7 Dividend Growth Stocks For September 2021

These high-quality dividend growth stocks are trading at reasonable valuations and should produce solid total returns over the next five years.
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Welcome to another edition of my monthly series in which I pick seven high-quality dividend growth stocks for further analysis and possible investment. My watch list for selections is Dividend Radar, a list of dividend growth [DG] stocks trading on U.S. exchanges with dividend increase streaks of at least five years.

Each month, I apply different screens to narrow down the more than 750 Dividend Radar stocks. Changing the screens from month to month serves to highlight different aspects of DG investing. For example, income investors prefer higher-yielding stocks, value investors tend to look for deep discounts, and growth-oriented investors favor higher DG rates.

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This month, I screened for high-quality stocks with Safe or Very Safe dividends. Additionally, I screened for stocks trading at reasonable valuations and stocks with attractive total return prospects over the next five years.

Stock Picking Criteria

In a recent article presenting the top defensive holdings of Dividend ETFs, I shared five criteria I use to pick stocks for further research and possible investments. Here is a summary of those criteria:

Stock Quality

I use DVK Quality Snapshots to assign quality scores (out of 25) to each DG stock and rate them using a simple mapping of quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9) stocks. I consider stocks with quality scores of 15-25 to be Investment Grade stocks, while stocks below 15 are Speculative Grade stocks.

Stock Valuation

I routinely estimate the fair value [FV] of DG stocks to identify candidates trading at favorable valuations. By a favorable valuation, I mean a risk-adjusted Buy Below price that allows a premium of up to 10% for Exceptional stocks and a premium of up to 5% for Excellent stocks, but requires FV or below for stocks rated Fine and a discount of at least 10% for stocks rated Decent. I’m not interested in buying Speculative Grade stocks.

Growth Outlook

According to the Chowder Rule, the Chowder Number (CDN) is a growth-oriented metric measuring the likelihood that a DG stock will deliver annualized returns of 8% or more. The CDN is simply the sum of a stock's forward yield and its 5-year dividend growth rate [DGR]. In my tables, I color-code the CDN column green to indicate suitable candidates likely to deliver annualized returns of 8%, yellow to indicate possible candidates less likely to deliver annualized returns of 8%, and red to indicate unacceptable candidates unlikely to deliver annualized returns of 8%.

Income Outlook

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 DGR is maintained. I color-code the 5-year YoC column as follows:

  • red < 2.50% ≤ yellow < 4.00% ≤ green

Dividend Safety

While Dividend Safety Scores is one of the quality indicators of DVK Quality Snapshots, I highlight this metric separately. When looking for new stocks to add to my portfolio, I choose only Very Safe dividends (scores: 81-100) and Safe dividends (scores: 61-80). If the score of a stock I own drops below 61, I'll consider closing or trimming that position.

Screening and Ranking

For this month’s article, I used the above-mentioned stock-picking criteria as screens, as follows:

  • Quality scores ≥ 19 (stocks rated Exceptional, Excellent, or Fine)
  • Price ≤ Buy Below price (stocks trading below my risk-adjusted Buy Below price)
  • Green CDNs (suitable candidates likely to deliver annualized returns of 8%)
  • 5-year YoC ≥ 4.00% (candidates likely to have high YoCs after five years of ownership)
  • Dividend Safety Scores > 60 (stocks with dividends deemed Very Safe or Safe)

The latest Dividend Radar (dated August 27, 2021) contains 754 stocks.

Only ten stocks pass my very stringent stock-picking screens!

I ranked these candidates by sorting their quality scores (as determined by DVK Quality Snapshots) in descending order and used the following metrics, in turn, to break any ties:

The tables below show the top seven stocks in rank order.

7 Top-Ranked Dividend Growth Stocks for September

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

Screen Shot 2021-09-02 at 12.29.20 PM

I own all seven stocks in my DivGro portfolio.

Below, I provide a table with key metrics of interest to dividend growth investors, including the dividend increase streak (Years), the Forward Yield for a recent share Price, and the 5-year compound annual dividend growth rate (5-Yr DGR). I also provide my FV estimate (Fair Value) and the discount or premium (–Disc/+Prem) of the stock price relative to my FV estimate.

The table includes additional metrics I use when picking candidates for further analysis and possible investment. These are the quality score (Qual), the 5-year YoC (5-YoC), the Chowder Number (CDN), the Dividend Safety Score (SSD Divi. Safety), and the risk-adjusted Buy Below price. Stock prices less than the Buy Below price are shaded green.

I also provide the five quality indicators used in determining each stock's quality score.

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

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

To estimate FV, I collect FV estimates and price targets from several sources, such as 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 FV estimate.

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

The Home Depot, Inc (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.

Screen Shot 2021-09-02 at 12.37.27 PM
HD non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

Illinois Tool Works Inc. (ITW)

Founded in 1912 and headquartered in Glenview, Illinois, ITW is a diversified, global company that manufactures and sells industrial products and equipment worldwide. ITW operates through seven segments: Automotive OEM; Test & Measurement and Electronics; Food Equipment; Polymers & Fluids; Welding; Construction Products; and Specialty Products.

Screen Shot 2021-09-02 at 12.39.41 PM
ITW non-GAAP EPS and dividends paid (TTM), with stock price overlay

ITW 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 serious illnesses in oncology/hematology, cardiovascular disease, inflammation, bone health, nephrology, and neuroscience. AMGN was founded in 1980.

Screen Shot 2021-09-02 at 12.41.13 PM
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 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.

Screen Shot 2021-09-02 at 12.42.43 PM
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)

TD, together with its subsidiaries, 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. The Toronto-Dominion Bank was founded in 1855 and is headquartered in Toronto, Canada.

Screen Shot 2021-09-02 at 12.44.12 PM
TD non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

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 insurance products covering automobiles, homes, and other properties under the Allstate, Esurance, and Encompass brand names. It also sells life insurance and voluntary accident and health insurance products.

Screen Shot 2021-09-02 at 12.45.49 PM
ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

ALL 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.

Screen Shot 2021-09-02 at 12.47.09 PM
BEN non-GAAP EPS and dividends paid (TTM), with stock price overlay

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

Concluding Remarks

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In this article, I ranked high-quality Dividend Radar stocks with Safe or Very Safe dividends that are reasonably valued and have strong total return prospects over the next five years.

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

While all seven stocks are suitable for further research and possible investment, here are the stocks I would recommend investors target first based on their investment style and goals:

  • For income investors: PNW, TD, BEN
  • For value investors: PNW, ALL, AMGN
  • For growth-oriented investors: HD, ITW, ALL

Considering that only ten Dividend Radar stocks passed my very stringent screens this month, I thought it would be good to share the stocks ranked 8-10 as well:

  • Gilead Sciences, Inc. (GILD)
  • Mondelez International, Inc. (MDLZ)
  • Northern Trust Corporation (NTRS)
Screen Shot 2021-09-02 at 12.49.24 PM

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!

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