7 Dividend Growth Stocks For July 2021

These dividend growth stocks yield at least 3% and likely would deliver annualized returns of 8% or more, according to the Chowder rule.
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This article is the first in a new monthly series that will rank selections of Dividend Radar stocks and present seven top-ranked stocks for consideration. Dividend Radar tracks stocks trading on U.S. exchanges with dividend increases streaks of five years or more.

To rank stocks, I’ll use DVK Quality Snapshots to determine quality scores and tie-breaking metrics when necessary. DVK Quality Snapshots employs five widely used quality indicators from independent sources and assigns 0-5 points to each quality indicator, for a maximum of 25 points.

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Each month, I’ll consider different screens to narrow down the more than 750 Dividend Radar stocks. Screens will focus on various aspects of dividend growth investing, such as dividend yield, dividend growth rate, and stock valuation.

This month, I screened for discounted stocks yielding at least 3%. I also required stocks to have a Chowder Number indicating a likelihood of annualized returns of 8% or more.

Screening and Ranking

The latest Dividend Radar (dated July 2, 2021) contains 761 stocks, 223 of which have yields of at least 3%.

To increase the likelihood of selecting stocks that will produce annualized returns of 8% or more, I also screened for stocks with favorable Chowder Numbers (CDNs). The CDN of a stock is calculated by summing the forward dividend yield and the 5-year dividend growth rate of a stock. According to the Chowder Rule, stocks are likely to deliver annualized returns of at least 8% if the following conditions hold:

  • For yields < 3%, CDN ≥ 15
  • For yields ≥ 3%, CDN ≥ 12
  • For utilities with yields ≥ 4%, CDN ≥ 8

I call such CDNs favorable. Of the 223 stocks that passed the yield screen, 120 have favorable CDNs.

I ranked the 120 candidates by sorting their quality scores (determined via DVK Quality Snapshots) in descending order. To break ties, I used the following metrics, in turn:

Each stock's Rank is shown in the tables that follow.

7 Top-Ranked Dividend Growth Stocks for July

Here are this month's top 7 dividend growth stocks in rank order:

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I own the four highlighted stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors, including the dividend increase streak (Yrs), the dividend Yield for a recent stock Price, and the 5-year dividend growth rate (5-Yr DGR), as well as the CDN. I also provide the five quality indicators used in determining each stock's quality score (Qual), as well as my fair value estimate (Fair Val.) to help identify stocks that trade at favorable valuations. The penultimate column shows the discount (Disc.) or premium (Prem.) of a recent price to my fair value estimate. The last column provides the 5-year trailing total returns (5-Yr TTR) of each stock.

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

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

I derive my fair value estimates from fair value estimates and price targets available at several sources, including Morningstar and Finbox. I also estimate fair value using each stock’s five-year average dividend yield. With several 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 fair value estimate.

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

Pinnacle West Capital Corporation (PNW)

PNW is a holding company that provides retail and wholesale electric services primarily in the state of Arizona. Its subsidiary, Arizona Public Service Company, is a vertically integrated electric 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.

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

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

The Toronto-Dominion Bank (TD)

Together with its subsidiaries, TD provides various personal and commercial banking products and services in Canada and the United States. The company operates through three segments: Canadian Retail, U.S. Retail, and Wholesale Banking. TD was founded in 1855 and is headquartered in Toronto, Canada.

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

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

Consolidated Edison, Inc. (ED)

ED delivers electricity, gas, and steam. The company provides electric services to customers in New York City and Westchester County; gas to customers in Manhattan, the Bronx, and parts of Queens and Westchester County; and steam to customers in Manhattan. ED was founded in 1884 and is based in New York, New York.

Screen Shot 2021-07-06 at 8.38.42 AM
ED non-GAAP EPS and dividends paid (TTM), with stock price overlay.

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

Franklin Resources, Inc. (BEN)

BEN is a global investment management company operating as Franklin Templeton Investments. The company provides investment management and related services to retail, institutional, and high net-worth clients in jurisdictions worldwide. BEN was founded in 1947 and is based in San Mateo, California, with an additional office in Hyderabad, India.

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

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

DTE Energy Company (DTE)

Founded in 1995, DTE is a Detroit-based diversified energy company involved in developing and managing energy-related businesses and services nationwide. DTE’s non-utility energy businesses focus on natural gas pipelines, gathering and storage, power and industrial projects, and energy marketing and trading.

Screen Shot 2021-07-06 at 8.41.42 AM
DTE non-GAAP EPS and dividends paid (TTM), with stock price overlay

DTE 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 2021-07-06 at 8.43.12 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

The Southern Company (SO)

SO, along with its subsidiaries, operates as a public electric utility company. The company constructs, acquires, owns, manages generation assets, including renewable energy projects, and sells electricity at market-based rates in the wholesale market. SO was founded in 1945 and is headquartered in Atlanta, Georgia.

Screen Shot 2021-07-06 at 8.45.07 AM
SO non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

Concluding Remarks

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In this article, I ranked dividend growth stocks in Dividend Radar that yield at least 3% and are likely to deliver annualized returns of 8% or more, according to the Chowder rule.

I’d like to add about 50 shares to my PNW position. PNW’s dividend is deemed Very Safe by Simply Safe Dividends. The stock yields 4.00% and has a 5-year DGR of 5.7%, so it offers an attractive 5-year Yield on Cost (YoC) of 5.28%.

Of the stocks I don’t own, DTE looks interesting given its 15% discount. With a 3.88% yield and a 5-year DGR of 7.8%, DTE’s 5-year YoC is 5.65%. Furthermore, DTE’s dividend is deemed Very Safe.

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

Thanks for reading and take care, everybody!

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

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