What are we looking for?
The best U.S. dividend growth stocks.
More about today's screen
This is a follow-up to a screen last week where we asked Morningstar CPMS to provide a portfolio of Canadian dividend stocks. This screen is similar and looks for the best combinations of expected dividend yield, dividend growth annualized over the last five years and strong return on equity.
In addition, dividend payout ratios must be less than 50 per cent and earnings estimates must not have declined in the past three months.
Morningstar CPMS is a Toronto-based equity research and portfolio analysis firm. It maintains a database of about 660 of the largest and more liquid stocks in the country and spends a lot of time adjusting for unusual accounting items in each company's quarterly results to make sure screens can perform correctly.
CPMS tested the screen back to 1993 and found that it has returned 11.6 per cent annually since then, compared with the S&P 500 total return index of 7.5 per cent. It has also done well recently, returning 18.8 per cent over the past year versus 10.1 per cent for the S&P 500 total return index, and 5.9 per cent against 0.6 per cent for the same index over the past five years.
What did it turn up?
The screen turned up several well-known U.S. blue chip stocks, such as McDonald's Coca-Cola Co. and Johnson & Johnson. The average yield is also a respectable 2.9 per cent and the dividend growth for the past five years is 22 per cent annualized. CPMS senior consultant Jamie Hynes notes that dividend returns are a key part of the success of this portfolio strategy, as a $1-million (U.S.) investment in 1993 would have grown to $6.3-million now, with $2.2-million coming from dividends.
Scott Adams