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The Top 10 Dividend Growth Opportunities

These high-quality Dividend Radar stocks offer the best opportunities for dividend growth investors. Each stock is trading below my risk-adjusted Buy Below prices and offers generous and safe dividends and strong total return prospects.
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This article wraps up my article series on high-quality stocks in each of the GICS sectors. The series of 11 articles presented the 7 highest-ranked dividend growth stocks [DG] in each GICS sector, for a total of 77 stocks. Today, I’m presenting the top opportunities out of these 77 stocks.

In case you missed any of the articles in this series, here they are:

Selection Process

My watchlist of DG stocks is Dividend Radar, a list of stocks trading on U.S. Exchanges with dividend increase streaks of five or more years. Dividend Radar is a free resource for DG investors, maintained and published every Friday by Portfolio Insight.

I generally use five stock selection criteria when selecting DG stocks for my DivGro portfolio. The criteria relate to stock quality, dividend safety, growth outlook, income outlook, and stock valuation. For this article, I used the following screens to select the top ten DG opportunities:

  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 or somewhat 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 no more than 3% above my risk-adjusted Buy Below prices.

I use DVK Quality Snapshots to assess the quality of DG stocks. The system employs five quality indicators and assigns 0-5 points to each quality indicator, for a maximum of 25 points. To rank stocks, I sort them by descending quality scores and break ties by using the following factors, in turn:

  • SSD Dividend Safety Scores
  • S&P Credit Ratings
  • Dividend Yield

I rate DG stocks by quality score as 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.

I routinely estimate the fair value [FV] 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.

The Top 10 Dividend Growth Opportunities

Here are the DG stocks that present the best opportunities for investment at this time:

Screen Shot 2021-10-18 at 7.57.28 AM

Note that I’m long the highlighted stocks in my DivGro portfolio.

1. 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.

2. Union Pacific Corporation (UNP)

Omaha, Nebraska-based UNP operates the most extensive 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.

3. 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.

4. 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.

5. Air Products and Chemicals, Inc. (APD)

Founded in 1940 and headquartered in Allentown, Pennsylvania, APD produces atmospheric gases (such as oxygen and nitrogen), process gases (such as hydrogen and helium), specialty gases, and equipment for the production and processing of gases. APD also provides semiconductor materials, refinery hydrogen, natural gas liquefaction, and advanced coatings and adhesives.

6. 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.

7. Public Service Enterprise Group Incorporated (PEG)

PEG is an energy holding company with operations in the Northeastern and Mid-Atlantic United States. The company transmits and distributes electricity and natural gas. It operates nuclear, coal, gas, oil-fired, and renewable generation facilities with a generation capacity of about 12,000 megawatts. PEG was founded in 1985 and is headquartered in Newark, New Jersey.

8. T. Rowe Price Group, Inc. (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 and through variable annuity life insurance plans. TROW is based in Baltimore, Maryland.

9. WEC Energy Group, Inc. (WEC)

Founded in 1981 and based in Milwaukee, Wisconsin, WEC is an energy company that serves customers in Wisconsin, Illinois, Michigan, and Minnesota. The company's principal utilities are We Energies, Wisconsin Public Service, Peoples Gas, North Shore Gas, Michigan Gas Utilities, and Minnesota Energy Resources. WEC’s subsidiary, We Power, designs, builds, and owns electric generating plants.

10. American Electric Power Company, Inc. (AEP)

AEP is a public utility holding company that engages in generating, transmitting, and distributing electricity to customers in the United States. The company generates electricity using coal and lignite, natural gas, nuclear, hydroelectric, and other energy sources. AEP was founded in 1906 and is headquartered in Columbus, Ohio.

As always, I encourage readers to do their own 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 2021-10-18 at 8.00.21 AM
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

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


Six stocks are rated Excellent (quality scores 23-24), and four are rated Fine (quality scores 19-22).

Only three stocks are not trading below my risk-adjusted Buy Below prices. The exceptions are HD, PEG, and UNP, trading just above my Buy Below prices. Depending on your risk tolerance, those stocks may be suitable candidates, too.

AEP, LMT, MRK, and WEC each have a forward yield that exceeds the corresponding 5-year average dividend yield. This means these stocks have attractive current forward yields relative to past dividend yields.

At 3.54%, AEP offers the highest forward yield of the ten candidates. Along with LMT, MRK, PEG, and WEC, all yielding more than 3%, these are good candidates for income investors.

Based on their past 5-year dividend growth rates, the best dividend growth candidates are APD, HD, ITW, TROW, and UNP. All of these stocks boast double-digit percentage dividend growth rates.

TROW has delivered annualized total returns of around 28% over the past five years! Those are impressive returns! With 23.5%, HD is not far behind.

It is pretty informative to compare the trailing 10-year total returns (price appreciation and dividends) of these stocks:

Comparison of the total returns of five DG candidates that outperformed SPY over the past ten years (source:

Comparison of the total returns of five DG candidates that outperformed SPY over the past ten years (source:

Over the 10-year timeframe, HD, ITW, LMT, TROW, and UNP outperformed the SPDR S&P 500 ETF (SPY). SPY is an exchange-traded fund designed to track the 500 companies in the S&P 500 index. HD was the top-performer, returning a spectacular 1,108% or about 28.29% annualized.

On the other hand, AEP, APD, MRK, PEG, and WEC underperformed SPY:

Comparison of the total returns of five DG candidates that underperformed SPY over the past ten years (source:

Comparison of the total returns of five DG candidates that underperformed SPY over the past ten years (source:

Best Opportunities in Each GICS Sector

The top 10 DG opportunities represent only six of the eleven GICS sectors:

  • Consumer Discretionary: HD
  • Financials: TROW
  • Health Care: MRK
  • Industrials: ITW, LMT, UNP
  • Materials: APD
  • Utilities: AEP, PEG, WEC

Here are the best opportunities in the other GICS Sectors:

  • Communication Services: Comcast (CMCSA)
  • Consumer Staples: PepsiCo (PEP)
  • Energy: Chevron (CVX)
  • Information Technology: Intel (INTC)
  • Real Estate: Digital Realty Trust (DLR)
Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

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

Note that none of these stocks passed all of my selection criteria for this article:

  • INTC: C# indicates that the stock is unlikely to deliver annualized total returns of at least 8%
  • PEP: 3.51% premium to my Buy Below price
  • CMCSA: 5-YOC lower than 3.5%
  • CVX: Dividend Safety Score not above 80
  • DLR: Quality score below 19 and 13.95% premium to my Buy Below price

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!

Also read:

My Dividend Growth Investing Buying Process

How To Generate Income From Stocks You Don't Own

7 Best Utilities Sector Dividend Stocks

3 Industrial Stocks To Build Your Dividend Growth Portfolio

7 Dividend Growth Stocks For October 2021

The Brookfield Family: Earn Dividends & Diversify Your Portfolio

Supersizing Your Annual Dividends & Generating Additional Income By Selling Covered Calls

7 Best Real Estate Sector Dividend Stocks