What are we looking for?
The U.S. blue-chip stocks with the best outlooks for dividend increases.
More about today's screen
Yesterday, we used this stock-screening formula for the S&P/TSX composite. Today we'll try it on the S&P 500. We'll only look at stocks with a dividend yield of more than one per cent.
The screen is based on Bloomberg's dividend projection formula. Bloomberg uses it to predict annualized dividend growth rates for the next three years.
The formula takes into account such factors as company guidance, industry analysis, historical trends and analyst estimates. It also factors in esoteric measures, such as option market implied dividends and historical regression analysis of fundamentals compared with dividends.
Finally, Bloomberg calculates something called the Bloomberg Dividend Directional Thermometer (DDT) score.
It's a reading from -100 to +100 using various fundamental, credit rating and company-health data.
A negative score indicates a company might cut its dividend, while a positive score suggests there is potential for an increase. A score must be above +50 to be conclusive about the outlook for a potential dividend hike.
A high DDT score doesn't always mean a big dividend increase is coming, however.
For instance, a company might have a high DDT score but indicate it is about to execute a large share buyback, which would lower its projected dividend increase rate. That's why Bloomberg takes into account more than just the DDT score when making its projections.
We'll sort stocks in the S&P 500 by the highest projected dividend growth rates, as calculated by Bloomberg.
What did we find out?
If you're looking for companies with a strong track record of dividend increases and an encouraging outlook for more, some of the best names on the list are Cummins Inc. , Walgreen Co. , Lowes Cos. , Tiffany and Co. and UnitedHealth Group . These names have increased their dividends by more than 20 per cent annualized the past five years and are projected to continue to do so for the next three years, according to Bloomberg.