% | 1.61% | 1.35% | -19% |
| Automatic Data Processing Inc. (ADP) | 10.07% | 2.21% | 1.92% | -15% |
| Applied Materials Inc. (AMAT) | 11.39% | 0.93% | 1.31% | 29% |
| Amphenol Corp. (APH) | 22.67% | 1.05% | 0.91% | -15% |
| BlackRock Inc. (BLK) | 12.52% | 2.63% | 2.45% | -7% |
| Costco Wholesale Corp. (COST) | 12.25% | 0.70% | 0.74% | 5% |
| Fastenal Co. (FAST) | 12.86% | 2.77% | 2.34% | -18% |
| Graco Inc. (GGG) | 23.72% | 1.38% | 1.13% | -22% |
| Home Depot Inc. (HD) | 20.30% | 2.34% | 2.07% | -13% |
| Jack Henry & Associates Inc. (JKHY) | 15.75% | 1.09% | 1.05% | -4% |
| Lowe’s Companies Inc. (LOW) | 18.11% | 2.02% | 1.53% | -32% |
| Mastercard Inc. (MA) | 33.99% | 0.62% | 0.49% | -27% |
| Microsoft Corp. (MSFT) | 11.70% | 1.10% | 1.15% | 4% |
| Northrop Grumman Corp. (NOC) | 12.14% | 1.54% | 1.62% | 5% |
| Roper Technologies Inc. (ROP) | 16.25% | 0.64% | 0.53% | -21% |
| Charles Schwab Corp. (SCHW) | 13.35% | 1.29% | 1.15% | -12% |
| Sherwin-Williams Co. (SHW) | 16.53% | 1.01% | 0.80% | -26% |
| Thermo Fisher Scientific Inc. (TMO) | 22.63% | 0.21% | 0.23% | 9% |
| Texas Instruments Inc. (TXN) | 20.61% | 2.80% | 2.53% | -11% |
| Visa Inc. (V) | 21.16% | 0.78% | 0.63% | -24% |
Goal
The goal of my dividend growth watchlist is to discover companies to add to my dividend growth portfolio in an attempt to consistently exceed the market return of the Vanguard Dividend Appreciation ETF (VIG). Through January of this year, an equally weighted portfolio of these 21 stocks mentioned above would have outperformed VIG by 0.63%. VIG gained 2.90% during January, while the stocks above gained 3.53%.
| Symbol | January Returns |
| AAPL | 11.05% |
| ACN | 4.99% |
| ADP | -5.46% |
| AMAT | 14.49% |
| APH | 4.77% |
| BLK | 7.14% |
| COST | 11.97% |
| FAST | 6.83% |
| GGG | 1.92% |
| HD | 2.63% |
| JKHY | 2.58% |
| LOW | 5.05% |
| MA | 6.74% |
| MSFT | 3.33% |
| NOC | -17.88% |
| ROP | -1.08% |
| SCHW | -7.01% |
| SHW | -0.31% |
| TMO | 3.57% |
| TXN | 8.03% |
| V | 10.81% |
| VIG | 2.90% |
Final Thoughts
This dividend growth watchlist is used to identify companies worthy of further research. Stock prices fluctuate continuously, and although there are legitimate reasons for a price increase or decrease, occasionally there are times the market is just overreacting to a short-term issue. I believe if you can identify the reason(s) and determine for yourself if a decline in stock price is justified, you can minimize risk in your portfolio by purchasing a company’s stock when their yield is higher than average.
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