2023-04-14 07:00:00 ET
Summary
- In today’s article, I will present you with my top 10 dividend growth stocks to invest in for April 2023.
- The selected picks are all financially strong, have a relatively low Payout Ratio, an attractive Valuation and have shown significant Dividend Growth in the past years.
- The Average Dividend Growth Rate [CAGR] of the selected companies over the past 5 years is 13.27%.
- These metrics strengthen my belief that they will provide your portfolio with significant Dividend Growth in the upcoming years.
Investment Thesis
Last month, I wrote about my top 10 dividend growth companies to invest in for March 2023 . In today’s article, I will discuss my top 10 dividend growth picks for this month of April.
In general, you should consider dividend growth companies as being important for your investment portfolio. This is because they can help you to raise the additional income you receive every year by a significant amount. For these reasons, I have selected 10 companies that I currently consider to be very attractive for dividend growth investors due to a wide variety of reasons.
The 10 companies I’ve selected for you currently have a P/E [FWD] Ratio of 18.30 on Average. At the same time, they would provide your portfolio with an Average Dividend Yield [FWD] of 1.72%. Moreover, they have shown an Average Dividend Growth Rate [FWD] of 13.27% over the past 5 years, which makes me confident that they should provide your portfolio with significant dividend growth in the years ahead.
In the following, I will explain the selection process for my top 10 dividend growth stocks of April 2023.
In my previous analysis on my top dividend growth stocks for the month of March 2023, I already discussed this selection process. So, if you are already familiar with the process, then you can skip the following description written in italics.
First step of the Selection Process: Analysis of the Financial Ratios
In a first step, companies must meet the following requirements to be part of a pre-selection, which I will then select the top dividend growth stocks of the month from:
- Market Capitalization > $15B
- Payout Ratio < 60%
- Average Dividend Growth Rate over the past 5 Years > 5%
- Dividend Yield [FWD] > 0%
- P/E [FWD] Ratio < 50
- EBIT Margin [TTM] > 5% or Net Income Margin [TTM] > 5%
- Return on Equity > 5%
- Moody’s credit rating: at least B
I consider the metrics mentioned above to be important in order to help you make well founded investment decisions and to therefore increase the probability of getting good results.
A relatively low Payout Ratio ensures that the company still has sufficient room for future dividend enhancements. This is particularly important for dividend growth investors that aim to invest with a long investment horizon. At the same time, a relatively low Payout Ratio contributes to the fact that the probability of a future dividend cut is lower. A dividend cut could lead to the stock price declining significantly in a short period of time.
A relatively high Dividend Growth Rate of more than 5% over the past 5 years increases the probability of the company being able to raise its Dividend to a significant amount in the following years.
A P/E [FWD] Ratio of less than 50 contributes to the fact that the growth expectations that are priced into the stock price of the company you aim to invest in are not extraordinarily high. This helps as you run less risk of the share price decreasing significantly in a short period of time if the growth expectations for the company are not met.
An EBIT Margin or Net Income Margin of more than 5% and a Return on Equity of more than 5% help to filter out companies that are profitable.
A credit rating from Moody’s of at least B serves as an additional indicator of the financial strength of a company.
Second step of the selection process: Analysis of the Competitive Advantages
In a second step, the companies’ competitive advantages (for example: brand image, innovation, technology, economies of scale, etc.) are analyzed in order to make an even narrower selection. I consider it to be particularly important for companies to have strong competitive advantages in order to stand out against the competition in the long term. Companies without strong competitive advantages have a higher probability of going bankrupt one day, thus representing a strong risk for investors to lose their invested money.
Third step of the selection process: The Valuation of the companies
In the third step of the selection process, I will dive deeper into the Valuation of the companies.
In order to conduct the Valuation process, I use different methods and criteria, for example, the companies’ current Valuation as according to my DCF Model, the expected compound annual rate of return as according to my DCF Model and/or a deeper analysis of the companies’ P/E [FWD] Ratio. These metrics should serve as an additional filter to only select companies that currently have an attractive Valuation, which helps you to identify companies that are at least fairly valued.
The Fourth and final step of the selection process: Diversification over Industries and Countries
In the fourth and final step of the selection process, I have established the following rules for choosing my top picks: in order to help you diversify your investment portfolio, a maximum of two companies should be from the same industry. In addition to that, there should be one pick that is from a company that is based outside of the United States, serving as an additional geographical diversification.
New Companies when compared to the list of the previous month
- Charles Schwab (NYSE: SCHW )
- Mastercard (NYSE: MA )
- Deere & Company (NYSE: DE )
- Bristol Myers Squibb Company (NYSE: BMY )
- Taiwan Semiconductor (NYSE: TSM )
My Top 10 Dividend Growth Companies to invest in for April 2023
In the following, you can find the 10 dividend growth companies that I have selected for this month of April 2023 and that I consider to be particularly attractive at this moment in time:
- Apple (NASDAQ: AAPL )
- Bank of America (NYSE: BAC )
- Bristol Myers Squibb Company
- Charles Schwab
- Deere & Company
- JPMorgan (NYSE: JPM )
- Mastercard
- Microsoft (NASDAQ: MSFT )
- Taiwan Semiconductor
- Visa (NYSE: V )
Company Name | Sector | Industry | Country | Dividend Yield | Dividend Growth 5Y | P/E [FWD] Ratio |
Apple Inc. | Information Technology | Technology Hardware, Storage and Peripherals | United States | 0.56% | 7.87% | 27.51 |
Bank of America Corporation | Financials | Diversified Banks | United States | 3.13% | 14.87% | 8.28 |
Bristol-Myers Squibb Company | Health Care | Pharmaceuticals | United States | 3.14% | 7.04% | 8.8 |
Deere & Company | Industrials | Agricultural and Farm Machinery | United States | 1.27% | 14.44% | 12.28 |
JPMorgan Chase & Co. | Financials | Diversified Banks | United States | 3.14% | 12.91% | 10.04 |
Mastercard Incorporated | Financials | Transaction & Payment Processing Services | United States | 0.59% | 17.66% | 29.6 |
Microsoft Corporation | Information Technology | Systems Software | United States | 0.89% | 9.92% | 31.13 |
Taiwan Semiconductor Manufacturing Company Limited | Information Technology | Semiconductors | Taiwan | 1.99% | 9.26% | 16.11 |
The Charles Schwab Corporation | Financials | Investment Banking and Brokerage | United States | 1.80% | 21.22% | 12.56 |
Visa Inc. | Financials | Transaction & Payment Processing Services | United States | 0.73% | 17.55% | 26.64 |
Average | 1.72% | 13.27% | 18.295 |
Source: Seeking Alpha
Apple
Apple is in my top dividend growth stocks list for the second month in a row. The reason for this is that I consider the company to be an excellent base investment for any portfolio that is built with a long investment horizon while aiming to reach significant Dividend Growth.
Below you can find an overview of Analysts’ EPS estimates for Apple from 2023 to 2032: Analysts EPS estimates are 6.59 for 2024 (implying an YoY Growth of 10.07%) and 7.17 for 2025 (implying an YoY Growth of 8.81%). These estimates strengthen my belief to include Apple in my selection of dividend growth companies to invest in for April 2023.
At Apple’s current stock price of $161.30, the company has a P/E [FWD] Ratio of 27.51. Apple's P/E [FWD] Ratio stands below the one of competitor Microsoft (which has a P/E [FWD] Ratio of 31.56 at its current price level), indicating that Apple is fairly valued at this moment in time.
Even though the P/E [FWD] Ratio of competitors such as Alphabet (NASDAQ: GOOG ) ( GOOGL ) (P/E [FWD] Ratio of 21.31) or Meta (NASDAQ: META ) (21.98) are below Apple’s, I believe that the Cupertino based company should be rated with a premium due to its significantly broader product portfolio when compared to Alphabet and Meta.
Bank of America
Like Apple, Bank of America remains in the list of my top dividend growth stocks to acquire during this month of April.
When compared to the same day of the previous month, the stock price of Bank of America has declined by 0.83%, which makes the company even more attractive in terms of Valuation: at the bank’s current price, it has a P/E [FWD] Ratio of 8.17, which stands 32.66% below its Average over the past 5 years (which has been 12.13). At the same time, it is 4.78% below the Sector Median of 8.58. These numbers confirm that the bank is highly attractive for investors.
I consider the bank to be particularly attractive for dividend growth investors. My theory is underlined by its Dividend Growth Rate 10Y [CAGR] of 36.06%, which stands 344.48% above the Sector Median (which is 8.11%).
According to the Wall Street Analysts, Bank of America is currently a buy: 6 Analysts rate the bank as a strong buy while 7 rate it as a buy.
Bank of America has shown a significantly higher Dividend Growth Rate [CAGR] over the past 3 years when compared to its competitors from the Diversified Banks Industry: while Bank of America’s Dividend Growth Rate 3 Years [CAGR] is 8.03%, Royal Bank of Canada’s (NYSE: RY ) is 7.22%, Citigroup’s (NYSE: C ) is 1.00% and Wells Fargo’s (NYSE: WFC ) is -16.57%.
Bristol Myers Squibb
Bristol Myers Squibb is a company from the Pharmaceuticals Industry that develops and sells biopharmaceutical products . The company currently has 34,300 employees and a Market Capitalization of $148.79B.
Bristol Myers Squibb’s currently attractive Valuation has contributed significantly to it being selected as one of my top dividend growth stocks to invest in for April 2023. The company currently has a P/E GAAP [FWD] Ratio of 16.41, which is 42.08% below the Sector Median of 28.33. In addition to that, its current P/E GAAP [FWD] Ratio stands 63.92% below its Average from over the past 5 years (45.47).
Furthermore, it can be mentioned that its current Dividend Yield [TTM] of 3.14% stands 109.27% above the Sector Median (which is 1.50%) and 4.66% above its Average Dividend Yield [TTM] over the past 5 years. This strengthens my theory that the company is currently undervalued.
Moreover, several metrics demonstrate that the company has a strong Profitability: it has an EBIT Margin [TTM] of 21.40% and a Return on Equity of 18.88%. In addition to that, Bristol Myers Squibb’s EBITDA Margin [TTM] of 43.68% stands 1,278.00% above the Sector Median of 3.17%.
The Seeking Alpha Profitability Grade, which you can find below, further underlines the company’s enormous Profitability.
Charles Schwab
Charles Schwab’s current Valuation (P/E GAAP [FWD] Ratio of 15.95, which stands 22.52% below its Average over the past 5 years) has contributed significantly to the company being part of this list of dividend growth stocks that I consider to be worth investing in right now.
The company has a Net Income Margin of 34.60%, which is significantly above the Sector Median (26.69%). It can also be highlighted that its Return on Equity of 18.13% stands 62.59% above the Sector Median.
At its current price level, Charles Schwab pays shareholders a Dividend Yield [FWD] of 2.05%. The company’s 5 Year Dividend Growth Rate stands at 21.22% and its Payout Ratio lies at a low level of just 21.22%. All of these metrics indicate that the company is an attractive fit for dividend growth investors.
The Seeking Alpha Dividend Growth Grade underline my theory that Charles Schwab is an attractive pick for dividend growth investors: the company receives an A- in terms of Dividend Growth.
Deere & Company
Deere & Company, founded in 1837, is from the Agricultural and Farm Machinery Industry. The company operates through the segments described below:
- Production and Precision Agriculture
- Small Agriculture and Turf
- Construction and Forestry
- Financial Services
The company’s strong Profitability reflects its excellent position within its Industry: the company’s EBIT Margin [TTM] lies at 20.58%, which is 111.77% above the Sector Median of 9.72%. At the same time, its EBIT Margin [TTM] stands 48.49% above its Average from over the past 5 years (13.86%), which shows us that the company has clearly managed to increase its Profitability over the past years.
When it comes to Valuation, the company is also an excellent pick: Deere & Company has a P/E GAAP [FWD] Ratio of 12.13, which lies 32.77% below the Sector Median (18.04) and stands 34.86% below its Average from over the past 5 years (18.61).
At its current price, the company pays shareholders a Dividend Yield [FWD] of 1.35%. Furthermore, the company has shown a Dividend Growth Rate of 14.44% over the past 5 years and its Payout Ratio of 16.98% is at a low level, leaving room for future dividend enhancements.
Deere & Company also has an excellent position according to the Seeking Alpha Quant Ranking: the company is placed 1 st out of 10 within the Agricultural and Farm Machinery Industry and 135 th out of 655 within the Industrials Sector.
Source: Seeking Alpha
JPMorgan
When compared to the same day of the previous month, the JPMorgan stock has declined by 3.12%, making its Valuation even more attractive for investors. The U.S. bank currently has a P/E GAAP [FWD] Ratio of 10.09, which is 18.38% below its Average over the past 5 years. This metric provides investors with a strong indicator that the bank is currently undervalued.
In terms of Profitability, the bank is a top choice, which is underlined by the Seeking Alpha Profitability Grades that you can find below.
Not only its Return of Equity of 13.69% (which stands 22.98% above the Sector Median), but also its Net Income Margin of 30.80% (which stands 15.61% above the Sector Median) are significantly above its peer group.
Mastercard
Mastercard has made it into my list of top 10 dividend growth stocks for this month, but not only because of its strong competitive advantages.
Analyst EPS estimates for 2023 are 12.21 for Mastercard, which would imply a YoY Growth of 14.68%. For 2024, the estimates are 14.53, which would imply a YoY Growth of 18.99%. Analyst Revenue estimates lie at $25.11B for 2023 (implying a YoY Growth of 12.91%) and at $28.55B for 2024 (YoY Growth of 13.71%).
These estimates confirm that Mastercard has excellent growth perspectives and I therefore expect its success story to continue. Below you can find the Analyst EPS estimates for 2023, 2024, 2025, 2026 and 2027.
I consider the company to not only be highly attractive in terms of Growth and Profitability (the company has an EBITDA Margin [TTM] of 60.14% and a Return on Equity of 145.92), but also in terms of Valuation: this is underlined by Mastercard’s current P/E [FWD] Ratio of 29.63 standing 21.41% below its Average from over the past 5 years.
The graphic below illustrates Mastercard’s Dividend History, which, once again, shows that the company is a great choice for dividend growth investors.
In another article for Seeking Alpha, I recently discussed that the company would be one of my choices to buy in April if I could only select two dividend paying companies.
Microsoft
Even though Microsoft’s Valuation is currently not low (its P/E GAAP [FWD] Ratio of 31.56 stands slightly above its Average over the past 5 years of 30.15), the company continues to be an excellent choice for dividend growth investors.
In terms of Profitability (EBIT Margin [TTM] of 40.97%), Microsoft is clearly ahead of competitors such as Alphabet (EBIT Margin [TTM] of 26.46%), Meta (28.78%), Oracle (NYSE: ORCL ) (29.16%), ServiceNow (NYSE: NOW ) (4.90%) and Palo Alto Networks (NASDAQ: PANW ) (0.37%). This indicates that Microsoft is the less risky investment when compared to these competitors.
For 2024, Analyst EPS estimates are 10.74, implying a YoY Growth of 14.70%. For 2025, these estimates are 12.36, which would mean a YoY Growth of 15.03%.
Below you can find the Analyst Revenue estimates for Microsoft for the following years, which further strengthen my confidence that the company is absolutely on track when it comes to Growth.
Microsoft’s Dividend Growth Rate [CAGR] has been 10.25% over the past 3 years. In the graphic below you can find a projection of Microsoft’s Yield on Cost when assuming an Average Dividend Growth Rate of 10% over the next 30 years and also that you invest in the company at its current stock price of $291.60. In that case, you could expect a Yield on Cost of 2.42% in 2033, 6.28% in 2043 and 16.28% in 2053.
This graphic once again strengthens my confidence that Microsoft is an excellent fit for dividend growth investors who invest with a long investment horizon.
Taiwan Semiconductor
Taiwan Semiconductor manufacturers and sells semiconductor devices . The Taiwan based company currently has 65,152 employees and a Market Capitalization of $452.53B.
Taiwan Semiconductor’s Profit Margin [TTM] of 49.56% is a strong indicator of the company’s excellent competitive position, since it lies 985.73% above the Sector Median of 4.57%. The same is confirmed when looking at its Return on Equity of 39.76%, which is 1,399.63% above the Sector Median of 2.65%.
The Seeking Alpha Profitability Grade underline Taiwan Semiconductor’s financial strength.
Due to its P/E [FWD] Ratio of 16.40 standing 31.20% below the Sector Median (23.83) and 23.20% below its Average over the past 5 years, I interpret the company’s current Valuation as being attractive,
Moreover, Taiwan Semiconductor has shown impressive metrics when it comes to Growth: the company’s EBIT Growth Rate [FWD] of 18.73% stands 57.99% above the Sector Median (11.85%) and its EPS Diluted Growth Rate [FWD] of 18.62% lies 80.56% above the Sector Median of 10.31%.
The company’s Valuation (P/E [FWD] Ratio of 16.40) is significantly lower than the one of competitors such as Broadcom (NASDAQ: AVGO ) (P/E [FWD] Ratio of 18.35), Nvidia (NASDAQ: NVDA ) (82.87) or Texas Instruments (NASDAQ: TXN ) (23.22), indicating that it is currently an excellent moment to acquire the company’s stock. However, its Valuation is slightly above the one of QUALCOMM (NASDAQ: QCOM ) (P/E [FWD] Ratio of 15.82).
Visa
Visa secures its presence in my list of the top stocks to buy during this month of April 2023.
Both Seeking Alpha Analysts and Wall Street Analysts rate the company as a buy. Four Seeking Alpha Analysts rate the company as a strong buy while the company receives a buy rating from 14 Seeking Alpha Analysts. According to the Wall Street Analysts, Visa receives 21 strong buy ratings and 9 buy ratings.
The graphic below further demonstrates that the company has managed to raise its EBIT Margin [TTM] consistently over the past 10 years.
The company’s attractive Valuation (P/E [FWD] Ratio of 27.53, which lies 14.93% below its Average over the past 5 years), its enormous Profitability (EBITDA Margin [TTM] of 70.09% and Return on Equity of 43.63%) and its excellent metrics in terms of Dividend Growth (the company has a Dividend Growth Rate 10Y [CAGR] of 19.62), contribute strongly to once again selecting Visa in my top dividend growth stocks to invest in during April 2023.
Conclusion
The companies that I have presented in today’s article could help you to significantly raise the Average Dividend Growth Rate of your investment portfolio: they have shown an Average Dividend Growth Rate of 13.27% over the past 5 years.
Furthermore, all of the selected companies dispose of strong financials, significant competitive advantages over their rivals, and, in addition to that, they are currently at least fairly valued. All of these metrics have contributed to them being among my top 10 dividend growth stocks to invest during this month of April 2023.
Author’s note: I would love to hear your opinion on this selection of dividend growth stocks. Do you own any of these picks or plan to acquire them? Which stocks are currently your favorite dividend growth stocks to buy?
For further details see:
My Top 10 Dividend Growth Stocks To Invest In April 2023