10 Dividend Growth Stocks: February 2024

Summary

• In this series, I rank a selection of dividend growth stocks in Dividend Radar and present the ten top-ranked stocks for consideration.
• To rank stocks, I do a quality assessment and sort stocks by quality scores, breaking ties with additional metrics.
• This month, I'm presenting candidates with high earnings, revenue, and dividend growth rates trading at favorable valuations. Additionally, the stocks all have 5-year trailing total returns above 10%.

After taking a break in January, I'm back with another edition of my monthly series, 10 Dividend Growth Stocks!

In this series, I rank a selection of Dividend Radar stocks and present the ten top-ranked stocks for further research and possible investment. Dividend Radar is a weekly automatically generated spreadsheet of dividend growth [DG] stocks with dividend increase streaks of five or more years.

To look for interesting candidates, I apply different screens every month to highlight different aspects of dividend growth investing.

This month, I'm presenting candidates with high earnings, revenue, and dividend growth rates trading at favorable valuations. Additionally, the stocks all have 5-year trailing total returns above 10%.

To rank stocks, I perform a quality assessment and sort stocks by quality scores, breaking ties with additional metrics.

Screening and Ranking

The latest Dividend Radar (dated February 17, 2024) contains 717 stocks with dividend increase streaks of at least five years.

This month, I used the following screens: growth, performance, and valuation.

Growth Screens

I usually consider three trailing growth metrics:

• 5-year dividend growth rate [5-DGR]
• 5-year EPS growth rate [5-EGR]
• 5-year revenue growth rate [5-RGR]

Since these are trailing metrics, I blend them using the following formula to obtain a projected dividend growth rate [Proj-DGR] for a stock.

Essentially, the formula ignores the highest of the trailing growth rates and averages the remaining pair, further limiting the projected dividend growth rate [Proj-DGR] to 30%.

Here are this month's growth screens:

1. 5-DGR ≥ 10%
2. 5-EGR ≥ 10%
3. 5-RGR ≥ 10%
4. Proj-DGR ≥ 10%

69 Dividend Radar stocks pass the trailing growth screens.

170 Dividend Radar stocks pass the projected dividend growth screen.

Performance Screens

Total return is a good measure of an investment’s overall performance. It is the rate of return over a given period and includes capital appreciation and dividends.

I use the 5-year trailing total return [5-TTR] to measure each stock's performance.

For this month's article, I screened for stocks with a 5-TTR of at least 10%.

377 Dividend Radar stocks pass my performance screen.

Valuation Screens

I use a survey approach to estimate fair value [FV], collecting fair value estimates and price targets from several online sources such as Portfolio Insight, Morningstar, and Finbox. Additionally, I estimate fair value using each stock's five-year average dividend yield. With up to 12 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.

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

My Buy Below prices recognize that the highest-quality stocks rarely trade at discounted valuations. As a dividend growth investor with a long-term investment horizon, I'm more interested in owning quality stocks than getting a bargain on lower-quality stocks.

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

1. Stock price < FV estimate
2. Forward dividend yield > 5-year average dividend yield
3. Stock price < risk-adjusted Buy Below price

247 Dividend Radar stocks pass all three valuation screens.

Ranking Candidates

Only 15 stocks pass all of this month's screens.

To rank the candidates, I sorted them in descending order by quality scores and used the following tie-breaking metrics:

1. Simply Safe Dividends Dividend Safety Scores
2. S&P Global Credit Ratings
3. Forward Dividend Yield

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

Top 10 Dividend Growth Stocks for February

Here are this month's ten top-ranked DG stocks in rank order:

Top 10 Dividend Growth Stocks for February 2024

Click here to review the December Edition of 10 Dividend Growth Stocks.

Click to enlarge

I own the four highlighted stocks in my DivGro portfolio. The following company descriptions are my summary of company descriptions sourced from Finviz.

1. UnitedHealth (UNH)

UNH is a diversified healthcare company. Its UnitedHealthcare business offers consumer-oriented health benefit plans and services in the United States. Its Optum business delivers care aided by technology and data, empowering people, partners, and providers with the guidance and tools needed to achieve better health outcomes. UNH was founded in 1977 and is headquartered in Minnetonka, Minnesota.

2. Mastercard (MA)

MA is a technology company that provides transaction processing and other payment-related products and services in the United States and internationally. The company offers payment solutions and services under the MasterCard, Maestro, and Cirrus brands. MA was founded in 1966 and is headquartered in Purchase, New York.

3. Tractor Supply (TSCO)

Founded in 1938 and headquartered in Brentwood, Tennessee, TSCO operates retail farm and ranch stores in the United States. The company focuses on supplying the lifestyle needs of recreational farmers and ranchers, as well as tradesmen and small businesses. TSCO operates the retail stores under the names: Tractor Supply Company, Orscheln Farm & Home, and Petsense.

4. Elevance Health (ELV)

Formerly known as Anthem, Inc., ELV is a health benefits company. It operates through four segments: Commercial & Specialty Business, Government Business, CarelonRx, and Other. It serves people through a portfolio of medical, digital, pharmacy, behavioral, clinical, and care solutions. ELV. was founded in 1944 and is based in Indianapolis, Indiana.

5. Thermo Fisher Scientific (TMO)

TMO provides life sciences solutions, analytical instruments, specialty diagnostics, laboratory products, and biopharma services in the United States and internationally. The company offers products and services through a direct sales force, customer-service professionals, electronic commerce, third-party distributors, and catalogs. TMO was founded in 1956 and is headquartered in Waltham, Massachusetts.

6. Analog Devices (ADI)

ADI is engaged in the design, manufacture, and marketing of high-performance analog, mixed-signal, and digital signal processing integrated circuits. The company focuses on solving the engineering challenges associated with signal processing in electronic equipment. ADI was founded in 1965 and is headquartered in Norwood, Massachusetts.

7. Rollins (ROL)

ROL provides pest and wildlife control services to residential and commercial customers in the United States and internationally. The company’s pest control services include protection against termite damage, rodents, insects, and wildlife. It serves clients directly and through franchisee operations. ROL was founded in 1948 and is headquartered in Atlanta, Georgia.

8. L3Harris Technologies (LHX)

LHX is an aerospace and defense technology company that provides mission-critical solutions for government and commercial customers worldwide. The company operates in four segments: Integrated Mission Systems, Space and Airborne Systems, Communication Systems, and Aviation Systems. LHX was founded in 1895 and is headquartered in Melbourne, Florida.

9. Humana (HUM)

HUM is a health and well-being company offering medical and supplemental benefit plans to individuals. It also has a contract with the Centers for Medicare and Medicaid Services to administer the Limited Income Newly Eligible Transition prescription drug plan program. HUM. was founded in 1961 and is headquartered in Louisville, Kentucky.

10. Universal Display (OLED)

OLED engages in the research, development, and commercialization of organic light-emitting diode technologies and materials for use in display and solid-state lighting applications. It is also involved in the research, development, and commercialization of other organic light-emitting diode device and manufacturing technologies. OLED was incorporated in 1985 and is headquartered in Ewing, New Jersey.

Please note that the top ten DG stocks are candidates for further analysis, not recommendations.

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:

Here are the Sector and Super Sector designations of each candidate:

Commentary

Here's a comparative analysis of an equal-weighted portfolio of this month's top ten DG stocks, courtesy of Finbox.com:

From a price-performance perspective, the portfolio would have slightly underperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, returning 76% versus SPY's 79%.

Five of the stocks have year-over-year revenue growth rates above 10% (UNH, HUM, ROL, LHX, and MA). According to Finbox.com, six of the stocks have fair value upsides (HUM, UNH, LHX, ADI, and ELV).

OLED (56.3%) and TSCO (28.0%) have the highest 5-year dividend growth rates and are strong candidates for growth-oriented investors.

TSCO (24.3%), TMO (20.6%), and UNH (16.2%) have the highest 5-year TTRs, while TSCO, ELV, and OLED have the highest projected dividend growth rates.

According to Portfolio Insight, six stocks outperformed SPY over the last five years, with TSCO and TMO the top performers:

Looking back ten years, every single stock outperformed SPY. Here, UNH and ELV are the top performers.

LHX (2.15%), TSCO (1.86%), and ADI (1.83%) offer the highest forward yields.

As for valuations, HUM (-26%) is discounted most relative to my Buy Below prices, making it a strong candidate for value investors.

None of the stocks pass all five of my stock selection criteria for adding new positions to my DivGro portfolio:

LHX comes closest, just barely missing out on #4 above.

Of the stocks I do own, UNH and MA are full-sized positions based on how I calculate target weights. TSCO is underweight by about 20 shares ($4,698), while I would need to add 27 shares ($14,063) to my ELV holding to turn it into a full-sized position.

I'll likely add shares to my ELV position first. ELV has an A Dividend Quality Grade and a 1-year upside of 24%, according to Portfolio Insight:

With earnings and free cash flow payout ratios of only 17% and 21%, respectively, ELV has plenty of room to continue paying and raising its dividend. With a Dividend Safety Score of 99, ELV's dividend is deemed Very Safe by Simply Safe Dividends.

ELV recently raised its dividend by 10.1%, extending its run of double-digit percentage increases to five years.

Concluding Remarks

In this article, I ranked Dividend Radar stocks with high growth rates and high 5-year TTRs and presented the 10 top-ranked stocks for further research and possible investment.

I own four of the stocks in this month's top 10.

I'll likely add shares to my ELV position first. ELV is a high-quality stock with a very safe dividend and a 1-year upside of 24%, so I

None of the candidates I don't own pass all of my selection criteria for adding new positions to my DivGro portfolio.

As always, I encourage readers to do their due diligence before buying any stocks I cover

Thanks for reading, and take care, everybody!