As a subscriber to the American Association of Individual Investors (AAII), I get the benefit of access to a number of screens they keep track of and have been tracking for a long period of time. As you can imagine, one of the screens I am most interested in is the dividend stock screen they track. In this screen, the AAII is primarily looking for the highly sought after dividend growth where a company increases its dividend year after year. As I have written about over and over again on my main blog, dividend growth is a viable investment strategy. Let's have a look at the investment criteria for the screen and the most recent picks from the screen.
Screening Criteria
This screen is primarily focused on looking for dividend growth. There is 10 criteria that a company must pass to make it on the list:
- The company does not trade on the over-the-counter exchange
- Those companies in the miscellaneous financial services industry are excluded because this industry classification contains closed-end funds
- Company must have seven years of both price and dividend records
- Companies must have paid a dividend for each of the last seven years and have never reduced their annual dividend payment
- The dividend has increased over each of the last six fiscal years (Y7 to Y6, Y6 to Y5, Y5 to Y4, Y4 to Y3, Y3 to Y2, and Y2 to Y1)
- The seven-year growth rate in dividends per share is greater than 3%
- The current dividend yield is greater than the seven-year average dividend yield
- The payout ratio for the last 12 months is less than or equal to 85% for utilities and less than or equal to 50% for companies in other industries
- The total-liabilities-to-assets ratio must be below the norm for the industry
- The three-year growth rate in earnings per share is greater than or equal to the industry's earnings per share growth over the same period
I like that this screen does not just look for dividend growth - it brings in some other items such as the payout ratio and debt-to-equity to help assess how well the company is being run
Passing Companies
This screen generates a list of a lot of potential dividend investments. 68 potential dividend growth stocks to be specific. .
The top 10 stocks sorted by 7-year dividend growth rate is listed below:
- XTO Energy Inc.
- Life Partners Holdings, Inc.
- Lowe's Companies, Inc.
- Noble Energy, Inc.
- C.H. Robinson Worldwide, Inc.
- Stryker Corporation
- McDonald's Corporation
- FactSet Research Systems Inc.
- Expeditors International
I have never even heard of some of these companies, which is not necessarily a problem, but as with all investments I would need to ensure I understood the company fully before blindly investing in it.
Summary
I would not be comfortable buying off this list blindly. There is no review of EPS, ROE, or other factors important to a company's financial strength which is very apparent in the pure number of stocks the screen identified. However, as with all screens, I view it as a great way to generate investing ideas for further review and potential investment.
This article was written by The Dividend Guy. You may email questions or comments to me at info@thedividendguyblog.com.
