INTU - 10 Dividend Growth Stocks - March 2023

2023-03-26 09:00:00 ET

Summary

• This monthly series ranks a selection of dividend growth stocks in Dividend Radar and presents the ten top-ranked stocks for consideration.
• To rank stocks, I sort them in descending order by quality score and break ties with additional metrics.
• This month I ranked discounted stocks likely to deliver annualized returns of 8% or more based on the Chowder Rule of dividend growth investing.
• To screen for discounted stocks, I looked for stocks with a forward yield exceeding its 5-year average yield.

Dividend Radar is a weekly automatically generated spreadsheet of more than 700 dividend growth stocks [DG] with dividend increase streaks of five or more years. Every month, rank a selection of Dividend Radar stocks and present the ten top-ranked stocks for further research and possible investment.

I rank stocks by sorting them in descending order by quality score and using tie-breaking metrics where necessary. My quality scoring system is a variation of DVK Quality Snapshots , which employs widely used quality indicators from independent sources to assess the quality of DG stocks.

This month I decided to rank Dividend Radar stocks with qualifying Chowder Numbers based on the Chowder Rule of dividend growth investing. Such stocks are likely to deliver annualized returns of at least 8%. I also included a valuation screen, looking for DG stocks with a forward yield exceeding its 5-year average yield.

Screening and Ranking

The latest Dividend Radar (dated March 24, 2023) contains 736 DG stocks.

I screened these DG stocks for ones with qualifying Chowder numbers as explained below, finding 211 candidates. Additionally, I screened for stocks with a forward yield exceeding the 5-year average yield, finding 585 candidates. When combining these screens, 96 candidates made the cut.

Qualifying Chowder Numbers

Proposed and popularized by Seeking Alpha author Chowder , the Chowder Rule favors dividend growth stocks likely to produce annualized total returns of at least 8%.

To implement the Chowder Rule, you add a stock's dividend yield and 5-year dividend growth rate [DGR] and obtain the so-called Chowder Number[C#]. Chowder required a margin of safety depending on the stock's yield and whether the stock is a utility stock. Stocks with lower yields have a higher margin of safety, while utility stocks yielding at least 4% have no margin of safety.

Here are the criteria Chowder used:

1. Stocks yielding less than 3% require a C# of at least 15%.
2. Stocks yielding at least 3% require a C# of at least 12%.
3. Utility stocks yielding at least 4% require a C# of at least 8%.

Higher-yielding utility stocks get treated specially because utilities are regulated and enjoy regional competitive advantages. As a result, utilities have relatively stable yields and growth rates.

While the Chowder Rule is sensible and intuitive, it uses a trailing metric (the 5-year DGR) to predict future growth. There is no guarantee that a company will maintain the same dividend growth rate in the future.

For this reason, I use additional metrics to predict future growth, including the 5-year EPS growth rate [EGR] and the 5-year revenue growth rate [RGR].

Companies pay dividends from earnings, and earnings depend on revenue, so the EGR and RGR provide additional hints about future growth prospects.

I define and calculate the Adjusted Chowder Number [ACN] as follows:

The ACN caps the yield side of the equation to 10% and the growth side of the equation to 30%. Moreover, it averages the minimum and median of the three growth rate metrics.

By qualifying Chowder Numbers, I mean:

• For DG stocks yielding less than 3%: ACN ? 15%
• For DG stocks yielding at least 3%: ACN ? 12%
• For utility stocks yielding at least 4%: ACN ? 8%

Ranking by Quality

As mentioned earlier, 96 candidates pass both of this month's screens. I sorted these candidates in descending order by their quality scores and used the following tie-breakers to rank them:

• Dividend Safety Scores (from Simply Safe Dividends)
• Credit Ratings (from S&P Capital)
• Forward Dividend Yield

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

Top 10 Dividend Growth Stocks for March

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

I own the highlighted stocks in my DivGro portfolio .

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

1. Comcast ((CMCSA))

Founded in 1963 and headquartered in Philadelphia, Pennsylvania, CMCSA is a global media and technology company. The company operates through Cable Communications, Cable Networks, Broadcast Television, Filmed Entertainment, Theme Parks, and Sky segments. CMCSA delivers broadband, wireless, and video connectivity; creates, distributes, and streams entertainment, sports, and news; and operates theme parks and resorts.

2. Home Depot ((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.

3. UnitedHealth ((UNH))

Founded in 1974 and based in Minnetonka, Minnesota, UNH is a diversified health and well-being company with core capabilities in clinical expertise, advanced technology, and data and health information. The company provides medical benefits to customers in the United States and in more than 125 other countries.

4. Mastercard ((MA))

MA, a technology company, 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.

5. Intuit ((INTU))

INTU provides financial management and compliance products and services for consumers, small businesses, self-employed, and accounting professionals in the United States, Canada, and internationally. The company operates in three segments: Small Business & Self-Employed, Consumer, and Strategic Partner. INTU was founded in 1983 and is headquartered in Mountain View, California.

6. Cintas ((CTAS))

Headquartered in Cincinnati, Ohio, CTAS provides corporate identity uniforms and specialized business services in North America, Latin America, Europe and Asia. The company offers its products and services through a distribution network and local delivery routes, or through local representatives, to small service and manufacturing companies, as well as to corporations. CTAS was founded in 1968.

7. Lowe's ((LOW))

LOW is a home improvement retailer. The company offers a complete line of products for maintenance, repair, remodeling, and home decorating. It also offers installation services through independent contractors, as well as extended protection plans and repair services. LOW was founded in 1946 and is based in Mooresville, North Carolina.

8. Toronto-Dominion Bank ((TD))

TD provides various financial products and services in Canada, the United States, and internationally. The company operates through three segments: Canadian Retail, U.S. Retail, and Wholesale Banking. It offers its products and services under TD Bank and America's Most Convenient Bank brand names.

9. Bristol-Myers Squibb ((BMY))

BMY discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company's pharmaceutical products include chemically synthesized drugs administered as tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887 and is headquartered in New York, New York.

10. Pfizer ((PFE))

Headquartered in New York and founded in 1849, PFE is one of the world's largest pharmaceutical firms. The company discovers, develops, and manufactures healthcare products. PFE offers medicines and vaccines in various therapeutic areas, serving wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, and individual provider offices, as well as disease control and prevention centers.

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:

• Yrs : years of consecutive dividend increases

• Qual : Quality score out of 30

• Fwd Yield : forward dividend yield for a recent share Price

• 5-Avg Yield : 5-year average dividend yield

• 5-DGR : 5-year compound annual growth rate of the dividend

• 5-EGR : 5-year compound annual growth rate of EPS

• 5-RGR : 5-year compound annual growth rate of revenue

• 5-YOC : the projected yield on cost after five years of investment

• ACN : Adjusted Chowder Number

• 5-TTR : 5-year compound trailing total returns

• VL PS : Value Line Price Stability

• VL FS : Value Line Financial Strength ratings

• MS EM : Morningstar Economic Moat

• SP CR : S&P Global Credit Ratings

• SS DS : Simply Safe Dividends Dividend Safety Scores

• PI DQ : Portfolio Insight Dividend Quality Grades

• Buy Below : my risk-adjusted buy below price

• –Disc +Prem : discount or premium of the recent share Price to my Buy Below price

• Price : recent share price

Commentary

From a price-performance perspective, the portfolio would have outperformed the S&P 500 (as represented by the SPDR S&P 500 Trust ETF (SPY)) over the last five years, returning 73% versus SPY's 50%. Nine stocks have fair value upsides according to Finbox.com.

TD (5.00%), PFE (4.06%), BMY (3.37%),and CMCSA (3.23%) offer the highest forward yields and are strong candidates for Income Investors.

INTU (18%), HD (16%) , and LOW (16%) have the highest ACNs, so these stocks have the best total return prospects of this month's stocks.

CTAS (25.0%), UNH (20.9%), and INTU (20.7%) have the highest 5-year TTRs.

Four stocks pass all five of my stock selection criteria for adding new positions to my DivGro portfolio:

1. Stock Quality : Quality scores ? 20 ( Exceptional , Excellent , or Fine ratings)
2. Stock Valuation : Price ? Buy Below price (trades below my risk-adjusted Buy Below price)
3. Growth Outlook : Qualifying ACNs (likely to deliver annualized returns of 8%)
4. Income Outlook : 5-year YoC ? 4.00% (likely to have high YoCs after 5 years of ownership)
5. Dividend Quality : A+ or A Dividend Quality Grades

In rank order, these stocks are CMCSA , HD , LOW , and BMY .

Concluding Remarks

In this article, I ranked Dividend Radar stocks that passed two screens. The first screen, qualifying Adjusted Chowder Numbers, finds Dividend Radar stocks likely to deliver annualized returns of 8% or more based on the Chowder Rule. The second screen finds discounted stocks with a forward yield exceeding its 5-year average yield.

I own nine of the ten top-ranked stocks this month.

CMCSA , HD , LOW , and BMY look interesting to me. Of these, HD and LOW have the highest ACNs and are the stocks most likely to have annualized returns of at least 8%.

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

Thanks for reading, and take care, everybody!

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