4 low-valued dividend aristocrats

Last week, I introduced 3 dividend kings with cheap valuations. Today I repeat the same exercise for the S&P 500 Dividend Aristocrats, an elite list of companies that have paid higher dividends each year for at least 25 consecutive years.

The list of Dividend Aristocrats is maintained by S&P Dow Jones Indices and updated annually in January. To be on the list, stocks must be on the S&P 500, have a dividend increase of 25 years or more, and have a market capitalization of at least $ 3 billion. There are currently only 65 stocks of Dividend Aristocrats.

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As a dividend growth investor, I want to invest in high quality, safe dividend growth stocks that trade at reasonable valuations. This article introduces four Dividend Aristocrats as measured by my stock selection criteria.

Stock selection criteria

My watchlist for dividend growth stocks is Dividend Radar, an auto-generated spreadsheet of stocks with dividend increase streaks of at least five years. Updated and published every Friday, Dividend Radar is a free resource for investors looking to grow dividends. The latest edition (September 17, 2021) contains 748 dividend growth stocks.

I use five stock selection criteria when selecting dividend growth stocks for my DivGro portfolio. These criteria relate to stock quality, dividend security, growth prospects, earnings prospects and stock valuation. Here are the specific screens I used to select Dividend Aristocrats for this article:

1. Stock quality: stocks with quality ratings of 15-25 are considered Investment grade shares
2. Dividend security: stocks with Very sure and Secure Dividend Safety Scores
3. Growth outlook: stocks probably achieve an annualized total return of at least 8%,
4. Income Outlook: Stocks with the best Dividend prospects in the coming years
5. Stock valuation: stocks that trade below my risk-adjusted value Buy below Prices

Below is a summary of these criteria in relation to the Dividend Aristocrats:

Storage quality

DVK Quality Snapshots provides an eloquent way to determine quality ratings for dividend growth stocks. Based on their quality rating, I rate stocks as Out of the ordinary (25), Excellent (23-24), fine (19-22), Respectable (15-18), poor (10-14), and Inferior (0-9). For this article I was thinking Investment grade Stocks with quality scores 15-25:

Dividend security

Simply safe dividends provide dividend safety scores that predict dividend risk over a full economic cycle. For this article, I’ve chosen Dividend Aristocrats with Very sure (81-100) and Secure (61-80) Dividend Safety Scores.

Growth outlook

The chowder number [CDN] sums the forward return on a stock and its 5-year dividend growth rate. It’s a growth-oriented metric that measures the likelihood that a DG stock will deliver annualized returns of 8% or more. I encode the CDN. colored green for candidates probably achieve an annualized total return of at least 8%.

Income prospects

The 5-year return on costs [YoC] is an income-based metric that tells how high your YoC would be after buying a stock and holding it for five years, assuming the current 5-year dividend growth rate was maintained. I color-code the 5 year season green if it is at least 4.00%.

Stock valuation

I routinely value the fair value of dividend growth stocks to identify candidates trading on cheap valuations. By a low valuation, I mean a risk-adjusted one Buy below Price that a premium of up to 10% for Out of the ordinary Shares and a premium of up to 5% for Excellent Stocks, however, requires a fair value or lower value for rated stocks fine.

I use a survey approach to estimate fair value by collecting fair value estimates and price targets from various online sources such as Morningstar and Finbox. I also estimate fair value based on the average dividend yield on each stock over five years. Since there are multiple 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 fair value estimate.

Dividend aristocrats who meet all the criteria

Only four Dividend Aristocrats meet all of the above criteria:

The table shows key metrics of interest to dividend growth investors, including the dividend increase streak (years), the Forward return for a current share price, the 5-year average annual dividend growth rate (5-year DGR) and the trailing 5-year total returns (5-year TTR). I also give my fair value estimate (Fair value) and the discount or premium (– Disc / + Prem) of the share price relative to my fair value estimate.

I also provide metrics for the selection criteria used in this article, including the five quality indicators that make up the DVK Quality Snapshots Quality Score (Agony), the 5-year year (5-YoC), the chowder number (CDN), the dividend safety score (SSD div. safety) and the risk-adjusted Buy below Price. Share prices below the Buy below Prices are highlighted in green.

Let’s take a look at these Dividend Aristocrats in turn:

Medtronic plc (MDT)

MDT manufactures and sells device-based medical therapies to hospitals, doctors, clinicians and patients worldwide. The company operates in four segments: Cardiac and Vascular Group, Minimally Invasive Therapies Group, Restorative Therapies Group and Diabetes Group. MDT was founded in 1949 and is headquartered in Dublin, Ireland.

Illinois Tool Works Inc (ITW)

Founded in 1912 and headquartered in Glenview, Illinois, ITW is a diversified, global company that manufactures and sells industrial products and equipment worldwide. ITW operates in seven segments: automotive OEM; Test & Measurement and Electronics; Food equipment; Polymers and liquids; Welding; Building products; and special products.

Franklin Resources, Inc (BEN)

BEN is a global asset management holding company. Its subsidiaries provide investment management and related services to individuals, institutions, retirement plans, trusts and partnerships. Founded in 1947, BEN is based in San Mateo, California with an additional office in Hyderabad, India.

AbbVie Inc (ABBV)

ABBV is a global, research-based biopharmaceutical company that develops and markets products for the treatment of conditions such as rheumatoid arthritis, psoriasis and Crohn’s disease; Hepatitis C; human immunodeficiency virus; Endometriosis; Thyroid disease; Parkinson’s Disease; and chronic kidney disease and cystic fibrosis. ABBV was founded in 2012 and is based in North Chicago, Illinois.

Final remarks

This article presented four Investment grade Dividend aristocrats now fairly valued. MDT and ITW are rated Excellent, while BEN and ABBV are assessed Respectable.

All four stocks trade below my risk-adjusted value Buy below Prices, and BEN and ABBV are trading at discounted valuations.

The stocks have a solid dividend balance sheet with more than 25 years of increasing annual dividend payments. You have high income and growth prospects and safe dividends. ABBV offers the highest forward yield at 4.90% and the highest 5-year dividend growth rate at 18.1%. Based on the Chowder rule, all four stocks are likely to produce a total annualized return of at least 8%, and all four stocks should cost at least 4% after five years of investment if their current dividend growth rates are maintained.

As always, I advise readers to do their due diligence before investing in any stocks I highlight.

Thanks for reading and take care!

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