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5 Discounted Dividend Contenders

These high-quality dividend growth stocks have dividend increase streaks of 10-24 years. Each stock is discounted and offers generous and safe dividends and strong total return prospects.

This article presents five high-quality Dividend Contenders that are discounted and offer generous and safe dividends and strong total return prospects.

Dividend Contenders are companies listed on U.S. exchanges that have dividend increase streaks of 10-24 years. There are 315 Dividend Contenders in my watchlist of dividend growth stocks, Dividend Radar, a free resource for DG investors maintained and published every Friday by Portfolio Insight.

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To assess the quality of dividend growth stocks, I use DVK Quality Snapshots. The system assigns quality scores to dividend growth stocks based on indicators of quality from trusted sources. To rank dividend growth stocks, I sort them by quality scores and use tie-breaking metrics when necessary.

In many of my articles, I provide fair value estimates of the stocks I cover. There are many ways to do stock valuation, but I prefer to use a survey approach. I reference fair value estimates and price targets from several sources and calculate a single, representative fair value [FV].

Quality and Valuation Screens

I generally consider five stock-picking criteria when evaluating dividend growth stocks for my DivGro portfolio. The criteria relate to stock quality, dividend safety, growth outlook, income outlook, and stock valuation.

For this article, in addition to considering only Dividend Contenders, I used the following screens:

  1. Stock Quality: High-quality stocks with quality scores of 19-25.
  2. Dividend Safety: Stocks with Very Safe and Safe Dividend Safety Scores, according to Simply Safe Dividends.
  3. Growth Outlook: Stocks likely to deliver annualized total returns of at least 8%, according to the Chowder Rule.
  4. Income Outlook: Stocks with a 5-year yield on cost of 3.5% or higher.
  5. Stock Valuation: Stocks trading below my FV estimate and stocks whose forward dividend yield exceeds their 5-year average dividend yield.

I rate dividend growth stocks according to their quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Only stock rated Exceptional, Excellent, or Fine qualified for this article.

High-quality Discounted Dividend Contenders

Here are the Dividend Contenders that pass my quality and valuation screens:

Screen Shot 2021-11-01 at 10.24.05 AM

Note that I’m long all these stocks in my DivGro portfolio.

1. Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

2. Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company's pharmaceutical products include chemically synthesized drugs administered as tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887 and is headquartered in New York, New York.

3. Amgen Inc. (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 severe illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

4. Snap-on Incorporated (SNA)

SNA manufactures and markets tools, equipment, diagnostics, repair information, and systems solutions. It serves aviation and aerospace, agriculture, construction, government and military, mining, natural resources, power generation, technical education industries, and vehicle dealerships and repair centers. SNA was founded in 1920 and is headquartered in Kenosha, Wisconsin.

5. The Allstate Corporation (ALL)

Founded in 1931 and headquartered in Northbrook, Illinois, ALL is a holding company engaged in property-liability insurance and life insurance in the United States and Canada. The company sells automobiles, homes, and other properties insurance products under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

I always encourage readers to do their due diligence research before investing in any of these stocks.

Key Metrics and Fair Value Estimates

Below, I present key metrics of interest to dividend growth investors, along with quality indicators and fair value estimates:

Screen Shot 2021-11-01 at 10.28.08 AM
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

Commentary

Three Dividend Contenders are rated Excellent (quality scores 23-24), and two are rated Fine (quality scores 19-22).

Except for SNA, the stocks are trading well below my FV estimates. Depending on your risk tolerance, you may want to wait for a better entry price for SNA.

At 3.43%, BMY offers the highest forward yield of the five stocks. Along with AMGN and LMT, both also yielding more than 3%, these are great candidates for income investors.

Only LMT does not boast a 5-year dividend growth rate. So investors looking for the best dividend growth candidates should prefer the other Dividend Contenders.

The best combinations of forward dividend yield and 5-year dividend growth rate are ALL and BMY (C#) and AMGN and BMY (5-YOC).

ALL is the best performer over the past five years, based on 5-TTR (price appreciation and dividends). But let’s compare the 10-year trailing total returns of these stocks:

Comparison of the total returns of the five Dividend Contenders versus SPY over the past ten years (source: Portfolio-Insight.com)

Comparison of the total returns of the five Dividend Contenders versus SPY over the past ten years (source: Portfolio-Insight.com)

Only BMY underperformed SPY, an exchange-traded fund designed to track the 500 companies in the S&P 500 index. LMT was the top-performer, returning 502% or 19.67% annualized.

Let’s look at each of these stocks in turn, courtesy of Portfolio-Insight.com:

Lockheed Martin (LMT)

Screen Shot 2021-11-01 at 10.33.24 AM
LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

LMT has an impressive dividend growth record, but the stock price has not matched the company’s non-GAAP EPS growth, particularly over the past four years or so. I think this creates a potentially lucrative opportunity for patient dividend growth investors.

The stock dropped about 12% last Tuesday following disappointing guidance.

Bristol-Myers Squibb (BMY)

Screen Shot 2021-11-01 at 10.35.58 AM
BMY non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

BMY has a solid track record of dividend payments, with a notable acceleration in dividend growth rate in recent years. The stock price experienced a remarkable run-up from 2012 to 2015, well ahead of non-GAAP EPS growth over that period. Since then, BMY has performed relatively poorly, “waiting” for earnings to “catch up.”

The stock reached a 52-week low despite better-than-expected financials posted for Q3 2021

Amgen (AMGN)

Screen Shot 2021-11-01 at 10.37.55 AM
AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

AMGN’s dividend increases are impressive and remarkably consistent. The stock price growth has tracked non-GAAP EPS growth rather well, and the recent price drop is creating a great opportunity, in my view.

Snap-on (SNA)

Screen Shot 2021-11-01 at 10.39.24 AM
SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

SNA’s dividend growth rate has accelerated in recent years and attests to a company with confidence in future growth prospects. The stock price went nowhere in 2015-2019 before dropping with concerns about the COVID-19 pandemic on the economy. The recovery has been remarkable, though!

Allstate (ALL)

Screen Shot 2021-11-01 at 10.40.57 AM
ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

ALL’s dividend track record has a blemish in that the company cut its dividend in 2008 and 2009. However, ALL has increased its dividend nicely since then and at an accelerated rate in recent years. The stock price has mostly tracked non-GAAP earnings, and the growth since 2011 has been spectacular.

I find it fascinating that Allstate plans to sell its headquarters in Chicago due to a strong preference to work remotely. I wonder how many companies will follow this trend!

Concluding Remarks

I encourage readers to take a look at these high-quality, discounted Dividend Contenders, as they offer generous and safe dividends and attractive total return prospects.

Thanks for reading!

You can follow me here:

  • Twitter: @div_gro
  • Facebook: @FerdiS.DivGro

I’d be happy to answer any questions you may have!

Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

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