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Refining the search for dividend growth stocks Add to ...

WHAT ARE WE LOOKING FOR? One of our favourite exercises is to look for good dividend stocks. We've recently featured UBS strategist George Vasic's latest work on the best dividend growth companies in Canada. Today, we'll look for what could be the best dividend growth stories of the next three years using a special Bloomberg feature. HOW WE'LL DO THIS SCREEN Historical dividend increase patterns can provide some clues as to whether a company will raise dividends in the future - they indicate the attitude of a board of directors toward sharing profits with shareholders and the predicted health of the business. Bloomberg takes this a step further with a formula to predict increases. It takes into account: 1) company guidance, 2) industry analysis, 3) historical trend analysis, 4) market analysts' consensus estimates, 5) option market implied dividends, 6) historical regression analysis of fundamentals compared to dividends and 7) the Bloomberg dividend directional thermometer (DDT) score. Numbers one through four are self-explanatory. Numbers five and six have to do with options and statistical analysis. Number seven is a score from -100 to +100 using various fundamental, credit rating and company health score data. A negative score indicates a company's potential inability to maintain a current dividend, while a positive score increases potential to raise the dividend. A score must be above +50 to be conclusive about a potential increase. Even so, a high DDT score doesn't always point to a dividend increase. For instance, a company might have a high DDT score but indicate it is about to complete a large share buyback, and therefore would have a lower projected dividend increase rate. That's why Bloomberg takes more into account than just the DDT score. WHAT DID WE FIND? When we did this screen in April, Rogers Communications was the clear leader. That's not the case any more, as Kinross Gold has started and Bombardier has restarted a dividend program this year. The yields on these two aren't very enticing yet, but if dividend increases are forthcoming then investors will have some new good dividend stocks to follow.

 

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