Last week, I shared with you the 2018 Dividend Aristocrats list. This is a good starting point in the research process. However, just because a company is on the list of dividend aristocrats, that doesn’t necessarily mean that it is a good investment to make today. Inclusion in an elite list of dividend stocks is like having a great resume – it lets you get a foot in the door for further evaluation, but nothing else.
Today, I will share with you a list of attractively valued dividend aristocrats for further research. I utilized forward earnings as much as possible, in an effort to screen out any one-time items affecting earnings. Those are not without their pitfalls of course, because analyst projections are typically on the optimistic side.
In order to come up with this list, I used my entry criteria.
1) P/E ratio below 20
2) Dividend Payout Ratio below 60%
3) Earnings per share growth over the past decade
4) At least a token annual dividend growth over the past decade
As a result of this screen, I came up with the following companies for further research:
| Symbol | Name | Forward P/E | Dividend Yield | Dividend Payout Ratio | Stock Price | Years of Annual Dividend Increases | 10 Year Dividend Growth |
| ABBV | AbbVie Inc. | 20.04 | 2.22% | 44.46% | 112.22 | 45 | 12.40% |
| AFL | AFLAC Inc. | 13.07 | 1.95% | 25.48% | 88.2 | 35 | 8.08% |
| CAH | Cardinal Health Inc. | 14.02 | 2.54% | 35.55% | 71.79 | 30 | 19.71% |
| GD | General Dynamics | 19.74 | 1.47% | 29.10% | 222.48 | 26 | 11.54% |
| HRL | Hormel Foods Corp. | 20.19 | 1.98% | 40.00% | 34.33 | 52 | 16.32% |
| JNJ | Johnson & Johnson | 17.06 | 2.37% | 40.49% | 138.19 | 55 | 7.44% |
| KMB | Kimberly-Clark Corp. | 16.86 | 3.27% | 55.19% | 117 | 45 | 6.75% |
| LEG | Leggett & Platt Inc. | 18.75 | 3.01% | 56.45% | 46.51 | 46 | 7.18% |
| MDT | Medtronic plc | 18.01 | 2.07% | 37.32% | 85.89 | 40 | 14.24% |
| PNR | Pentair Ltd. | 18.24 | 1.93% | 35.20% | 71.5 | 42 | 8.69% |
| PPG | PPG Industries Inc. | 17.99 | 1.39% | 25.00% | 118.73 | 46 | 5.24% |
| SWK | Stanley Black & Decker | 19.72 | 1.43% | 28.11% | 166.23 | 50 | 7.09% |
| TROW | T. Rowe Price Group | 16.06 | 2.02% | 32.37% | 111.63 | 31 | 12.86% |
| WBA | Walgreens Boots Alliance Inc. | 13.07 | 2.02% | 26.39% | 75.26 | 42 | 16.21% |
None of these companies are automatic buys. These are good opportunities for further research however. The lengthy track record of annual dividend increases is usually the first step of identifying a quality company for further research. We need to review further in order to determine if there was sufficient earnings growth to power future dividend increases and hopefully increase the intrinsic value of the business. Without growth in earnings per share, future dividend growth will be limited. In addition, we want to make sure that we have an adequate margin of safety in dividends, as evidenced by a dividend payout ratio below 60%, coupled with earnings growth and dividend growth that doesn’t exceed it at an alarming rate. Last but not least, we also want to acquire a compounding machine at an attractive valuation. Even the best company in the world is not worth overpaying for.
In general, this is the framework I have used to build my dividend portfolio over the past decade. While there are always some tweaks here and there to make, in order to improve over time, I believe that this is a good starting point in a solid dividend investing process.
Relevant Articles:
- Dividend Aristocrats for 2018 Revealed
- My Entry Criteria for Dividend Stocks
- How to value dividend stocks
- How to analyze dividend stocks
Article by Dividend Growth Investor
