Introduction
The current market environment is presenting many challenges to the conservative retired investor in need of current income. Interest rates are near all-time lows and the valuations of many blue-chip dividend growth stocks have become extended. Consequently, it is becoming very difficult to find quality investment opportunities that can provide safety through sound valuation, attractive yield and the potential to fight inflation.
Most of my recent work has been focused on presenting attractively valued, high quality, higher yielding dividend growth stocks for consideration by retired investors. Consequently, my primary focus has been on above-average yield, safety and dividend growth. Stated more plainly, my objective was to present high quality income and income growth investments over total return investments.
Considering today’s low yield interest rate environment, my yield focus has been plus or minus 3% or better. For safety, I have been focusing on fair valuation as a function of earnings yield (the inverse of the P/E ratio). And for dividend growth a significant portion of my dividend growth offerings have been Dividend Champions or Dividend Contenders from David Fish’s CCC lists. These are companies that have consecutively grown their dividends for 10 to 25 years or longer.
However, it recently came to my attention that I have been neglecting “newer” investors that are planning for retirement but not yet in retirement. A young 37-year-old regular reader posted a comment on my recent article series where I covered 20 higher-yielding blue-chip dividend growth stocks found here and Part 2 found here . The following excerpt from his comment is what inspired me to write this article:
“I thought it would be very cool if you could do one more articles with 10 dividend growth stocks with slightly lower yields that have a little more room for growth for some of us “newer” investors. Perhaps, stocks that have strong dividend growth rates and higher revenue growth but still sport a yield somewhere between 1.6% to 2.6% (like GILD and AAPL) for example. I’m not sure if this is something you would consider, but thought I would at least throw it out there.”
Personally, I felt this was a reasonable request and I began running screens on dividend growth stocks that were fairly valued and offered above-average earnings and dividend growth potential. Frankly, I will admit to being shocked at how difficult it was to find faster growing dividend growth stocks of reasonable quality that were also attractively valued.
Cheaper by the Dozen
My quest to find 10 faster growing dividend stocks that were also attractively valued proved challenging. As I screened the universe, I did come up with just over 30 stocks that I initially found attractive based solely on valuation. However, as I begin looking for above-average earnings growth, my choices dwindled rapidly. Nevertheless, my screens produced 12 stocks that I felt met the above reader’s requirements, and more importantly, that also met some important considerations of my own.
If I had based my screens solely on fair or undervaluation, there were numerous research candidates to choose from. Unfortunately, many of them were too cyclical for my taste, and others represented more speculative turnaround situations. I did not feel comfortable presenting any of those.
Therefore, I only included companies that met some of my own personal investment philosophies in addition to attractive valuation. For starters, I prefer companies that have produced consistent above-average historical earnings growth and dividend growth.
However, I do not extrapolate past growth into the future. Instead, my initial focus on historical operating results is designed to provide me comfort that the business I am reviewing has a proven record of effectively competing in its industry. Additionally, a review of historical operating performance provides me some insights into the competency of the company’s management team.
With this in mind, I only included research candidates that have consistently produced above-average historical earnings growth over the past 5 to 7 years. I was a little more lenient with dividend growth, because some of the research candidates I found have only been paying dividends for a few years. On the other hand, I did require that each company provided a history of annual dividend increases.
As regular readers of my work will attest, each of the following research candidates had to appear attractively valued to be included. I calculate fair valuation based on the F.A.S.T. Graphs™ research tools implementation of widely-accepted formulas for valuing a business. These are what produce the orange valuation reference lines on each graph.
It’s important to point out, that these are theoretical valuation reference lines that provide the opportunity to analyze how the market has historically valued a given business. Consequently, I also evaluate and analyze the historically normal P/E ratio valuation that the market has applied to each company (this is the dark blue line on the graphs).
In order to be conservative, I will base my valuation decisions on the lower of the two valuation references. After I have reviewed history, I then turn my attention to evaluating the future potential of each company. However, I apply the same valuation logic to forecast calculations that I do with the historical data.
Therefore, readers should note that forecasting calculations provided will be based on either the historical orange formulaic valuation reference line, or the dark blue normal P/E ratio valuation reference line as appropriate. Stated more plainly, provided forecast return calculations will be presented based on the most conservative valuation reference.
This process generated the following 12 above-average growing dividend growth stocks that appear attractively valued in today’s market environment. The following portfolio review lists them in alphabetical order and provides a summary of some of the key fundamental metrics I was screening for. However, I want to be clear that these are not offered as a recommendation of 12 stocks to build a portfolio with. Instead, each research candidate is offered so that the reader can pick and choose any, none, or all of the candidates that meet their own unique goals and objectives.
The 12 Candidates Through The Lens Of Historical And Forecast Calculators from F.A.S.T. Graphs™
The following review of each individual candidate provides significant fundamental research on each selection. First, I have provided a short business description on each company courtesy of S&P Capital IQ. Next, I offer the historical earnings and price correlated graph followed by the associated performance on each research candidate over the timeframe graphed. Finally, I provide two forecasting calculators, one short to midterm and one longer-term forecast calculator.
It’s important to note that S&P Capital IQ provides two separate sets of forecasts. The short to midterm calculator is based on the consensus of leading analysts’ forecasts for the next 2 to 3 forward years. The number of analysts providing the forecast for each year is provided at the bottom of the graph. The second earnings forecast calculator is based on a long-term (3 to 5 year) trend line forecast. The number of analysts providing the long-term forecast is found in the FAST FACTS box to the right of the graph.
Apple Inc. (AAPL)
Short Business Description Courtesy Capital IQ:
“Apple Inc. designs, manufactures, and markets mobile communication and media devices, personal computers, watches, and portable digital music players worldwide. The company also sells related software, services, accessories, networking solutions, and third-party digital content and applications.
It offers iPhone, a line of smartphones that comprise a phone, music player, and Internet device; iPad, a line of multi-purpose tablets; Mac, a line of desktop and portable personal computers; iPod, a line of portable digital music and media players, such as iPod touch, iPod nano, and iPod shuffle; and Apple Watches, personal electronic devices that combine watch technology with an iOS-based user interface.
The company also provides iTunes app and the iTunes Store; Mac App Store that allows customers to discover, download, and install Mac applications; iCloud, a cloud service; Apple Pay for making mobile payments; Apple TV, a portfolio of consumer and professional software applications; iOS and OS X operating systems software; iLife, a consumer-oriented digital lifestyle software application suite; iWork, an integrated productivity suite designed to help users create, present, and publish documents, presentations, and spreadsheets; and other application software, including Final Cut Pro, Logic Pro X, and its FileMaker Pro database software.
In addition, it offers various Apple-branded and third-party Mac-compatible and iOS-compatible accessories, including headphones, cases, displays, storage devices, and various other connectivity and computing products and supplies.
The company sells and delivers digital content and applications through the iTunes Store, App Store, iBooks Store, and Mac App Store; and sells its products through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. The company was founded in 1977 and is headquartered in Cupertino, California.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Ameriprise Financial, Inc (AMP)
Short Business Description Courtesy Capital IQ:
“Ameriprise Financial, Inc., through its subsidiaries, provides various financial products and services to individual and institutional clients in the United States and internationally. The company’s Advice & Wealth Management segment provides financial planning and advice, as well as full-service brokerage services primarily to retail clients through its advisors.
Its Asset Management segment offers investment advice and investment products to retail, high net worth, and institutional clients through unaffiliated third party financial institutions and institutional sales force. This segment’s products include U.S. mutual funds and their non-U.S. equivalents, exchange-traded funds, variable product funds underlying insurance, and annuity separate accounts; and institutional asset management products, such as traditional asset classes, separately managed accounts, individually managed accounts, collateralized loan obligations, hedge funds, collective funds, and property funds.
The company’s Annuities segment provides variable and fixed annuity products to individual clients through affiliated and unaffiliated advisors, and financial institutions. Its Protection segment offers various products to address the protection and risk management needs of retail clients, including life, disability income, and property casualty insurance through advisors and affinity relationships.
The company was formerly known as American Express Financial Corporation and changed its name to Ameriprise Financial, Inc. in September 2005. Ameriprise Financial, Inc. was founded in 1894 and is headquartered in Minneapolis, Minnesota.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Delphi Automotive plc (DLPH)
Short Business Description Courtesy Capital IQ:
“Delphi Automotive PLC, together with its subsidiaries, manufacturers vehicle components; and provides electrical and electronic, powertrain, safety, and thermal technology solutions to the automotive and commercial vehicle markets worldwide. The company operates through four segments: Electrical/Electronic Architecture, Powertrain Systems, Electronics and Safety, and Thermal Systems.
The Electrical/Electronic Architecture segment provides complete design of the vehicle’s electrical architecture, including connectors, wiring assemblies and harnesses, electrical centers, and hybrid high voltage and safety distribution systems.
The Powertrain Systems segment offers systems integration of end-to-end gasoline and diesel engine management systems, including fuel handling, fuel injection, combustion, electronic controls, test and validation capabilities, aftermarket, and original equipment services.
The Electronics and Safety segment provides critical components, systems, and advanced software for passenger safety, security, comfort, and infotainment, as well as vehicle operation, including body controls, reception systems, infotainment and connectivity systems, hybrid vehicle power electronics, passive and active safety electronics, displays, and mechatronics.
The Thermal Systems segment provides powertrain cooling and heating, ventilating, and air conditioning systems, such as compressors, systems and controls, and heat exchangers for the vehicle markets.
The company sells its products to the original equipment manufacturers; and aftermarket for replacement parts, including the aftermarket operations of its OEM customers, and to other distributors and retailers. Delphi Automotive PLC was incorporated in 2011 and is based in Gillingham, United Kingdom.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Group 1 Automotive Inc (GPI)
Short Business Description Courtesy Capital IQ:
“Group 1 Automotive, Inc., through its subsidiaries, operates in the automotive retail industry. It sells new and used cars, light trucks, and vehicle parts; arranges vehicle financing; sells service and insurance contracts; and provides automotive maintenance and repair services.
The company has operations primarily in the metropolitan areas of Alabama, California, Florida, Georgia, Kansas, Louisiana, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, Oklahoma, South Carolina, and Texas in the United States; 16 towns in the United Kingdom; and in metropolitan markets of Sao Paulo, Parana, and Mato Grosso do Sul, Brazil.
As of February 16, 2015, it owned and operated 150 automotive dealerships, 195 franchises, and 38 collision centers that offer 32 brands of automobiles. The company was founded in 1995 and is headquartered in Houston, Texas.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Magna International Inc (MGA)
Short Business Description Courtesy Capital IQ:
“Magna International Inc. develops, manufactures, engineers, supplies, and sells automotive products. It operates through North America, Europe, Asia, and Rest of World segments.
The company offers body and chassis systems, and related engineering services; seating systems, including complete seating systems, seat structures and mechanisms, and foam and trim products; interior components and systems, such as garnish and hard trim, soft trim, instrument panels and consoles, overhead systems, and door panels, as well as powertrain systems, such as driveline systems, fluid pressure and controls, metal forming solutions, and engineering services and system integration solutions.
It also provides vision systems comprising interior and exterior mirrors, actuators, and electronic vision systems; and closure systems comprising door modules, power closure systems, engineered glass products, window systems, latching systems, lighting systems, sealing systems, electronic features, handle assemblies, and hinges and rods.
In addition, the company provides electronic systems, including driver assistance systems and electronic components; exterior systems, such as bumper fascia systems, exterior trim, modular systems, class a body panels, and structural components; and roof systems, including sliding folding and modular roofs, retractable hard tops, and soft tops.
Further, it offers vehicle engineering and contract vehicle assembly services; fuel systems; engineering support services; and tooling and other products. The company was founded in 1957 and is headquartered in Aurora, Canada”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Penske Automotive Group (PAG)
Short Business Description Courtesy Capital IQ:
“Penske Automotive Group, Inc. operates as an automotive retailer. The company operates through two segments, Retail Automotive and Other.
The company operates retail automotive and commercial vehicle dealerships principally in the United States and Western Europe; and distributes commercial vehicles, diesel engines, gas engines, power systems, and related parts and services primarily in Australia and New Zealand. It sells new and used motor vehicles of approximately 40 brands.
The company also offers vehicle maintenance and repair services. In addition, it is involved in the sale and placement of third-party finance and insurance products, third-party extended service and maintenance contracts, and replacement and aftermarket automotive products.
As of December 31, 2014, the company operated 327 automotive retail franchises, of which 179 franchises were located in the United States; and 148 franchises are located outside of the United States, primarily in the United Kingdom. Penske Automotive Group, Inc. is headquartered in Bloomfield Hills, Michigan.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Ryder System Inc (R)
Short Business Description Courtesy Capital IQ:
“Ryder System, Inc. provides commercial fleet management and supply chain solutions to small businesses and large enterprises worldwide. The company’s Fleet Management Solutions segment provides vehicles, as well as maintenance services, supplies, and related equipment for operation of the vehicles; commercial rental of vehicles on a short-term basis; contract maintenance services; and contract-related maintenance services for trucks, tractors, and trailers. This segment also offers diesel fuel accessing services; fuel services, such as fuel planning, fuel tax reporting, centralized billing, fuel cards, and fuel monitoring services; and sells its used vehicles through its 58 retail sales centers and Usedtrucks.Ryder.com Website.
Its Supply Chain Solutions segment provides dedicated services, which comprise equipment, maintenance, and administrative services of a full service lease with drivers, as well as additional services, such as routing and scheduling, fleet sizing, safety, regulatory compliance, risk management, technology, and communication systems support, including on-board computers and other technical support.
This segment also offers distribution management services comprising managing the flow of goods from the receiving function to the shipping function; coordinating warehousing and transportation for inbound and outbound material flows; handling import and export for international shipments; coordinating just-in-time replenishment of component parts to manufacturing and final assembly; and providing shipments to customer distribution centers or end customer delivery points.
In addition, this segment provides transportation management services, which include shipment planning and execution, such as shipment optimization, load scheduling, and delivery confirmation services through a series of technological and Web-based solutions; and knowledge-based professional services. Ryder System, Inc. was founded in 1933 and is based in Miami, Florida.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Raymond James Financial Inc (RJF)
Short Business Description Courtesy Capital IQ:
“Raymond James Financial, Inc., a financial holding company, through its subsidiaries, engages in the underwriting, distribution, trading, and brokerage of equity and debt securities, as well as the sale of mutual funds and other investment products in the United States, Canada, and Europe. The company operates through five segments: Private Client Group, Capital Markets, Asset Management, RJ Bank, and Other.
The Private Client Group segment provides securities brokerage services, including the sale of equities, mutual funds, fixed income products, and insurance products to their individual clients; and borrowing and lending of securities to and from other broker-dealers, financial institutions, and other counterparties.
The Capital Markets segment offers securities brokerage, trading, and research services to institutions with a focus on sale of the United States and Canadian equities and fixed income products; and manages and participates in underwritings, merger and acquisition services, and public finance activities.
The Asset Management segment operates eagle, the eagle family of funds, the asset management operations of Raymond James & Associates, trust services of Raymond James Trust, and other fee-based asset management programs.
The RJ Bank segment purchases and originates commercial and industrial loans, commercial and residential real estate loans, tax-exempt loans, and securities based loans.
The Other segment engages in principal capital and private equity activities, including various direct and third party private equity and merchant banking investments, employee investment funds, and private equity funds. Raymond James Financial, Inc. was founded in 1962 and is headquartered in St. Petersburg, Florida.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Scripps Networks Interactive (SNI)
Short Business Description Courtesy Capital IQ:
“Scripps Networks Interactive, Inc. develops lifestyle-oriented content for linear and interactive video platforms in the United States, the United Kingdom and other European markets, the Middle East and Africa, the Asia-Pacific, and Latin America.
The company delivers content that focuses on specifically defined topics of interest for audiences and advertisers. It operates national television networks, including Home and Garden Television (HGTV), Food Network, Travel Channel, DIY Network, Cooking Channel, and Great American Country; and Websites comprising HGTV.com, FoodNetwork.com, TravelChannel.com, DIYNetwork.com, CookingChanneltv.com, and GACTV.com that are associated with the aforementioned television brands and other Internet-based businesses serving home, food, and travel related categories.
The company also licenses its content to third parties; and brands for consumer products, such as videos, books, kitchenware, and tools. Scripps Networks Interactive, Inc. is headquartered in Knoxville, Tennessee.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Time Warner Inc (TWX)
Short Business Description Courtesy Capital IQ:
“Time Warner Inc. operates as a media and entertainment company in the United States and internationally. It operates through three segments: Turner, Home Box Office, and Warner Bros.
The Turner segment owns and operates a portfolio of cable television networks and related properties that offer entertainment, sports, kids, and news programming on television and digital platforms for consumers. It operates approximately 165 channels in 200 countries.
The Turner networks and related properties include TNT, TBS, Adult Swim, truTV, Turner Classic Movies, Turner Sports, Cartoon Network, Boomerang, CNN, and HLN. This segment also manages and operates various digital media properties primarily consisting of bleacherreport.com, cartoonnetwork.com, CNN Go, CNN.com, CNNMoney.com, NBA.com, NBA Digital, and NCAA.com; and licenses original programming to subscription-video-on-demand (SVOD) services, and its brands and characters for consumer products. This segment serves cable system operators, satellite service distributors, telephone companies, and other distributors.
The Home Box Office segment provides premium pay and basic tier television services comprising HBO and Cinemax; and sells its original programming through DVDs, Blu-ray discs, and electronic sell-through, as well as licenses home entertainment and content to international television networks and SVOD services.
As of December 31, 2014, this segment had approximately 46 million subscribers worldwide. The Warner Bros. segment produces, distributes, and licenses television programming and feature films; distributes digital and physical home entertainment products; and produces and distributes videogames, as well as licenses consumer products and brands. Time Warner Inc. is headquartered in New York, New York.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Whirlpool Corp (WHR)
Short Business Description Courtesy Capital IQ:
“Whirlpool Corporation manufactures and markets home appliances and related products worldwide. The company’s principal products include laundry appliances, refrigerators and freezers, cooking appliances, dishwashers, mixers, and other portable household appliances. It also produces hermetic compressors for refrigeration systems.
The company markets and distributes its products under various brand names, such as Whirlpool, Maytag, KitchenAid, Jenn-Air, Amana, Roper, Admiral, Affresh, Gladiator, Inglis, Estate, Acros, Supermatic, Consul, Brastemp, Indesit, Bauknecht, Ignis, Laden, Hotpoint, and Privileg.
It sells its products to retailers, distributors, dealers, builders, and other manufacturers. Whirlpool Corporation was founded in 1898 and is headquartered in Benton Harbor, Michigan.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
Gilead Sciences Inc (GILD)
Short Business Description Courtesy Capital IQ:
“Gilead Sciences, Inc., a biopharmaceutical company, discovers, develops, and commercializes medicines in areas of unmet medical need in North America, South America, Europe, and the Asia-Pacific.
The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost, and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread, and Hepsera products for the treatment of liver disease. It also offers Zydelig, a PI3K delta inhibitor, in combination with rituximab, for the treatment of certain blood cancers; Letairis, an endothelin receptor antagonist for the treatment of pulmonary arterial hypertension; Ranexa, a tablet used for the treatment of chronic angina; Lexiscan/Rapiscan injection for use as a pharmacologic stress agent in radionuclide myocardial perfusion imaging; Cayston, an inhaled antibiotic for the treatment of respiratory systems in cystic fibrosis patients; and Tamiflu, an oral antiviral capsule for the treatment and prevention of influenza A and B.
In addition, the company provides other products, such as AmBisome, an antifungal agent to treat serious invasive fungal infections; and Macugen, an anti-angiogenic oligonucleotide to treat neovascular age-related macular degeneration.
Further, it has product candidates in various stages of development for the treatment of HIV/AIDS and liver diseases, such as hepatitis B virus and hepatitis C virus; inflammation/oncology; serious cardiovascular; and respiratory conditions.
The company markets its products through its commercial teams and/or in conjunction with third-party distributors and corporate partners. Gilead Sciences, Inc. has collaborations with Bristol-Myers Squibb Company, Janssen R&D Ireland, and Japan Tobacco Inc. to develop and commercialize various products. The company was founded in 1987 and is headquartered in Foster City, California.”
Earnings and Price Correlated Graphs with Performance
Short-term and Long-Term Earnings Forecast and Return Calculators
As a bonus, I have prepared a free analyze-out-loud video on my website MisterValuation which provides a more in-depth and detailed look at the 12 attractive fast-growing dividend growth stocks provided in this article.
Summary and Conclusions
I feel it’s extremely important to reiterate that the 12 research candidates presented in this article were difficult to find as a result of the current moderately high level of the overall market. However, as I often point out, it is a market of stocks and not a stock market. This to me means that every market, whether it is a bull market, or a bear market, will contain overvalued, fairly valued or undervalued individual stocks within the universe.
I feel it’s also important to point out that these 12 candidates only come from 5 of the 10 sectors available in the overall market. Additionally, many of the names in each sector also operate in the same or very similar businesses. This is an additional reason why I do not suggest these 12 research candidates as a portfolio. Instead, they are offered as interesting fairly-valued above-average growing dividend growth stocks with the potential to provide above-average long-term total return and a growing dividend income stream. I leave it up to the reader to pick and choose according to their own preferences, objectives and goals.
Disclosure: Long AAPL,AMP,TWX,GILD at the time of writing.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.