My Top 15 High Growth Dividend Stocks For December 2022

Quality Stocks

If the current market rally can continue into December my watchlist and VIG have a decent chance to finish 2022 with positive returns, SPY is however unlikely to salvage its current 13.16% year-to-date loss.

November selections gained 10.00% last month, outperforming VIG by 3.25% and SPY by 4.44%. Annualized alpha over VIG improved from 2.46% to 3.96%, and the annualized alpha over SPY improved from 4.24% to 6.25%. Following the strong returns in November, the long-term annualized rate of return for the watchlist once again exceeds my long term target of 12% (14.97%).

The main focus of this watchlist is to find the best combination of quality companies trading for attractive prices. I believe this is the optimal long-term strategy to building wealth.

The top 15 dividend growth stocks for December offer an average dividend yield of 1.81%. Collectively, they have increased dividend payments at a rate of 29.85% during the last 5 years. Based on dividend yield theory, these 15 stocks are about 31% undervalued right now, and I think they are poised to offer strong long-term returns.

I would recommend two approaches to dividend investing. The first is to dollar-cost average into at least 10-20 or more quality dividend-paying stocks across multiple sectors and industries. By dollar-cost averaging, you eliminate the risk of trying to value a stock and over a long enough period, theoretically, you will buy shares at market highs, lows, and in-between resulting in an average cost basis somewhere in the middle. The second method carries a little more risk. Invest in undervalued stocks, also dollar-cost averaging into at least 10-20 unique quality companies across multiple sectors and industries. The additional risk with this approach comes from the chance that your valuation method proves to be incorrect. However, by investing in multiple unique stocks, the odds that you accurately identify at least a few undervalued stocks increases. The resulting upside from a few correct picks may more than offset the underperformance from the bad ones.

Watchlist Criteria

The criteria used to determine which stocks are included in my high-growth dividend stock watchlist remains unchanged for December 2022. It is made up of the 8 factors listed below that have historically outperformed the broad universe of dividend-paying stocks when analyzed collectively.

• Market Cap of at least $10 billion
• Payout Ratio no greater than 70%
• 5-year Dividend Growth rate of at least 5%
• 5-year Revenue Growth rate of at least 2%
• 5-year EPS Growth rate of at least 2%
• S&P Earnings and Dividend Rating of B+ or better
• Wide or Narrow Moat (Morningstar)
• Exemplary or Standard Management Team (Morningstar)

The rules identified 115 stocks for the month of December that were all ranked based on the above-mentioned metrics with the exclusion of market cap. I then computed the current valuation for each stock using dividend yield theory. All stocks were ranked for both quality and valuation and sorted by the best combination of both. Next, I computed a forecasted rate of return for the next 5-year period for each of the stocks. This return is based on forecasted earnings growth, a return to fair value and the dividend yield.

The highest ranked 15 stocks with a forecasted return greater than or equal to 12% were chosen for the watchlist. The long-term hypothesis for this watchlist is that it will outperform a broad quality dividend fund such as Vanguard’s Dividend Appreciation ETF, VIG.

Watchlist For December 2022

Above are the 15 stocks I am considering for further evaluation during the month. They are sorted in descending order by their rank and 5-year dividend growth rate.

The “O/U” column represents potential undervalue; this is a comparison of the current dividend yield to the historical dividend yield as a function of share price.

The expected return in the table above was computed using a discounted 5-year EPS forecast, a return to fair value and the current dividend yield. There is also a margin of safety built into the forecasted return. These figures are just assumptions based on the available data and there is no guarantee these returns will be attained.

The large potential undervaluations for Cigna (CI) is overstated due to very fast recent dividend growth by the company. Dividend yield theory works best for companies with stable and consistent dividend growth.

There are five changes to the top 15 list from the prior month. Advance Auto Parts (AAP), Intercontinental Exchange (ICE), Lam Research (LRCX), Morgan Stanley (MS) and T. Rowe Price Group (TROW) fall further down the list or did not meet the 12% return forecast and replacing them in the top 15 are CDW (CDW), Home Depot (HD), MSCI (MSCI), Skyworks Solutions (SWKS) and Visa (V).

Past Performance

November supersedes October 2022 as the second best single month return since I started tracking this watchlist 27 months ago, the only better month was November 2020 with a return of 10.74%. On a year-to-date basis the watchlist remains ahead SPY, with 9.61% of alpha, but trails VIG by 2.75%. The long term annualized rate of return for the watchlist increased from 10.61% last month to 14.97% after November. My target rate of return is 12%, and despite the volatility in the market this year I remain optimistic this watchlist will exceed this goal in the long run.

Month	Watchlist	All	VIG	SPY
1 Month	10.00%	8.66%	6.75%	5.56%
3 Month	10.67%	7.61%	7.78%	3.60%
6 Month	6.69%	3.65%	4.21%	-0.43%
1 Year	0.94%	-5.24%	-0.19%	-9.14%
2020	6.27%	6.15%	9.09%	7.94%
2021	33.53%	31.55%	23.75%	28.76%
2022	-3.55%	-10.12%	-6.30%	-13.16%
Since Inception	36.87%	25.51%	26.50%	20.69%
Annualized	14.97%	10.63%	11.01%	8.72%

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Top 5 past and present watchlist stocks in November 2022:

• Nvidia (NVDA) +25.41%
• Best Buy (BBY) +24.69%
• KLA Corporation (KLAC) +24.67%
• Applied Materials (AMAT) +24.44%
• Lithia Motors (LAD) +21.01%

Best Buy was the only stock amongst the top 5 performers in November that was also part of my watchlist for the month. In total there have been 66 unique dividend stocks selected by this watchlist since September of 2020.

Top 5 Stocks by Total Return since joining the watchlist:

1. Automatic Data Processing (ADP) +98.63% (27 months)
2. UnitedHealth Group (UNH) +68.16% (22 months)
3. Tractor Supply +64.36% (22 months)
4. Charles Schwab (SCHW) +63.62% (22 months)
5. Northrop Grumman (NOC) +60.84% (27 months)

ADP remains the best watchlist stock with a gain of 9.28% in November. UNH posted a loss of 1.33% last month but retains its 2nd place. TSCO posted a gain of 3.41% and moves closer to UNH. SCHW posted a gain of 3.89% and tightens the gap to TSCO. NOC posted a loss of 2.54% and falls to 5th place.

Since not all stocks have been on the watchlist for the full 27 months of its existence, comparing a monthly average return can help normalize the results. Here are the top 5 stocks with the highest average monthly return since joining the watchlist.

1. Best Buy +5.77% (5 months)
2. Cigna +3.82% (9 months)
3. Rollins +2.87% (10 months)
4. Automatic Data Processing +2.57% (27 months)
5. UnitedHealth Group +2.39% (22 months)

Drivers Of Alpha

The watchlist outperformed VIG in November. 11 watchlist stocks outpaced the ETF last month.

• (BBY) +24.69%
• (TROW) +17.66%
• (DPZ) +17.00%
• (LRCX) +16.70%
• (BALL) +13.95%
• (ICE) +13.33%
• (MS) +13.27%
• (MPWR) +12.52%
• (TXN) +12.35%
• (FMC) +9.87%
• (LOW) +9.03%

The remaining 4 stocks underperformed VIG.

• (SSNC) +4.94%
• (TSCO) +3.41%
• (CI) +1.80%
• (AAP) -20.50%

Buy-And-Hold Portfolios

The best way to utilize the ideas presented by this watchlist is with a long term buy-and-hold investing approach. I started tracking how such a portfolio would have worked out with one portfolio started at the beginning of 2021 and the other at the beginning of 2022. Each portfolio assumes you invest equally amongst the chosen 15 stocks for the given month and never liquidate these positions.

The 2021 B&H portfolio performed well in November, returning 7.54% outperforming SPY and VIG. The cumulative return since January 2021 for the portfolio is 22.08% compared to 15.95% for VIG and 11.81% for SPY. On an annualized basis the portfolio has a return of 10.97% compared to 8.03% for VIG and 6.00% for SPY. The portfolio holds 54 unique positions with the largest position being:

1. (LOW) 5.90% (allocation)
2. (TSCO) 5.62%
3. (HD) 5.39%
4. (SCHW) 5.39%
5. (DPZ) 4.64%

Here are the 5 best performing positions:

1. (NOC) +71.06%
2. (PGR) +55.96%
3. (LMT) +44.98%
4. (UNH) +41.69%
5. (FDS) +41.15%

The 2022 B&H portfolio performed better in November, returning 8.82%. The year-to-date return for the portfolio is -7.34% compared to -6.30% for VIG and -13.16% for SPY. There are a total of 38 unique positions in the portfolio due to a high turnover rate on the watchlist because of all the market volatility. The majority of the turnover took place during the first 6 months of the year, no new stocks were added to this portfolio during the last 4 months.

Here are the 5 largest positions:

1. (TSCO) 6.51% (allocation)
2. (CI) 6.40%
3. (HD) 5.64%
4. (LOW) 5.49%
5. (DPZ) 4.96%

Here are the 5 best performing positions:

1. (ROL) +32.68%
2. (HUM) +27.02%
3. (BBY) +25.19%
4. (CI) +24.27%
5. (GS) +20.00%

My expectations are for this watchlist to produce a long term 12% annualized rate of return. I use this watchlist along with my high yield watchlist to identify investing opportunities that I act on in my personal portfolio.

Total Return For All Watchlist Stocks

Here are the total returns for all past and present watchlist stocks since first appearing on the watchlist. Out of the 66 stocks that are on this list, 49 (39 last month) have positive total returns and 17 have negative total returns, the average return is 16.20% (7.88% last month). The watchlist has been around for 27 months, the average duration for all 66 stocks is just below 21 months.

Symbol	Since Joining	Count
ADP	98.63%	27
UNH	68.16%	22
TSCO	64.36%	22
SCHW	63.62%	22
NOC	60.84%	27
PGR	54.84%	22
CTAS	47.99%	22
COST	47.04%	27
HUM	46.56%	21
CDW	46.37%	22
CI	40.12%	9
BK	38.66%	27
LMT	38.58%	27
MSCI	38.58%	27
FDS	34.26%	27
ROL	32.68%	10
EXPD	32.46%	22
BBY	32.41%	5
APH	31.04%	22
DE	29.26%	12
ACN	29.22%	27
TJX	29.17%	22
DG	28.06%	20
LOW	27.77%	27
KLAC	27.40%	19
NVDA	27.27%	20
USB	24.92%	25
GGG	23.73%	27
TMO	23.14%	20
NTRS	20.94%	27
BLK	20.69%	27
HD	20.23%	27
INTU	19.61%	27
JKHY	17.65%	27
MSFT	15.46%	27
AMAT	15.21%	22
TXN	13.91%	22
JPM	12.78%	22
FAST	11.86%	27
SHW	9.93%	22
FMC	7.64%	6
MS	7.35%	18
GS	6.77%	16
ROP	3.99%	27
V	3.94%	27
MCO	3.37%	27
MPWR	3.14%	21
MA	0.66%	27
ICE	0.19%	22
LRCX	-0.46%	22
SIRI	-0.92%	8
TROW	-2.71%	27
DPZ	-2.88%	27
CMCSA	-5.57%	27
BX	-9.46%	4
SBUX	-10.54%	11
AAP	-11.98%	5
FDX	-16.90%	9
WST	-16.94%	27
SSNC	-17.25%	21
ATVI	-18.43%	19
SWKS	-36.99%	11
LAD	-38.08%	20
BALL	-41.03%	11
MKTX	-49.66%	22
PARA	-53.71%	17

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