If you are looking for an attractive investment with income for your portfolio, you should look for cheaply valuated dividend growth stocks with potential to grow in the near term.
What Do I Mean by an Attractively Priced, High Quality DGI Stock?
To preface my choices, I define high quality DGI stocks as those having:
- Solid financial strength - I require an S&P credit rating of at least BBB or better and a debt-to-total capital ratio of less than 50%.
- A consistent track record of growing dividends - I prefer 10 years of dividend growth, but I will consider relatively new DGI stocks with shorter records. In addition, I look for an historical 5-year dividend compound annual growth rate (i.e., CAGR) of at least 4%.
- The ability to continue to grow the dividend in the future - I look for a forecast 3-year dividend CAGR of at least 4% and a dividend payout ratio of less than 80%.
In terms of value, I look for the following:
- Is the stock trading at or below its historical 10-year P/E?
- Is the stock's dividend yield at or near its 5-year high?
- Is the stock trading at or below Morningstar's fair value estimate? S&P's fair value estimate? Valuentum's fair value estimate?
- Is the stock trading below S&P's 12-month target?
There are nine top results that came into my minds. For sure I've not included long-term dividend growth as essential criteria. That's the reason why you might find Apple and Gilead in the results.
These are the results from the screen...