In addition, I look at four other metrics that individually may not be 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 dividend growth rate is a key metric in many calculations. As such, I use a conservative estimate as follows: The minimum dividend growth rate of the 1, 3, 5, 7, 10 year compound annual growth rate or 15%, if dividends grew on average in excess of 15% for each consecutive 4 year periods, within the last 10 years of history. You can see how this is calculated in my D4L-PreScreen.xls model. This metric is True if the dividend growth rate is 15% or above.
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 an average 20 year Money Market Account rate. This rate is validated by looking at a 20 year Treasury rate. This metric is True if the number of years is less than 5.
When taken considered together, these are tough metrics. Of the 226 stocks that I currently follow, only 8 had all the above metrics true. They were:
Church & Dwight Co. Inc. (CHD)
Church & Dwight Co. Inc. is a manufacturer and marketer of a broad range of household, personal care and specialty products under various brands such as Arm & Hammer, Oxiclean, Orajel, Trojan and Spinbrush sells its products in the U.S. and certain foreign countries.
- Yield: 1.8%
- Dividend Growth Rate: 20.0%
- Years of Div. Growth: 16
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 2
Expeditors International (EXPD)
Expeditors International of Washington Inc. is a global air and ocean freight forwarder and customs broker.
- Yield: 1.6%
- Dividend Growth Rate: 15.0%
- Years of Div. Growth: 18
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 4
International Business Machines Corp. (IBM)
IBM's global capabilities include information technology services, software, computer hardware equipment, fundamental research, and related financing.
- Yield: 1.8%
- Dividend Growth Rate: 15.0%
- Years of Div. Growth: 17
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 4
W.W. Grainger, Inc. (GWW)
Grainger Inc. is the largest global distributor of industrial and commercial supplies, such as hand tools, electric motors, light bulbs and janitorial items.
- Yield: 1.6%
- Dividend Growth Rate: 16.5%
- Years of Div. Growth: 41
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 4
Stryker Corporation (SYK)
Stryker Corp. makes specialty surgical and medical products such as orthopedic implants, endoscopic items and hospital beds.
- Yield: 1.6%
- Dividend Growth Rate: 18.3%
- Years of Div. Growth: 19
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 3
Lowe's Companies, Inc. (LOW)
Lowe's Companies, Inc. sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.
- Yield: 2.0%
- Dividend Growth Rate: 17.0%
- Years of Div. Growth: 50
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 2
Johnson Controls, Inc. (JCI)
Johnson Controls Inc. supplies building controls and energy management systems, automotive seating, and batteries.
- Yield: 2.7%
- Dividend Growth Rate: 15.0%
- Years of Div. Growth: 20
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 0
Walgreen Co. (WAG)
Walgreen Co. is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
- Yield: 3.1%
- Dividend Growth Rate: 20.0%
- Years of Div. Growth: 37
- Rolling 4-yr Div. > 15%: True
- Years to >MMA: 0
These metrics focus on compound dividend growth, which is highly important for the successful investor in dividend growth stocks. In my dividend analysis worksheet, a company will earn a Star for its other metrics if two of the above metrics are True.
Full Disclosure: No position in the aforementioned securities. See a list of all my dividend growth holdings here.
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