CI - My Top 15 High-Growth Dividend Stocks For May 2023
2023-05-01 12:30:00 ET
Summary
- I present my top 15 high-growth dividend stocks to consider during the month of May.
- The watchlist posted a gain of 0.41% in April, trailing both VIG and SPY.
- Since inception, September 2020, the watchlist is outperforming VIG by 4.52% and SPY by 5.43% on an annualized basis.
Quality Stocks
Quarter 2 got off to a positive start as my watchlist posted a positive return in April. The SPDR S&P 500 Trust ETF ( SPY ) is up 9.19% year-to-date, Vanguard's Dividend Appreciation ETF ( VIG ) is up 4.28% and my watchlist slides into 2nd place, up 8.82%.
Following April, the watchlist sees its long-term annualized return decrease to 13.89%, still comfortably above my target of 12%. Even though the watchlist posted a positive gain during the month, the return was small and hurt the long-term annualized rate of growth.
The main focus of this watchlist is to find the best combination of quality companies trading for attractive prices. I believe this is the optimal long-term strategy to building wealth.
The top 15 dividend growth stocks for May offer an average dividend yield of 1.35%. Collectively, they have increased dividend payments at a rate of 30.99% during the last 5 years. Based on dividend yield theory, these 15 stocks are about 32% undervalued right now, and I think they are poised to offer strong long-term returns.
I would recommend two approaches to dividend investing. The first is to dollar-cost average into at least 10-20 or more quality dividend-paying stocks across multiple sectors and industries. By dollar-cost averaging, you eliminate the risk of trying to value a stock and over a long enough period, theoretically, you will buy shares at market highs, lows, and in-between resulting in an average cost basis somewhere in the middle. The second method carries a little more risk. Invest in undervalued stocks, also dollar-cost averaging into at least 10-20 unique quality companies across multiple sectors and industries. The additional risk with this approach comes from the chance that your valuation method proves to be incorrect. However, by investing in multiple unique stocks, the odds that you accurately identify at least a few undervalued stocks increases. The resulting upside from a few correct picks may more than offset the underperformance from the bad ones.
Watchlist Criteria
The criteria used to determine which stocks are included in my high-growth dividend stock watchlist remains unchanged for May 2023. It is made up of the 8 factors listed below that have historically outperformed the broad universe of dividend-paying stocks when analyzed collectively.
- Market Cap of at least $10 billion.
- Payout Ratio no greater than 70%.
- 5-year Dividend Growth rate of at least 5%.
- 5-year Revenue Growth rate of at least 2%.
- 5-year EPS Growth rate of at least 2%.
- S&P Earnings and Dividend Rating of B+ or better.
- Wide or Narrow Moat (Morningstar).
- Exemplary or Standard Management Team (Morningstar).
The rules identified 129 stocks for the month that were all ranked based on the above-mentioned metrics with the exclusion of market cap. I then computed the current valuation for each stock using dividend yield theory. All stocks were ranked for both quality and valuation and sorted by the best combination of both. Next, I computed a forecasted rate of return for the next 5-year period for each of the stocks. This return is based on forecasted earnings growth, a return to fair value and the dividend yield.
The highest ranked 15 stocks with a forecasted return greater than or equal to 12% were chosen for the watchlist. The long-term hypothesis for this watchlist is that it will outperform a broad quality dividend fund such as Vanguard's Dividend Appreciation ETF, VIG.
Watchlist For May 2023
Above are the 15 stocks I am considering for further evaluation during the month. They are sorted in descending order by their rank and 5-year dividend growth rate.
The "O/U" column represents potential undervalue; this is a comparison of the current dividend yield to the historical dividend yield as a function of share price.
The expected return in the table above was computed using a discounted 5-year EPS forecast, a return to fair value and the current dividend yield. There is also a margin of safety built into the forecasted return. These figures are just assumptions based on the available data and there is no guarantee these returns will be attained.
The large potential under-valuation for Cigna ( CI ) is overstated due to very fast recent dividend growth by the company. Dividend yield theory works best for companies with stable and consistent dividend growth. Cigna's potential undervaluation has been dropping every month as the trailing dividend yield catchups up to its current yield but it will take at least a few more months before it looks reasonable.
There are 2 changes to the top 15 list from the prior month. Mastercard ( MA ) and Rollins ( ROL ) have fallen further down the list, or do not meet the 12% expected rate of return threshold and were replaced by CDW ( CDW ) and MSCI ( MSCI ).
Past Performance
The top 15 list for April posted a gain of 0.41% but continues to maintain its long-term alpha over both benchmarks. The long-term annualized rate of return for the watchlist decreases from 14.19% last month to 13.89%. My target rate of return is 12%, and despite the volatility in the market this year I remain optimistic that this watchlist will continue to exceed this goal in the long run.
Month |
Watchlist |
All |
VIG |
SPY |
1 Month |
0.41% |
-0.24% |
2.31% |
1.60% |
3 Month |
-0.56% |
-1.71% |
1.34% |
2.72% |
6 Month |
13.46% |
8.58% |
7.16% |
8.62% |
1 Year |
13.69% |
6.61% |
4.54% |
2.69% |
2020 |
6.27% |
6.15% |
9.09% |
7.94% |
2021 |
33.81% |
31.55% |
23.75% |
28.76% |
2022 |
-8.58% |
-15.12% |
-9.80% |
-18.16% |
2023 |
8.82% |
5.81% |
4.28% |
9.19% |
Since Inception |
41.47% |
25.42% |
26.99% |
24.18% |
Annualized |
13.89% |
8.86% |
9.37% |
8.46% |
Top 5 past and present watchlist stocks in April 2023:
- Rollins (ROL) +12.58%.
- Comcast ( CMCSA ) +9.96%.
- Starbucks ( SBUX ) +9.76%.
- Humana ( HUM ) +9.28%.
- Graco (GGG) +8.96%.
1 of the top 15 stocks selected in April was amongst the top 5 past and present performing stocks last month, Rollins. In total there have been 69 unique dividend stocks selected by this watchlist since September of 2020.
Top 5 Stocks by Total Return since joining the watchlist:
- Nvidia ( NVDA ) +108.75% (25 months).
- Tractor Supply ( TSCO ) +73.91% (27 months).
- Automatic Data Processing ( ADP ) +67.19% (32 months).
- Progressive ( PGR ) +60.05% (27 months).
- United Healthcare ( UNH ) +52.07% (27 months).
Since not all stocks have been on the watchlist for the full 32 months of its existence, comparing a monthly average return can help normalize the results. Here are the top 5 stocks with the highest average monthly return since joining the watchlist.
- EOG Resources ( EOG ) +3.67% (2 months).
- Nvidia ( NVDA ) +2.99% (25 months).
- Rollins (ROL) +2.23% (15 months).
- Zoetis ( ZTS ) +2.10% (3 months).
- Tractor Supply ( TSCO ) +2.07% (27 months).
Drivers Of Alpha
The watchlist underperformed VIG in April. 7 watchlist stocks outpaced the ETF last month.
- ( ROL ) +12.58%.
- (ZTS) +5.84%.
- ( SHW ) +5.68%.
- ( MA ) +4.74%.
- ( LOW ) +4.46%.
- ( SSNC ) +3.67%.
- ( V ) +3.22%.
The remaining 8 stocks underperformed VIG.
- (TSCO) +1.43%.
- (FMC) +1.19%.
- ( SCHW ) -0.27%.
- ( CI ) -0.88%.
- (DPZ) -3.76%.
- ( WRB ) -5.36%.
- ( MPWR ) -7.71%.
- ( MKTX ) -18.64%.
Total Return For All Watchlist Stocks
Here are the total returns for all past and present watchlist stocks since first appearing on the watchlist. Out of the 69 stocks that are on this list, 54 (50 last month) have positive total returns and 15 have negative total returns, the average return is 13.69% (14.33% last month). The watchlist has been around for 32 months, the average duration for all 69 stocks is 24.94 months.
Symbol |
Since Joining |
Count |
NVDA |
108.75% |
25 |
TSCO |
73.91% |
27 |
ADP |
67.19% |
32 |
PGR |
60.05% |
27 |
UNH |
52.07% |
27 |
CTAS |
46.46% |
27 |
HUM |
41.87% |
26 |
GGG |
41.16% |
32 |
NOC |
39.64% |
32 |
MSFT |
39.27% |
32 |
ROL |
39.15% |
15 |
COST |
37.44% |
32 |
LMT |
33.50% |
32 |
CDW |
31.97% |
27 |
MSCI |
31.97% |
32 |
INTU |
30.76% |
32 |
BK |
30.76% |
32 |
EXPD |
29.93% |
27 |
WST |
28.02% |
32 |
TJX |
27.66% |
27 |
LOW |
26.21% |
32 |
KLAC |
25.68% |
24 |
MPWR |
25.25% |
26 |
APH |
23.63% |
27 |
TMO |
22.12% |
25 |
ACN |
21.31% |
32 |
FDS |
20.08% |
32 |
AMAT |
19.10% |
27 |
FAST |
18.51% |
32 |
BBY |
18.34% |
10 |
BLK |
14.75% |
32 |
JPM |
14.55% |
27 |
HD |
12.33% |
32 |
V |
11.70% |
32 |
DE |
11.47% |
17 |
LRCX |
11.23% |
27 |
DG |
11.17% |
25 |
MCO |
8.79% |
32 |
CI |
8.74% |
14 |
CMCSA |
8.25% |
32 |
ROP |
8.10% |
32 |
MA |
7.68% |
32 |
EOG |
7.47% |
2 |
ZTS |
6.44% |
3 |
TXN |
6.30% |
27 |
MS |
5.50% |
23 |
FDX |
5.17% |
14 |
SHW |
5.08% |
27 |
SCHW |
3.87% |
27 |
NTRS |
3.29% |
32 |
FMC |
2.78% |
11 |
JKHY |
1.81% |
32 |
ICE |
1.56% |
27 |
SBUX |
0.55% |
16 |
USB |
-3.33% |
30 |
GS |
-4.36% |
21 |
WRB |
-5.36% |
1 |
SSNC |
-9.59% |
26 |
BX |
-9.99% |
9 |
TROW |
-10.56% |
32 |
ATVI |
-14.28% |
24 |
DPZ |
-20.13% |
32 |
AAP |
-25.16% |
10 |
SWKS |
-29.83% |
16 |
MKTX |
-40.07% |
27 |
SIRI |
-41.72% |
13 |
LAD |
-42.76% |
25 |
BALL |
-43.88% |
16 |
PARA |
-44.89% |
22 |
For further details see:
My Top 15 High-Growth Dividend Stocks For May 2023