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7 Dividend Growth Stocks For January 2022

These Dividend Radar stocks are discounted and yield at least 3%. Given their dividend growth history, the stocks may deliver annualized returns of 8% or more, according to the Chowder Rule.

My monthly 7 Dividend Growth Stocks series present seven high-quality dividend growth stocks for further analysis and possible investment.

I apply different screens every month to narrow down my watch list of more than 700 dividend growth stocks, Dividend Radar. Changing the screens from month to month highlights various aspects of dividend growth [DG] investing. For example, income investors prefer higher-yielding stocks, growth-oriented investors favor higher DG rates, and value investors look for deep discounts.

I screened for discounted stocks yielding at least 3% to compile this month’s candidates. I also required stocks to have Chowder Numbers (C#’s) that indicate some likelihood of delivering annualized returns of 8% or higher.

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I ranked candidates that passed my screens using DVK Quality Snapshots and my ranking system.

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

About the Chowder Rule

The Chowder Number (C#) is a popular growth-oriented metric for screening DG stocks for possible investment. Named for Seeking Alpha author Chowder, the metric favors DG stocks likely to produce annualized returns of at least 8%.

To obtain the C#, you sum a stock’s forward dividend yield and five-year annual dividend growth rate.

Chowder required a C# of 8 for utilities yielding at least 4%, a C# of 12 for stocks yielding at least 3%, and a C# of 15 for stocks yielding less than 3%. According to the Chowder Rule, such stocks are likely to deliver annualized returns of at least 8%.

I've added a C# column to my spreadsheets and color-code cells as follows:

  • Green indicates stocks likely to deliver annualized returns of 8%
  • Yellow indicates stocks are somewhat likely to deliver annualized returns of 8%
  • Red indicates stocks are unlikely to deliver annualized returns of 8%

To differentiate between yellow and red candidates, I use 5 as the threshold for utilities yielding at least 4%, 8 for stocks yielding at least 3%, and 10 for stocks yielding less than 3%. Specifically:

  • For utilities yielding at least 4%: red < 5 ≤ yellow < 5 ≤ green
  • For stocks yielding at least 3%: red < 8 ≤ yellow < 12 ≤ green
  • For stocks yielding less than 3%: red < 10 ≤ yellow < 15 ≤ green

Screening and Ranking

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

  • Investment Grade stocks (DVK Quality Scores of 15-25)
  • Forward Dividend Yield is at least 3.0%
  • Stocks likely or somewhat likely to deliver annualized returns of at least 8%
  • Current share price is below my fair value [FV] estimate

I use a survey approach to estimate FV, collecting fair value estimates and price targets from several sources, including Morningstar, Finbox, and Portfolio Insight. I also estimate fair value using each stock’s five-year average dividend yield. With up to eleven estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my FV estimate.

The latest Dividend Radar (dated December 14, 2022) contains 709 stocks. Of these, 158 are Investment Grade, 166 yields at least 3%, and 315 are discounted. Furthermore, 477 are likely or somewhat likely to deliver annualized returns of at least 8%. Only 35 stocks pass all four screens.

I ranked these candidates by sorting their DVK Quality Scores in descending order and breaking ties using the following metrics, in turn:

7 Top-Ranked Dividend Growth Stocks for January

Here are top-ranked dividend growth stocks that passed this month’s screens:

Screen Shot 2022-01-18 at 9.36.44 AM

I own all of these stocks in my DivGro portfolio.

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

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

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

Key metrics and fair value estimates of January’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

Key metrics and fair value estimates of January’s Top 7 Dividend Growth Stocks (includes data sourced from Dividend Radar).

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

Merck & Co, Inc (MRK)

Founded in 1891 and headquartered in Kenilworth, New Jersey, MRK is a global health care company that offers health solutions through prescription medicines, vaccines, biologic therapies, and animal health products. MRK markets its products to drug wholesalers and retailers, hospitals, government entities and agencies, physicians, physician distributors, veterinarians, distributors, animal producers, and managed health care providers.

Screen Shot 2022-01-18 at 9.40.14 AM
MRK non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

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.

Screen Shot 2022-01-18 at 9.42.46 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

Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceuticals worldwide. Its pharmaceutical products include tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887.

Screen Shot 2022-01-18 at 9.44.11 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

3M Company (MMM)

MMM is a diversified technology company with worldwide operations. The company has leading positions in consumer and office; display and graphics; electronics and telecommunications; health care; industrial; safety, security and protection services; transportation; and other businesses. MMM was founded in 1902 and is headquartered in St. Paul, Minnesota.

Screen Shot 2022-01-18 at 9.45.41 AM
MMM non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

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.

Screen Shot 2022-01-18 at 9.47.10 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

Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric company that generates, transmits, and distributes electricity using coal, nuclear, gas, oil, and solar resources. PNW was founded in 1920 and is headquartered in Phoenix, Arizona.

Screen Shot 2022-01-18 at 9.48.34 AM
PNW non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

Gilead Sciences, Inc. (GILD)

GILD is a research-based biopharmaceutical company that discovers, develops, and commercializes innovative medicines. The company’s primary focus areas include human immunodeficiency virus, liver diseases such as chronic hepatitis B and C virus infections, oncology and inflammation, and severe cardiovascular and respiratory conditions. GILD was founded in 1987 and is headquartered in Foster City, California.

Screen Shot 2022-01-18 at 9.50.00 AM
GILD non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

Concluding Remarks

Screen Shot 2022-01-18 at 9.51.25 AM

This month, I ranked Investment Grade Dividend Radar stocks yielding at least 3% and trading below my fair values estimates. Moreover, I wanted stocks with good growth prospects as determined by the Chowder Rule. Accordingly, I screened for stocks likely or somewhat likely to deliver annualized returns of at least 8%.

I’m long all of this month’s candidates. My positions are full-sized positions based on my dynamic and flexible portfolio target weighting strategy, so I’m not planning to add shares at this time.

Depending on your investment style and goals, I would recommend looking at the following stocks first:

  • For income investors: PNW and GILD, then MRK and BMY
  • For value investors: BMY and MRK, then LMT, AMGN, and MMM
  • For dividend growth-oriented investors: AMGN, then LMT and GILD

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

Thanks for reading and take care, everybody!

Please 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!

Also read:

Top 7 Dividend Growth Stocks Picks For 2022

8 Best Defensive Dividend Growth Stocks

4 High Yield Closed-End Funds For Your Income Portfolio

2 Dividend Stocks On My Buy List

Focusing On Income, Too Many Stocks & Wrong Valuation: More Mistakes You Could Be Making

18 Dividend Stocks To Consider For The Next Decade

Hybrid Funds To Complement High Yield Portfolios

5 Discounted Dividend Contenders