Introduction
Dividends add a tremendous amount of confidence when looking for value companies. Large Cap Stocks with consistently growing dividends, when reinvested regularly, can turn into a high yield to cost compounding machines that has potential to create significant wealth over the years. A great valuation can increase this potential many fold.
Screen Details
This screen looks for large cap stocks over $5 Billion in market capitalization paying dividends. We want the dividend to be growing, looking back at least 5 years, and the business fundamentals also improving so the company is likely to sustain dividend growth in the future. Screen criteria is as follows:
- Dividend Yield > 1.5% and < 3.75%
- Dividend 1 Year Change > 8%
- Dividend 3 Year Avg Growth > 8%
- Dividend 5 Year Avg Growth > 8%
- EPS 5 Year Avg Growth > 8%
- Payout Ratio < 40% and > 10%
- Sales 5 Year Avg Growth > 4%
The Screen Results
Stock | Company | Dividend Yield | div 5Yr Avg Growth | eps 5yr avg growth | Payout Ratio |
|---|---|---|---|---|---|
AOS | A. O. Smith | 1.9% | 26.2% | 17.4% | 36.6% |
BAP | Credicorp | 2.9% | 26.6% | 12.9% | 37.5% |
CBSH | Commerce Bancshares | 1.6% | 8.1% | 11.5% | 26.8% |
CMCSA | Comcast | 1.9% | 13.3% | 11.2% | 30.0% |
CMI | Cummins | 2.9% | 10.9% | 12.5% | 29.3% |
DFS | Discover Financial | 2.1% | 12.9% | 11.0% | 18.5% |
EWBC | East West Bancorp | 2.5% | 8.8% | 14.4% | 22.3% |
GD | General Dynamics | 2.2% | 10.5% | 9.3% | 34.2% |
HII | Huntington Ingalls Indus | 1.6% | 33.9% | 13.9% | 23.6% |
MSI | Motorola Solutions | 1.6% | 10.9% | 22.0% | 35.9% |
NTRS | Northern Trust | 2.6% | 16.2% | 17.2% | 36.2% |
RCL | Royal Caribbean Cruises | 2.7% | 21.1% | 25.3% | 31.4% |
RHI | Robert Half International | 2.1% | 11.5% | 12.8% | 31.1% |
RJF | Raymond James Financial | 1.5% | 16.3% | 16.3% | 18.3% |
RTN | Raytheon | 1.7% | 9.3% | 12.2% | 30.9% |
SCHW | Charles Schwab | 1.5% | 23.2% | 23.5% | 23.5% |
SNV | Synovus Financial | 3.1% | 33.8% | 22.0% | 33.6% |
STLD | Steel Dynamics | 3.0% | 15.9% | 21.8% | 22.5% |
TCF | TCF Financial | 3.4% | 28.9% | 8.2% | 29.1% |
TJX | TJX Companies | 1.5% | 21.3% | 10.3% | 32.4% |
TROW | T. Rowe Price Group | 2.5% | 11.6% | 12.1% | 37.3% |
UNH | UnitedHealth Group | 1.6% | 23.6% | 19.8% | 28.3% |
ZION | Zions Bancorp | 2.7% | 53.4% | 32.4% | 27.4% |
Notes and Observations
We will pass on the financial services companies in this list. This removes 11 out of 23 stocks.
- AOS: Valuations look rich. 10+ year history of dividend growth. At this time pass.
- CMCSA: Fairly valued.
- CMI: Looks like a nice value. Review further.
- GD: Appears to be richly valued.
- HII: Expensive.
- MSI: Expensive.
- RCL: Looks slightly undervalued but I am concerned about the 0.2 current ratio. This could be a problem. Avoid.
- RHI: Fairly valued.
- RTN: Fair to high valuation. Avoid at this time.
- STLD: Good valuation. Political risk due to the trade war. This could be a good buy by the time next election cycle goes in full swing.
- TJX: Expensive.
- UNH: Expensive.
Ending Note
Here we are coming at the valuation after we have screened for dividend growth. In practice, this may not give us the best value stocks, but it will certainly give us stocks that can create value from compounding dividends for long time (assuming the management continues their track record of growing dividends). Of the 23 stocks we only have 1 stock to review after we apply the valuation filter. If valuations are not a concern for you and you are a dividend growth type investor, any of these stocks will fit the bill for you.
