The 10 Most Popular Dividend Growth Stocks

The 10 Most Popular Dividend Growth Stocks

The Internet holds a wealth of information to investors looking for dividend stocks. Considering the many web sites that publish articles on investing, it’s possible that every single stock has been blogged about.

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But now and again, it’s reasonable to wonder if those who publish articles about dividend stocks, eat their own cooking, so to speak.

Rest assured, that many dividend stock bloggers own many of the same stocks they write about.

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According to a site called Dividend Growth Center, the following 10 stocks are the most widely-held dividend stocks among dividend bloggers.  In total, 78 dividend growth blogger portfolios are analyzed.

The advantage of looking at the most widely held dividend growth stocks is you can ‘borrow’ the consensus ideas of other avid dividend growth investors.

Interestingly, 7 of the 10 most popular dividend growth stocks are Dividend Aristocrats.  The Dividend Aristocrats Index is a group of 50 stocks with 25+ consecutive years of dividend increases (the index has a history of beating the S&P 500 as well).  You can see the full list of Dividend Aristocrats here.

Without further ado, the 10 most widely held dividend growth stocks by dividend growth bloggers are analyzed in detail below.

10. Unilever PLC (UL)

First up is consumer products giant Unilever, which is based in the U.K. Unilever has been in business since 1885.

Today, Unilever has a high-quality product portfolio. It has 13 individual brands that each bring in $1 billion or more in annual revenue. A few of its flagship brands include Dove, Hellman’s, Lipton, and Knorr.

Unilever derives nearly half of its annual sales from food, and the other half from beverages. Its diversified product portfolio has led to great performance for the company.

Unilever’s sales and earnings increased 10% and 14%, respectively, in 2015.

It has continued to post strong results over the course of 2016. Revenue rose 4.2% through the first nine months of 2016. Growth was driven by both pricing and volumes, which increased 2.8% and 1.3%, respectively.

Unilever has turned in significantly higher growth than many of its peers in the consumer goods sector throughout 2016.

UL Growth

Source: Q3 Earnings Presentation, page 5

Dividend Growth Stocks

Part of the reason for this is because the company runs a streamlined business model that focuses on a select group of high-growth opportunities.

Another reason for Unilever’s strong growth rates is because the company has invested heavily in high-growth economies. More than half the company’s annual revenue comes from emerging markets.

Unilever’s emerging market revenue increased 7.2% through the first three quarters.

The focus on higher-growth categories and the emerging markets is readily apparent, especially when it comes to Unilever’s food business.

UL Foods

Source: Investor Presentation, page 2

The company has many category-leading brands, which provide Unilever with significant pricing power. All four of its core categories saw pricing increases over the first nine months of the year, which helps boost revenue growth.

Unilever’s strong brands and above-average growth support its hefty 3.5% dividend yield.

9. Procter & Gamble (PG)

Next up is another consumer products giant, Procter & Gamble. It should come as no surprise to see two consumer goods stocks start off the list.

Consumer products companies like P&G enjoy a strong fundamental tailwind, in that their products are used each day by millions of people around the world.

Like Unilever, P&G sells products that people cannot do without. Many of P&G’s biggest categories, such as razor blades, toothpaste, and paper towels, need to be purchased, regardless of the overall economic climate.

This helps provide P&G with a defensive business model that insulates the company against recessions. In turn, P&G has a 3.1% dividend yield and has raised its dividend for an amazing 60 years in a row.

P&G is a Dividend King – a select group of stocks with 50+ consecutive years of dividend increases. You can see all 18 Dividend Kings analyzed here.

And, like Unilever, P&G is focusing on a smaller brand portfolio going forward. The company is undergoing a massive transformation.

P&G has unloaded dozens of brands over the past year, including the sale of 43 beauty brands to Coty (COTY) for $12 billion. P&G also sold the Duracell battery business to Warren Buffett’s Berkshire Hathaway (BRK.B).

While many of the brands P&G divested are profitable, they were not growing.

Once all is said and done, P&G intends to slim down to the following core categories and associated brands:

  • Fabric Care (Tide, Gain, Downy)
  • Home Care (Febreze, Swiffer, Mr. Clean, Dawn)
  • Grooming (Gillette, Venus)
  • Oral Care (Crest, Oral-B, Fixodent)
  • Baby Care (Pampers, Luvs)

The strategy seems to be working, as P&G’s fiscal 2017 first quarter organic sales growth exceeded its growth rate throughout fiscal 2016.

PG Sales

Source: Analyst Meeting presentation, page 5

Accelerating revenue growth is expected to fuel mid-single digit core earnings growth in fiscal 2017.

PG Guidance

Source: Analyst Meeting presentation, page 13

This would be great news for P&G investors, as higher earnings growth would enable the company to accelerate its dividend growth as well.

8. General Electric (GE)

Next up is industrial giant GE. GE is a natural choice for income investors, as the stock has a solid 3% dividend yield.

In addition, GE could be a play on global economic growth as well. GE is one of the largest companies in the world, with a $278 billion market cap.

And, it has a presence in nearly every industry. This is why GE is widely viewed as a bellwether for global economic growth.

Now that GE plans to divest its massive financial arm GE Capital, it will focus entirely on its industrial core. This should provide smoother growth, since GE’s financial business was extremely volatile over the past several years, particularly during the Great Recession.

This is likely the right direction to take the company. Over the first nine months of 2016, GE’s revenue excluding GE Capital rose 17% year over year. Including GE Capital, GE’s overall revenue increased just 9% in that period.

Going forward, GE’s future growth will be fueled by acquisitions. The company has conducted two separate deals which could be truly transformational.

First, GE acquired the power and grid businesses from Alstom (ALSMY) for $10 billion in 2015. The assets obtained from Alstom should be accretive to GE immediately.

GE Alstom

Source: GE Annual Outlook Investor Meeting, page 9

In addition, GE made another smart deal when it acquired Baker Hughes. GE will own a 62% in the merged entity, which will be publicly-traded.

GE Baker Hughes

Source: GE Annual Outlook Investor Meeting, page 8

Like the Alstom acquisition, Baker Hughes is expected to immediately add to GE’s earnings.

In 2017 and 2018, GE expects to grow organic revenue by 3%-5% per year, and to expand profit margin by 100 basis points each year.

Due to the combination of organic growth, acquisitions, and cost cuts, GE forecasts $2 in earnings-per-share in 2018. This would represent 33% earnings growth from 2016 forecasts, which call for earnings of $1.50 per share.

7. Chevron Corporation (CVX)

Chevron is the second-largest integrated U.S. oil company. It has a $220 billion market capitalization and the company takes in more than $100 billion in revenue each year.  These almost larger-than-life numbers make Chevron one of the 6 oil and gas super majors.

The past two years have not been kind to Chevron, because of the steep drop in oil and gas prices in that time. It may be hard to remember, but it wasn’t too long ago that oil traded near $110 per barrel.

Today, with oil at $50, Chevron has had to make difficult choices to keep its dividend intact. One measure employed to maintain the dividend is spending cuts.

CVX Spending

Source: Investor Presentation, page 8

Chevron cut its capital spending by 32% through the first three quarters of 2016, year over year.

In addition, Chevron has divested assets it deems non-critical to the company’s future prospects. The company sold $2.2 billion worth of assets through the third quarter.

CVX Divestments

Source: Investor Presentation, page 14

But management knows how much investors want the dividend to be preserved. Chevron is a Dividend Aristocrat.

The good news is that Chevron’s efforts to avoid cutting its dividend have worked. The company is more efficient, thanks to a renewed focus on the highest-return projects and lowering drilling costs.

For example, Chevron has placed emphasis on its Permian Basin operation. The Permian Basin is one of the premier oil-producing fields in the U.S.

Chevron owns 1.5 million acres in the Midland and Delaware Basins, two of the most productive areas of the Permian.

In the past year, Chevron realized a 30% reduction in development costs, and a 45% reduction in lease operating expense.

The results are starting to materialize. Chevron earned a $1.3 billion net profit last quarter. This was a 37% year over year decline. Still, it represented notable progress, because the company had reported a cumulative net loss of $2.2 billion over the first two quarters of 2016.

Chevron has a 3.7% dividend, which seems to be secure now that the company has returned to profitability.

6. Target Corporation (TGT)

Retail stocks are widely-owned for their strong dividends, which is why the next two spots are occupied by retailers.

First up is Target, which has nearly 1,800 stores and brings in more than $70 billion in annual sales.

TGT Financials

Source: 2015 Annual Report

Target is also a Dividend Aristocrat. It has increased its dividend for 45 consecutive years.

Target’s long history of rewarding shareholders is due to the company’s steady business model. Target does well in all economic cycles.

When the economy is growing, consumers have more disposable income. This benefits Target for obvious reasons.

Target also performs well, relative to other sectors of the economy, when the U.S. enters recession.

As a major discount retailer, Target benefits when cash-strapped consumers scale their spending down from luxury retailers to discount retail.

In addition, Target has a balanced business model. It is not overly reliant on any individual category of retail, which gives it the advantage of diversification.

TGT Sales by Category

Source: 2015 Annual Report

2016 was another year of steady growth for the company. In the past four quarters, the company generated a 14.3% return on invested capital.

Earnings-per-share rose 7.6% through the first nine months of 2016, driven in large part by growth in new channels. For example, Target’s digital channel sales rose 26% last quarter.

Not only does Target’s 3.4% dividend yield exceed the 2% average dividend yield of the S&P 500, but the shares are cheap as well.

Target stock trades for a price-to-earnings ratio of 12. By contrast, the S&P 500 Index trades for an average price-to-earnings ratio of 26.

Target stock screens very well for value and income, so it is not surprising to see Target among the most widely-held dividend stocks.  Target also ranks highly using The 8 Rules of Dividend Investing.

5. Wal-Mart Stores (WMT)

Coming in just ahead of Target is its big brother Wal-Mart. Wal-Mart is the biggest retailer in the world, with a $210 billion market capitalization and more than $400 billion in annual sales.

Wal-Mart operates more than 11,000 stores, in 28 countries worldwide. The company has three operating segments:

  • Wal-Mart U.S. (63% of sales)
  • Wal-Mart International (24% of sales)
  • Sam’s Club (13% of sales)

However, this is a challenging period for Wal-Mart. Earnings-per-share fell 9.5% in fiscal 2016. The company spent more to renovate its stores, boost wages, and invest in new channels.

But these investments are starting to pay off. Total revenue and earnings-per-share increased 0.7% and 1%, respectively, through the first three quarters of the fiscal year.

Wal-Mart’s comparable sales, a crucial metric for retailers that measures growth at locations open at least one year, are growing. Plus, the growth rate has accelerated in recent periods.

WMT Comparable Sales

Source: Investment Community Meeting, page 5

E-commerce is playing a big role in Wal-Mart’s return to growth. Wal-Mart expects its e-commerce platform to grow at a 20%-30% rate over the next three fiscal years.

WMT Guidance

Source: Investment Community Meeting, page 5

Wal-Mart does not expect to return to earnings growth this fiscal year. But it will still be highly profitable. And, in the meantime, investors are paid well to wait for the turnaround to materialize.

The company still generates huge amounts of cash flow. For example, Wal-Mart generated $12.1 billion of free cash flow through the first three quarters of fiscal 2017.

Because of its tremendous cash flow, the company can return cash to investors, even though earnings are in decline. Wal-Mart has increased its dividend for 43 years in a row. And, the company has authorized a $20 billion share buyback.

Wal-Mart has a current dividend yield of nearly 3%.

4. Kinder Morgan (KMI)

Kinder Morgan is the largest energy infrastructure company in the U.S. It owns or operates 84,000 miles of pipelines and approximately 180 terminals.

Kinder Morgan has a massive network, which is connected to every important U.S. natural gas resource play.

KMI Assets

Source: Wells Fargo Securities 2016 Pipeline, MLP, and Utility Symposium, page 5

Its pipelines transport a variety of products, including natural gas, refined petroleum products, crude oil, and carbon dioxide.

KMI Segment Overview

Source: Wells Fargo Securities 2016 Pipeline, MLP, and Utility Symposium, page 11

The disadvantage of the midstream business model is that it is reliant on raising capital. Kinder Morgan ran into trouble last year, due to its overleveraged capital structure.

Similar to MLPs, Kinder Morgan had incurred a large amount of debt to finance its growth expenditures. Kinder Morgan invested $54 billion in organic growth projects and acquisitions since the company’s inception.

KMI Capital

Source: Wells Fargo Securities 2016 Pipeline, MLP, and Utility Symposium, page 8

When oil and gas prices collapsed, the credit markets were shut off to the oil and gas industry. Having tapped out its available debt, the company had to make a difficult choice.

Either it would have to raise massive amounts of equity (and dilute current shareholders) to fund growth expenditures, or it would need to shelve a large portion of its project backlog (and damage future growth).

The company decided to keep its backlog intact, and instead cut its dividend by 75% in 2015.

This was a painful decision for investors. But it right-sized the distribution, and the company expects to invest $3.2 billion into fully-funded expansion projects next year, without having to access equity markets.

The company has a $13 billion backlog of energy infrastructure expansion opportunities, which will help fuel future growth. Kinder Morgan only has a 2% dividend yield, but the company sees the potential for a dividend increase in 2018.

3. Johnson & Johnson (JNJ)

A list of the most commonly-held dividend stocks would not be complete without health care giant Johnson & Johnson.

J&J has increased its dividend for 54 years in a row. It has achieved such an impressive dividend track record because of its diversified business model, and a strong management philosophy.

JNJ Advantages

Source: Consumer and Medical Device Business Review presentation, page 8

The company has three main operating segments:

  • Consumer (18% of sales)
  • Pharmaceutical (47% of sales)
  • Medical Devices (35% of sales)

J&J’s consumer segment has many strong brands that people use every single day, such as Band-Aids, Neutrogena, Tylenol, Motrin, and Listerine.

In addition, J&J has a massive medical device business, which generates more than $25 billion in annual sales.

JNJ Medical Devices

Source: Consumer and Medical Device Business Review presentation, page 14

The pharmaceutical segment is J&J’s largest, and will likely be the biggest contributor to the company’s growth going forward.

For example, revenue from the pharmaceutical segment increased 9.1% over the first three quarters of 2016. This helped overall constant-currency revenue grow 4.5% through the first three quarters.

Earnings-per-share increased 5.1% in the same period.

Going forward J&J expects to file 10 new products from 2015-2019, each has the potential for $1 billion or more in annual sales.

This should continue to fuel growth in the mid-to-high single digit range, which will be more than enough to raise the dividend for many years.

J&J stock trades for a price-to-earnings ratio of 20 and a 2.7% dividend yield. After a 19% increase in the share price over the past year, J&J is not as cheap as it used to be.

But there is an old saying in the stock market, that premium companies deserve premium valuations. J&J stock is still cheaper than the S&P 500, with an above-average dividend yield as well.

As a result, J&J may not be a screaming bargain. However, the stock can still generate 10% annual returns going forward, from earnings-per-share growth and dividends.  The company’s stability and dividend growth makes it one of my 7 favorite health care stocks.

2. AT&T (T)

Next up is telecom giant AT&T. AT&T has increased its dividend for 33 consecutive years. This makes it a Dividend Aristocrat.

In addition to being a reliable dividend growth stock, AT&T has a very attractive dividend yield of 4.8%. Its dividend yield is more than double the average yield in the S&P 500.

The reason why AT&T can provide such a high dividend yield is because it generates massive amounts of cash flow. AT&T raked in $13.9 billion of free cash flow over the first nine months of the year.

AT&T’s free cash flow is thanks largely to the company’s wireless business. Americans love their cell phones.

And, since AT&T is one of two wireless providers that control the vast majority of market share, AT&T’s wireless segment enjoys very strong profitability.

T Wireless

Source: Q3 Earnings Presentation, page 4

AT&T’s wireless business realized record EBITDA margin last quarter.

In addition, AT&T is seeing strong international growth. This is thanks largely to its acquisition of DirecTV, which provided AT&T with millions of subscribers in Latin America.

DirecTV was free cash flow positive in Latin America last quarter, and increased revenue by 6% to $1.3 billion.

Specifically, Mexico is a region which AT&T is targeting for future growth. 4G deployment is still expanding in Mexico, which helped AT&T add 769,000 customer additions last quarter.

T International

Source: Q3 Earnings Presentation, page 8

AT&T’s high dividend yield is sustainable. In the past 12 months, the company earned $2.35 per share. Its current annualized dividend is $1.96 per share.

This means AT&T has a payout ratio of 83%. This is on the high side, but still leaves room for modest dividend increases each year going forward.

1. The Coca-Cola Company (KO)

Coming in at number one is Coca-Cola, one of the most legendary dividend stocks of all time. Coca-Cola has increased its dividend for 54 consecutive years.

Today, Coca-Cola has a current dividend yield of 3.4%.

Its amazing dividend history is largely because it possesses one of the most valuable brands in the world.

According to Forbes, Coca-Cola is the fourth-most valuable brand in the world, worth $58 billion. It owns 20 individual brands that generate $1 billion or more in annual revenue.

KO Brands

Source: Investor Relations site

Coca-Cola’s strong brand and global business model provide the company with a very reliable stream of profits.

That resiliency makes the company extremely recession-resistant. For example, Coca-Cola’s earnings-per-share held up very well throughout the Great Recession:

  • 2007 earnings-per-share of $1.29
  • 2008 earnings-per-share of $1.51
  • 2009 earnings-per-share of $1.47
  • 2010 earnings-per-share of $1.75

This allowed the company to continue raising its dividend, even during one of the worst economic downturns since the Great Depression.

Coca-Cola finds itself in a transition period. Soda sales are falling in developed markets like the U.S.

Going forward, Coca-Cola is focusing investment on its portfolio of still beverages. These are drinks like water, tea, and juice, which are growing at faster rates than soda.

KO Stills

Source: Morgan Stanley Global Consumer & Retail Conference, page 8

This is a good growth strategy for the company, since soda sales have fallen in the U.S. for the past 11 years. In response, the company has turned to new products to drive future growth.

Plus, Coca-Cola is in the process of cutting costs by $3 billion. This is helping to grow profits in the near term.

This is working, as profits increased 7% over the first nine months of 2016. Continued earnings growth should allow Coca-Cola to continue passing along dividend increases in the high single-digit range.

To sum it up, Coca-Cola has a world-class brand, a highly profitable business model, an above-average dividend, and a long history of dividend growth.

As a result, it’s no surprise to see Coca-Cola take the top spot on the most widely-held dividend stocks held by dividend bloggers.

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