7 Dividend Growth Stocks For July 2022

These discounted dividend growth stocks have safe dividends, strong income and growth prospects, and performed well over the past five years.

Author:
Ferdi Scheepers
Publish date:
Jul 14, 2022 10:53 AM EDT

In my monthly 7 Dividend Growth Stocks series, I present seven dividend growth stocks from Dividend Radar for further analysis and possible investment. I apply different screens every month to find a variety of candidates. For example, screening for stocks with higher yields will interest income investors, while screening for higher dividend growth rates will interest growth-oriented investors.

In case you missed previous articles in this series, here are links to them:

Last month, I picked the top dividend growth [DG] stock in each of the GICS sectors. I focused on DG stocks with safe dividends and strong income and growth prospects trading below my fair value estimates.

For this article, I’m using the same screens, but I’m presenting the seven top-ranked stocks regardless of sector. To rank candidates, I use DVK Quality Snapshots and my ranking system.

Screening and Ranking

For this month’s article, I used the following screens:

Investment Grade stocks in Dividend Radar
Stocks with Very Safe or Safe Dividend Safety Scores
Stocks with 5-year trailing total returns [TTRs] of at least 10%
Stocks likely to deliver annualized returns of 8%
Stocks likely to have high 5-year YOCs after five years of ownership
Stocks that are discounted relative to my fair value estimates.

Dividend Radar is an automatically-generated spreadsheet of DG stocks, defined as stocks trading on US exchanges with dividend increase streaks of at least five years. I use DVK Quality Snapshots routinely to assess the quality of Dividend Radar, assigning quality scores out of 25 based on various quality metrics. I consider stocks with quality scores in the range of 15-25, Investment Grade stocks.

I use the Dividend Safety Scores of Simply Safe Dividends. The scoring system predicts dividend risk over a full economic cycle by analyzing the most important metrics for dividends.

Source: Simply Safe Dividends — *Source:* Simply Safe Dividends

Dividend Safety Scores have avoided 98% of dividend cuts and excelled during the pandemic. While 51% of stocks with Unsafe and Very Unsafe ratings at the start of 2020 went on to cut their dividends, only 10% and 4% of Very Safe and Safe-rated companies cut their dividends, respectively.

The Chowder Number [C#] sums up a stock's forward yield and its 5-year dividend growth rate. It is a growth-oriented metric measuring the likelihood that a DG stock will deliver annualized returns of 8% or more.

The 5-year Yield on Cost [YOC] is an income-oriented metric indicating what your YOC would be after buying a stock and holding it for five years, assuming the current 5-year dividend growth rate [DGR] is maintained. To calculate the 5-year YoC is easy:

5-year YOC = Forward Yield × (1 + 5-year DGR)5

I screened for a 5-year YOC above 4%.

To determine the intrinsic value of a stock, I use a survey approach by collecting fair value estimates and target prices from several reliable online sources, including CFRA, Finbox, Morningstar, Portfolio Insight, and Simply Wall St. I also estimate fair value using a stock’s five-year average dividend yield. With as many as 11 available estimates, I ignore the lowest and highest, then average the mean and median of the remaining values to arrive at my fair value [FV] estimate. Averaging the mean (average) and median (middle value) helps adjust skewness in the surveyed estimates.

The latest Dividend Radar (dated July 1, 2022) contains 734 stocks. Of these:

320 stocks are Investment Grade
382 stocks have Very Safe or Safe Dividend Safety Scores
288 stocks have 5-year trailing total returns [TTRs] of at least 10%
304 stocks are likely to deliver annualized returns of 8%
393 stocks are likely to have a 5-year YOC of at least 4% after five years of ownership
638 stocks are discounted relative to my fair value estimates

Only 8 stocks passed all these screens!

I ranked the candidates by sorting their DVK Quality Scores in descending order and using tie-breaking metrics for stocks with the same quality score.

7 Top-Ranked Dividend Growth Stocks for July

Here are the top-ranked DG stocks that passed this month’s screens:

I own all of these stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to DG investors:

Yrs: years of consecutive dividend increases
Adj Qual: DVK Quality Snapshots adjusted quality score
Fwd Yield: forward dividend yield for a recent share Price
5-Avg Yield: 5-year average dividend yield
5-DGR: 5-year compound annual growth rate of the dividend
5-YOC: the projected yield on cost after five years of investment
C#: Chowder Number, a popular metric for screening dividend growth stocks
5-TTR: 5-year compound trailing total returns (as of the latest quarter)
VL Safety Rank: Value Line's Safety Rank
VL Fin Stren: Value Line's Financial Strength ratings
MS Econ Moat: Morningstar's Economic Moat
S&P Cred Rating: S&P Global's Credit Ratings
SSD Divi Safety: Simply Safe Dividends' Dividend Safety Scores
Buy Below: my risk-adjusted buy below price (see below)
–Disc +Prem: discount or premium of the recent share Price to my Buy Below price
Price: recent share price

The Fwd Yield column is colored green if Fwd Yield ≥ 5-Avg Yield.

Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from Dividend Radar). — *Key metrics of the 7 Top-Ranked Dividend Growth Stocks this month (includes data sourced from* *Dividend Radar*).

My risk-adjusted Buy Below prices allow premium valuations for the highest-quality stocks but require discounted valuations for lower-quality stocks:

Let's now look at each stock in turn. All data and charts are courtesy of Portfolio-Insight.com.

Texas Instruments (TXN)

TXN designs, manufactures, and sells semiconductors to electronics designers and manufacturers globally. The company operates in two segments, Analog and Embedded Processing. It markets and sells semiconductor products through a direct sales force and through distributors, as well as through its website. TXN was founded in 1930 and is headquartered in Dallas, Texas.

*TXN valuation and key metrics, as well as a performance comparison with SPY over the past decade*

TXN is rated Excellent (quality score: 24) and has the highest 5-year dividend growth rate of this month’s candidates (18.9%). Portfolio Insight classifies TXN as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $184.

*TXN non-GAAP EPS and dividends paid (TTM), with stock price overlay*

The company’s non-GAAP payout ratio of 54% is a little high and I expect dividend increases will be more modest in the future unless the company manages to grow earnings faster.

Union Pacific (UNP)

Omaha, Nebraska-based UNP operates the largest public railroad in North America, with 32,000 miles of track linking 23 states in the western two-thirds of the United States. UNP hauls coal, industrial products, intermodal containers, agricultural goods, chemicals, and automotive products. UNP owns a quarter of the Mexican railroad Ferromex. The company was founded in 1862.

*UNP valuation and key metrics, as well as a performance comparison with SPY over the past decade*

UNP is rated Excellent (quality score: 24) and Portfolio Insight classifies the stock as a slow-growth stock with a 1-year upside of 17% and a 1-year target price of $246.

*UNP non-GAAP EPS and dividends paid (TTM), with stock price overlay*

The company’s non-GAAP payout ratio of 52% is a little high and I expect dividend increases will be more modest in the future unless the company manages to grow earnings faster.

Home Depot (HD)

Founded in 1978 and based in Atlanta, Georgia, HD is a home improvement retailer that sells an assortment of building materials, home improvement products, and lawn and garden products. HD provides installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers.

*HD valuation and key metrics, as well as a performance comparison with SPY over the past decade*

HD is rated Excellent (quality score: 24). Portfolio Insight classifies HD as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $338.

*HD non-GAAP EPS and dividends paid (TTM), with stock price overlay*

With a non-GAAP payout ratio of 49%, the company has ample room to continue paying and raising its dividend.

Blackrock (BLK)

BLK is an investment management company that provides a range of investment and risk management services to institutional and retail clients across the world. The company’s offerings include single and multi-asset class portfolios investing in equities, fixed income, alternatives, and money market instruments. BLK was founded in 1988 and is based in New York City.

*BLK valuation and key metrics and a performance comparison with SPY over the past decade*

BLK is rated Excellent (quality score: 23) and Portfolio Insight classifies the stock as a slow-growth stock with a 1-year upside of 18% and a 1-year target price of $713.

*BLK non-GAAP EPS and dividends paid (TTM), with stock price overlay*

The company’s non-GAAP payout ratio of 50% is a little high for asset managers, but there is still room to continue paying and raising its dividend.

Amgen (AMGN)

Based in Thousand Oaks, California, AMGN is a biotechnology company. The company discovers, develops, manufactures, and delivers human therapeutics worldwide. It offers products for the treatment of serious illnesses in the areas of oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

*AMGN valuation and key metrics and a performance comparison with SPY over the past decade*

AMGN is rated Excellent (quality score: 23). Portfolio Insight classifies COST as a slow-growth stock with a 1-year upside of 6% and a 1-year target price of $263.

*AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay*

AMGN’s non-GAAP payout ratio of 45% is a little high for biotech companies, but the company has some room to continue paying and raising its dividend.

T. Rowe Price (TROW)

Founded in 1937, TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, as well as through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

*TROW valuation and key metrics, as well as a performance comparison with SPY over the past decade*

TROW is rated Fine (quality score: 22) and has the highest forward yield of this month’s candidates. Portfolio Insight classifies TROW as a hypergrowth stock with a 1-year upside of 19% and a 1-year target price of $134.

*TROW non-GAAP EPS and dividends paid (TTM), with stock price overlay*

The company’s non-GAAP payout ratio of 38% is a bit high for asset managers, but the company still has some room to continue paying and increasing its dividend.

Lowe's (LOW)

LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also offers installation services through independent contractors, as well as extended protection plans and repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina.

*LOW valuation and key metrics, as well as a performance comparison with SPY over the past decade*

LOW is rated Fine (quality score: 22) and has the longest dividend increase of this month’s candidates (60 years). Portfolio Portfolio Insight classifies LOW as a hypergrowth stock with a 1-year upside of 55% and a 1-year target price of $279.

*LOW non-GAAP EPS and dividends paid (TTM), with stock price overlay*

The company has ample room to continue paying and raising its dividend, given its non-GAAP payout ratio of only 35%.

Concluding Remarks

In this article, I ranked high-performingdiscounted Investment Grade DG stocks with Very Safe or Safe dividends increase streaks and excellent income and growth prospects. I own all of these stocks in my DivGro portfolio. Not only are the stocks discounted to my fair value estimates, they also are discounted at least 13% to my risk-adjuseted Buy Below prices. So, overall, these are excellent candidates for consideration!

Here's a comparative analysis of an equal-weighted portfolio of this month's seven DG stocks:

From a price-performance perspective, the portfolio would have outperformed the S&P 500 over the last five years by a margin of 1.41-to-1. Finbox considers all of the stocks to be undervalued.

As always, I advise readers to do their due diligence before investing.

Thanks for reading, and take care, everybody!

Please follow me here: