My Top 15 High Growth Dividend Stocks For November 2022

Quality Stocks

The S&P 500 almost clawed back all of September’s losses during October. Vanguard’s Dividend Appreciation ETF (VIG) performed even better, recovering all of September’s losses and then some. My watchlist also performed better than the S&P 500 but did not outperform VIG.

October selections gained 9.24% last month, trailing VIG by 0.72% but beating SPY by 1.11%. Annualized alpha over VIG drops again from 2.79% to 2.46%, and the annualized alpha over SPY increases from 3.74% to 4.24%. Following the strong returns in October, the long-term annualized rate of return for the watchlist is closer towards my long term target of 12% (10.61%).

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 November offer an average dividend yield of 2.34%. Collectively, they have increased dividend payments at a rate of 33.20% during the last 5 years. Based on dividend yield theory, these 15 stocks are about 40% 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 November 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 112 stocks for the month of November 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 November 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 November 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) and Advance Auto Parts (AAP) are overstated due to very fast recent dividend growth by each company. Dividend yield theory works best for companies with stable and consistent dividend growth.

There are three changes to the top 15 list from the prior month. Home Depot (HD), Mastercard (MA) and Visa (V) fall further down the list and replacing them in the top 15 are Advance Auto Parts, Monolithic Power Systems (MPWR) and Texas Instruments (TXN).

Past Performance

October was the second best single month return since I started tracking this watchlist 26 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 5.41% of alpha, but trails VIG by 0.09%. The long term annualized rate of return for the watchlist increased from 6.45% last month to 10.61% after October. My target rate of return is 12%, and despite the volatility in the market this year I remain optimistic this watchlist will meet this goal in the long run.

Month	Watchlist	All	VIG	SPY
1 Month	9.24%	9.00%	9.96%	8.13%
3 Month	-4.30%	-5.49%	-2.52%	-5.87%
6 Month	0.20%	-1.82%	-2.44%	-5.46%
1 Year	-7.52%	-13.61%	-7.79%	-14.61%
2020	6.27%	6.15%	9.09%	7.94%
2021	33.53%	31.55%	23.75%	28.76%
2022	-12.32%	-17.29%	-12.23%	-17.73%
Since Inception	24.42%	15.50%	18.50%	14.33%
Annualized	10.61%	6.88%	8.15%	6.38%

Click to enlarge

Top 5 past and present watchlist stocks in October 2022:

• Lockheed Martin (LMT) +25.99%
• JP Morgan (JPM) +21.55%
• Advance Auto Parts +21.48%
• Rollins (ROL) +21.34%
• Deere & Co. (DE) +18.55%

None of the top 5 stocks were selected as part of my October watchlist, however number 6, Tractor Supply (TSCO), was, and the stock gained 18.23% last 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) +81.76% (26 months)
2. UnitedHealth Group (UNH) +70.42% (21 months)
3. Northrop Grumman (NOC) +65.03% (26 months)
4. Tractor Supply +58.94% (21 months) NEW
5. Charles Schwab (SCHW) +57.49% (21 months)

ADP remains the best watchlist stock with a gain of 6.86% in October. UNH posted a gain of 9.92% last month and retains its 2nd position. NOC posted a strong 16.73% return in October and jumps into 3rd place. TSCO leaps into the top 5 list with a very strong return last month. SCHW with a gain of 10.85% hold onto 5th place.

Since not all stocks have been on the watchlist for the full 26 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. Cigna +4.07% (8 months)
2. Rollins +3.61% (9 months)
3. Advance Auto Parts +2.58% (4 months)
4. UnitedHealth Group +2.57% (21 months)
5. Automatic Data Processing +2.32% (26 months)

Drivers Of Alpha

The watchlist underperformed VIG in October. 6 watchlist stocks outpaced the ETF last month.

• (TSCO) +18.23%
• (V) +16.61%
• (CI) +16.43%
• (MA) +15.61%
• (FMC) +12.49%
• (LRCX) +10.60%

The remaining 9 stocks underperformed VIG.

• (BBY) +8.00%
• (SSNC) +7.69%
• (HD) +7.32%
• (DPZ) +7.11%
• (ICE) +5.78%
• (MS) +4.98%
• (LOW) +4.37%
• (BALL) +2.21%
• (TROW) +1.10%

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 October, returning 9.65% and outperforming SPY but not VIG. The cumulative return since January 2021 for the portfolio is 13.52% compared to 8.62% for VIG and 5.92% for SPY. On an annualized basis the portfolio has a 7.52% return compared to 4.84% for VIG and 3.34% for SPY. The portfolio holds 54 unique positions with the largest position being:

1. (SCHW) 5.83% (allocation)
2. (TSCO) 5.81%
3. (LOW) 5.78%
4. (HD) 5.51%
5. (HUM) 4.84%

Here are the 5 best performing positions:

1. (NOC) +75.52%
2. (PGR) +51.53%
3. (LMT) +44.53%
4. (UNH) +43.60%
5. (ROL) +37.64%

The 2022 B&H portfolio performed slightly better in October, returning 9.68%%. The year-to-date return is -14.85% compared to -12.23% for VIG and -17.73% 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.

Here are the 5 largest positions:

1. (TSCO) 6.87% (allocation)
2. (CI) 6.86%
3. (HD) 6.15%
4. (LOW) 5.36%
5. (MA) 4.73%

Here are the 5 best performing positions:

1. (ROL) +37.64%
2. (HUM) +28.92%
3. (CI) +24.83%
4. (TSCO) +11.13%
5. (ATVI) +10.06%

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, 39 have positive total returns and 27 have negative total returns, the average return is 7.88%. The watchlist has been around for 26 months, the average duration for all 66 stocks is just below 20 months.

Symbol	Since Joining	Count
ADP	81.76%	26
UNH	70.42%	21
NOC	65.03%	26
TSCO	58.94%	21
SCHW	57.49%	21
PGR	50.45%	21
HUM	48.74%	20
LMT	38.15%	26
CI	37.64%	8
ROL	37.64%	9
COST	36.74%	26
CTAS	36.66%	21
CDW	33.67%	21
DG	27.74%	19
MSCI	27.60%	26
BK	27.21%	26
INTU	25.45%	26
FDS	23.59%	26
APH	23.54%	21
JKHY	23.36%	26
GGG	23.04%	26
ACN	21.90%	26
LOW	17.19%	26
USB	16.82%	24
DE	16.03%	11
TJX	15.86%	21
TMO	12.97%	19
EXPD	11.04%	21
AAP	10.71%	4
NTRS	9.56%	26
HD	9.25%	26
BLK	8.88%	26
BBY	6.19%	4
FAST	4.95%	26
MSFT	4.75%	26
JPM	2.74%	21
KLAC	2.19%	18
NVDA	1.48%	19
TXN	1.39%	21
SHW	-0.97%	21
V	-1.00%	26
ROP	-1.78%	26
FMC	-2.03%	5
MS	-5.23%	17
GS	-5.35%	15
MA	-7.31%	26
AMAT	-7.42%	21
SIRI	-8.14%	7
MPWR	-8.33%	20
MCO	-8.43%	26
BX	-9.85%	3
ICE	-11.59%	21
LRCX	-14.70%	21
DPZ	-16.99%	26
TROW	-17.31%	26
CMCSA	-18.20%	26
WST	-18.63%	26
ATVI	-19.70%	18
SSNC	-21.15%	20
SBUX	-24.64%	10
FDX	-26.90%	8
SWKS	-43.70%	10
BALL	-48.25%	10
LAD	-48.83%	19
MKTX	-54.28%	21
PARA	-57.77%	16

Click to enlarge