SPY - 10 Dividend Growth Stocks For November 2023

2023-11-28 08:06:06 ET

Summary

• In my monthly series of 10 Dividend Growth Stocks, I rank a selection of Dividend Radar stocks and present the 10 top-ranked stocks for further research and possible investment.
• This month, I'm presenting high-quality stocks with the highest defensiveness scores based on a scoring system developed by David Van Knapp.
• I ranked candidates by considering, in turn, their Dividend Safety Scores and their Beta measure of volatility.

Welcome to the November edition of my monthly series of 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.

Every month, I use different screens to highlight different aspects of dividend growth investing. This month, I'm presenting high-quality stocks with the highest defensiveness scores based on a scoring system developed by David Van Knapp.

Screening for Defensive Stocks

The GICS sectors can be grouped into super sectors based on their performance throughout the business cycle. According to this grouping, defensive sectors include Consumer Staples, Health Care, and Utilities, and, by implication, stocks in these sectors are defensive stocks.

David Van Knapp took a different approach to Defensiveness . Rather than labeling stocks defensive based on sector membership, he suggested using safety indicators to measure a stock's defensiveness. The scoring system considers four safety indicators and assigns 0-3 points to each indicator for a maximum of 12 points.

The safety indicators are:

• Beta : A measure of a stock's volatility relative to the overall market
• Simply Safe Dividends' Dividend Safety Scores
• Value Line's Safety Rank
• Great Recession Performance: Was the dividend increased, maintained, or cut?

The system is most appropriate for DG stocks and indirectly favors DG stocks with dividend increase streaks of at least 10 years.

Ranking Candidates

The latest Dividend Radar (November 17, 2023) contains 713 DG stocks.

Of these, 26 stocks have the highest possible defensiveness score of 12 points. I eliminated one stock with a quality score below 21 points and ranked the remaining stocks by considering, in turn, their Dividend Safety Scores and their Beta measure of volatility.

Each stock's Rank is shown in the tables below.

The 10 Dividend Growth Stocks for November

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

The five stocks I own in my DivGro portfolio are highlighted.

The following company descriptions are my summary of company descriptions sourced from Finviz.

1. Hormel Foods ( HRL )

HRL is a multinational manufacturer and distributor of consumer-branded food and meat products to retail, food service, deli, and commercial customers. The company operates through four segments: Grocery Products, Refrigerated Foods, Jennie-O Turkey Store, and International & Other. HRL was founded by George A. Hormel in 1891 and is based in Austin, Minnesota.

2. Procter & Gamble ( PG )

Founded by William Procter and James Gamble in 1837, PG is focused on providing branded consumer packaged goods in more than 180 countries. PG has five reportable segments: Beauty, Grooming, Health Care, Fabric NS Home Care, and Baby, Feminine and Family Care. PG is headquartered in Cincinnati, Ohio.

3. Johnson & Johnson ( JNJ )

Founded in 1886 and headquartered in New Brunswick, New Jersey, JNJ has grown into one of the largest companies in the world. The company is a pharmaceutical, medical technology, and consumer health leader. JNJ distributes its products to the general public, retail outlets and distributors, wholesalers, hospitals, and health care professionals.

4. Church & Dwight ( CHD )

CHD develops, manufactures, and markets a range of household, personal care, and specialty products. The company sells its consumer products under various brands through a distribution platform that includes supermarkets, mass merchandisers, wholesale clubs, drugstores, convenience stores, specialty stores, and websites. CHD was founded in 1846 and is headquartered in Ewing, New Jersey.

5. Chubb ( CB )

CB is the world's largest publicly traded property and casualty insurance company. The company operates in over 50 countries and offers commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance, and life insurance. CB was founded in 1882 and is headquartered in Zurich, Switzerland.

6. Public Service Enterprise ( PEG )

PEG is an energy company engaged in the business of regulated electric and gas utility and nuclear generation. The company's products and services include energy, capacity, ancillary services, emissions allowances, and congestion credits. PEG was founded in 1903 and is headquartered in Newark, New Jersey.

7. Brown-Forman (BF.B)

Founded in 1870 and headquartered in Louisville, Kentucky, BFB manufactures, bottles, imports, exports, markets, and sells alcoholic beverages in over 160 countries. The company provides spirits, wines, ready-to-drink cocktails, whiskey, vodka, tequilas, champagnes, wines, brandy, and liqueur. BKB sells its products under various brands, including Jack Daniel's.

8. Medtronic plc ( MDT )

MDT develops, manufactures, distributes, and sells device-based medical therapies and services worldwide. Customers include hospitals, physicians, clinicians, and patients. The company operates in four segments: Cardiovascular Portfolio, Medical Surgical Portfolio, Neuroscience Portfolio, and Diabetes Operating Unit. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

9. Jack Henry ( JKHY )

JKHY is a financial technology company providing technology solutions and payment processing services to financial institutions and corporations. The company offers information and transaction processing, core data processing, online and mobile solutions, and specialized imaging and payment processing services. JKHY was founded in 1976 and is headquartered in Monett, Missouri.

10. Brown & Brown ( BRO )

BRO is an insurance agency, wholesale brokerage, insurance program, and service organization. It provides insurance brokerage and casualty insurance underwriting services to various customers, including businesses, public entities, individuals, trade groups, and professional associations. BRO was founded in 1939 and is headquartered in Daytona Beach, Florida.

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:

Projected Dividend Growth Rate

The 5-DGR is a trailing growth rate metric. While some analysts use the 5-DGR to project future dividend growth, there is no guarantee that a company will maintain the same growth rate.

I use two additional metrics to predict future growth: the 5-year EPS growth rate [5-EGR] and the 5-year revenue growth rate [5-RGR]. These metrics provide additional hints of future growth prospects as companies pay dividends from earnings, and earnings depend on revenue.

Conservatively, I ignore the maximum of the three growth rate metrics and average the lower pair, further limiting the projected dividend growth rate to 30%:

Risk-Adjusted Buy Below Price

To estimate fair value [FV], I collect FV estimates and price targets from several sources, including Morningstar and Finbox. I also 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.

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 underperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF ( SPY )) over the last five years, returning 34% versus SPY's 65%. The stocks offer yields from 0.70% ( BRO ) to 3.53% ( PEG ). Only two stocks yield more than 3.5%, PEG and MDT . These are good candidates for income investors.

BRO has a projected DGR of 12.3% and is the best candidate for growth-oriented investors.

Four stocks ( BRO , PG , CB , and CHD ) have double-digit percentage TTRs and are the stocks in this month's list that have outperformed SPY over the trailing 5-year period:

As for valuations, MDT (-26%) and HRL (-25%) are discounted most relative to my Buy Below prices and are great candidates for value investors.

Of the stocks I own in my DivGro portfolio, HRL , PG , and JNJ are underweight positions. Based on how I calculate target weights , I'd need to add 167 shares of HRL, 34 shares of PG, and 45 shares of JNJ to turn these into full-sized positions.

HRL now offers the highest forward yield since 1995:

It appears to be a great time to add shares to my HRL position!

None of the stocks I don't own pass my stock selection criteria for adding new positions to my DivGro portfolio:

Consequently, I'm not looking to add any of this month's top-ranked stocks to my portfolio.

Concluding Remarks

This month, I screened Dividend Radar stocks for high-quality stocks with the highest defensiveness scores based on a scoring system developed by David Van Knapp. Twenty-five have quality scores above 20 and the highest possible defensiveness score of 12 points.

I own five of this month's top-ranked stocks in my DivGro portfolio and am considering adding HRL shares to my DivGro portfolio.

Based on your investment style, you may want to target the following stocks:

• For income investors: PEG and MDT
• For value investors: MDT and HRL
• For growth-oriented investors: BRO

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

Thanks for reading, and happy investing!

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