When evaluating a company as a potential income investment you look at its calculated fair value, ability to generate cash, debt position and the net present value of its dividend stream compared alternative "safe" investments.In earlier articles, we have looked at each of these in depth. In addition, I look at four other metrics that individually are not as important as the above, but collectively provide great insight into the potential success of a stock as a dividend investment. Here are the four other key metrics that I look at when evaluating a dividend stock:
I. Dividend Growth Rate: The minimum dividend growth rate of the 1, 3, 5, 7, 10 year dividend growth rate or 15%, if "Rolling 4-yr Div. > 15%". This metric is True, if the dividend growth rate is 15% or greater. You can see how this is calculated in my D4L-PreScreen.xls model.
II. Years of Div. Growth: Years of consecutive dividend growth. This metric is True for 15 or more years.
III. Rolling 4-yr Div. > 15%: Dividends will double every 5 years if they grow by 15%. This test is True if dividends grew on average in excess of 15% for each consecutive 4 year periods, within the last 10 years of history.
IV. Years to >MMA: The number of years until dividend earnings exceed the earnings from a hypothetical money market account earning the MMA rate above, considering the other assumptions listed in "NPV MMA Diff." above. This metric is True if the number of years is less than 5.
Taken in the whole, these are tough metrics. Of the 87 stocks that I currently follow, only four had all the above metrics true. They were:
AFLAC Inc. (AFL) - AnalysisThese metrics focus on compound dividend growth, which is highly important for the successful dividend investor. In my new dividend analysis worksheet, a company will earn a Star for its other metrics if two of the above metrics are True.
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.
- Dividend Growth Rate: 16.7%
- Years of Div. Growth: 27
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 1
Nucor Corp. (NUE) - Analysis
Nucor Corporation is engaged in the manufacture and sale of steel and steel products. As the largest minimill steelmaker in the U.S., Nucor has one of the most diverse product lines of any steelmaker in the Americas.
- Dividend Growth Rate: 15.0%
- Years of Div. Growth: 36
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 3
Paychex Inc. (PAYX) - Analysis
Paychex, Inc. provides payroll and integrated human resource and employee benefits outsourcing solutions for small- to medium-sized businesses in the United States.
- Dividend Growth Rate: 17.8%
- Years of Div. Growth: 17
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 0
McDonald's Corp. (MCD) - Analysis
McDonald's Corporation is the largest fast-food restaurant company in the world. Its restaurants serve a varied, yet limited, value-priced menu in more than 100 countries around the world.
- Dividend Growth Rate: 15.5%
- Years of Div. Growth: 32
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 2
Full Disclosure: Long AFL, NUE, PAYX, MCD. See a list of all my income holdings here.
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Tags: [AFL] [MCD] [NUE] [PAYX]