Monday, September 1, 2014

10 Dividend Growth Stocks for September, 2014


Every month, I use David Fish's CCC list to search for stocks trading at a discount to fair value. The CCC list is updated monthly and contains all U.S.-listed stocks that have raised their dividends for at least five consecutive years. The accompanying spreadsheet provides key statistics of all the CCC stocks and is a wonderful resource for dividend growth investors.

This month's list contains 553 stocks. I use a series of filters to reduce the number of stocks to about 200 candidates, which, along with DivGro's holdings, form my watch list. Until DivGro is nicely diversified, I'll continue to search for the best available candidates by sector and bias my purchases to sectors that are under-represented. 

For September, 38 stocks made the cut. This is more than the 30 or so I usually select, because I'm keeping DivGro holdings rather than removing them from consideration. Here are the top ten stocks by rank, with DivGro holdings highlighted:

Rank
12345678910
Ticker
HPXOMPMTSNPHMNCVXBBLBHPCOPDE

The sector winners for September contain several DivGro holdings:
PMT (Financials), BBL (Materials), DE (Industrials), and JNJ (Health Care). 
Since I'm still diversifying DivGro, I'm interested in the top sector candidates that I don't yet own. In the following list, I replaced sector winners with runners-up and marked those sectors with a diamond (◊):

Helmerich & Payne Inc. (HP) • rank   1 (*******) Energy
Horace Mann Educators Corp. (HMN) • rank   5 (*******) Financials
BHP Billiton Ltd. (BHP) • rank   8 (*******) Materials
 NEW  Raytheon Company (RTN) • rank 11 (*******) Industrials
 NEW  Mattel Inc. (MAT) • rank 16 (*******) Consumer Discretionary
 NEW  Medtronic Inc. (MDT) • rank 20 (*******) Health Care
 NEW  Avista Corp. (AVA) • rank 22 (*******) Utilities
 NEW  General Mills (GIS) • rank 25 (*******) Consumer Staples
 NEW  Daktronics Inc. (DAKT) • rank 26 (*******) Information Technology
BCE Inc. (BCE) • rank 29 (*******) Telecommunication Services

HP repeats in the top spot for the fourth time in a row. BHP has been on the list for 8 consecutive months. BCE is making its sixth consecutive appearance, while HMN is repeating for the third time.

Please note that these stocks are candidates for further analysis, not recommendations.

Helmerich & Payne (HP) | growth 42 yrs | yield 2.62% @ $105.05 | 5-yr CAGR 46.9% | 10-yr CAGR 23.3%
HP is an energy-oriented company engaged in contract drilling of oil and gas wells. The company was incorporated under the laws of the State of Delaware on February 3, 1940. HP is trading at a premium of 1.5% above my fair value estimate of $103.50. It is a Dividend Champion with an exceptional growth rate.

Horace Mann Educators Corp. (HMN) | growth 5 yrs | yield 3.09% @ $29.80 | 5-yr CAGR 16.2%
HMN is an insurance holding company, which, through its subsidiaries, markets and underwrites personal lines of property and casualty and life insurance and retirement annuities in the USA. The stock is trading at about fair value.

BHP Billiton Ltd. (BHP) | growth 12 yrs | yield 3.61% @ $68.63 | 5-yr CAGR 10.6% | 10-yr CAGR 22.3%
BHP is one of the world's largest diversified natural resources companies. It is involved in mineral exploration, production and processing; oil and gas exploration and development; and steel production and merchandising. BHP trades at a discount of 12.2%% to my fair value estimate is $77.

Raytheon Company (RTN) | growth 10 yrs | yield 2.51% @ $96.34 | 5-yr CAGR 14.4% | 10-yr CAGR 10.4%
Established in Cambridge, Mass., in 1922, as the American Appliance Company, today RTN is a leading U.S. military contractor, offering defense and aerospace systems from intelligence and information to missiles. The stock is trading at about fair value.

Mattel Inc. (MAT) | growth 5 yrs | yield 4.41% @ $34.49 | 5-yr CAGR 13.9%
Headquartered in El Segundo, CA, MAT is the world's largest manufacturer of toys. The company's products are sold directly to retailers and wholesalers, and through agents and distributors in countries where MAT has no direct presence. My fair value estimate is $37.15, so MAT is trading at a discount of about 8%.

Medtronic Inc. (MDT) | growth 37 yrs | yield 1.91% @ $63.85 | 5-yr CAGR 11.6% | 10-yr CAGR 14.9%
Founded in 1949 and based in Minneapolis, Minnesota, Dividend Champion MDT is one of the world's leading medical technology companies. The company specializes in implantable and interventional therapy devices and products. MDT is trading at about fair value.

Avista Corp. (AVA) | growth 12 yrs | yield 3.91% @ $32.46 | 5-yr CAGR 12.2% | 10-yr CAGR 9.6%
AVA is a diversified energy company engaged in the generation, transmission and distribution of energy in North America. AVA also operates Avista Capital, which owns all the company's non-regulated energy and non-energy businesses. My fair value estimate for AVA is $33.11, so its trading at a discount of about 2% to fair value.

General Mills (GIS) | growth 11 yrs | yield 3.07% @ $53.38 | 5-yr CAGR 11.5% | 10-yr CAGR 9.9%
Founded in 1928 and based in Minneapolis, Minnesota, GIS is a global manufacturer and marketer of branded consumer foods sold through retail stores. The company also service foodservice and commercial baking industries. The stock trades at a premium of 5% to my fair value estimate of $50.75.

Daktronics Inc. (DAKT) | growth 10 yrs | yield 3.04% @ $13.16 | 5-yr CAGR 27.2%
Incorporated on December 9, 1968, DAKT is one of the world's largest suppliers of electronic scoreboards, computer-programmable displays, and large screen video displays and controls systems. My fair value estimate is $11.27, so DAKT is trading at premium of 15% to fair value.

BCE Inc. (BCE) | growth 5 yrs | yield 5.07% @ $45.02 | 5-yr CAGR 25.6%
BCE is Canada's largest communications service provider and serves as the holding company for Bell Canada. The company provides wireless, data communications, telephone, high-speed Internet, direct-to-home satellite television and voice over IP services. My fair value estimate for BCE is $47, which means BCE trades at a discount of 4.4% to fair value.

Considering my usual position size of $2,500, I have enough cash for a single non-MLP buy. DivGro is under-represented in Consumer Discretionary, so I'll look at MAT first. Not too many of the other candidates excite me. BHP would be a great candidate, but I already own the substantially similar BBL.

Do you like any of these stocks at current prices? Are you currently considering other stocks not mentioned in this post? Feel free to share your thoughts and ideas in the Comment section below!

10 comments :

  1. I've been slowly building a position in MAT these last few months as there has been some nice weakness in the price. Additionally, I've been looking at BBL as a possible materials sector position and DE to add to the industrial sector. Hopefully I can pick up one of those last two this month.

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    Replies
    1. Good to know that another investor out there finds MAT attractive. BBL is quite attractive now, as it has gone down a little the past month. I bought DE last month and it is trading about 2.5% below where I picked it up, so good value there, too, I believe.

      Good luck!
      FerdiS

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  2. Do you consider European stocks for your portfolio? In Finland, a company called Nokian Tyres (a spin-off from the Nokia Corporation that sold the mobile phone business to Microsoft recently) trades at a nice discount. I think this company fits very well into a dividend income portfolio. They make tyres for vehicles and they are especially successful in the Winter tyre segment.

    http://www.nokiantyres.com/

    The price of its stock has fallen by about 10 euros from about 34 to about 24 euros as a result of the political crisis between Ukraine and Russia. Analysts say it can very well go back up to 35 euros a share if the political crisis starts to ease. That would be about a 40 % gain.

    They have a tyre factory in Russia and this is the primary reason for why this stock has taken a hit recently due to the political crisis. I can't see anything wrong with the company itself that could have caused the drop in share price. The headquarters are in Finland and they have another factory there.

    You can buy this at Helsinki Stock Exchange which is a part of the OMX Group of stock exchanges. On Google Finance, you can find it by searching for HEL:NRE1V

    This company has traditionally paid good dividends, and as we can reliably guess, cars will have to have tyres on them for a long time to come.

    I don't own this stock now as I don't have much free cash to buy it with right now, but I am considering buying it by selling some other stocks and using the money that I would get from those to buy this stock. I should probably do it to diversify my portfolio. This would be a "buy & hold" for the long-term, possible for many decades.

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    Replies
    1. Hi Anonymous, thanks for your comprehensive post!

      Currently, I don't buy stocks that are not listed on major U.S. stock exchanges. The reason is that the online brokerage I use to buy stocks for DivGro does not provide access to foreign stocks (except as ADRs), nor over-the-counter or pink sheet stocks.

      There is another reason I consider only U.S.-listed stocks. As I mentioned in the opening paragraph of this post, I use David Fish's CCC list to search for stocks trading at a discount to fair value. The accompanying spreadsheet is a wonderful and comprehensive data source for more than 500 dividend growth stocks -- really way more than I can process. That's why I filter out many stocks and try to do more comprehensive research on only a handful of candidates every month to make my selection. I have an unrelated, full-time career, so the only workable way for me to do such analysis is to do it "algorithmically" using spreadsheet formulas.

      This does not mean that I'm not interested in learning about European or other foreign stocks. Still, I'm not aware of a type of CCC list for non-U.S.-listed stocks. Unless I can access something like that, the little time I have available to select stocks for more comprehensive analysis is best spent looking at CCC stocks.

      Good luck if you decide to buy the stock. It sounds like you've done some homework on it already and that it seems to offer a compelling opportunity.

      Cheers
      FerdiS

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    2. Thank you for the reply. I understand!

      Today on September 3rd, this stock went up by 7,45 %. I still don't own it. It's easy to say in hindsight, but I should have bought it yesterday!

      :)

      I plan to buy this stock by spreading my purchases across at least a few months. Like spend 2,000 euros at a time for 5-10 times to make the total amount 10,000-20,000 euros.


      I intend to own stocks of about 10 companies for the long-term. Or perhaps 20... that could really be the max. number for me. Anyway, I want all of these companies to be good payers of dividends and they should have their businesses spread across many countries to reduce country-specific risk.

      I am very thankful for your divgro blog as it gives me many good ideas. I have my own long watch-list of companies and ETFs but I consider it too messy and disorganised now to make it public. I'm considering making my work also public later. It includes companies from the Far East (mainly Japanese companies that are listed on Tokyo Stock Exchange, and Chinese companies that are listed on NYSE), Europe (Finland, Sweden, Norway Germany, France, Spain) and North America. Creating even this watch-list of a few tens of companies and about the same number of ETFs has been a massive amount of work! But slowly and surely I begin to understand which stocks are the good ones and which ones are not.

      As you can see, I don't plan to own as many companies directly as what you are doing. I consider it too much work to keep an eye on such a big number of companies (but I admire your dedication to do so). I plan to also use exchange-traded funds in my dividend income portfolio.

      Have you set a maximum level for the amount of money that you will invest in any one stock?

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    3. Thanks for your kind words about DivGro, Anonymous! I enjoy posting about DivGro and I'm glad that you find it useful. The one benefit, for me, of having a blog and sharing what I'm doing is that it creates a certain amount of discipline and accountability. So I would encourage you to consider posting and making your watch list public. When you start getting feedback from readers, you get another benefit, in my view.

      For me, the whole point about doing a lot of upfront research is that I wouldn't need to continue keeping "an eye" on those stocks. As long as the fundamentals don't change and they continue to pay and raise dividends, I'll continue to be a shareholder. When the fundamentals change or a dividend freeze occurs, it quickly becomes evident and I can focus on what to do as a result...

      I currently buy shares in chunks of about $2500 each, except for a few MLPs that I double up on. When I reach about 36-42 stocks at the end of 2014, I'll start to consider adding to current holdings rather than adding new holdings. As far as a maximum level for any one stock, my total portfolio size will determine the maximum level, because I want to keep things as balanced as possible.

      As far as capital gains are concerned, currently, I take that as a bonus. So, I'm not seeking to balance current holdings equally, but rather initial investments. Hope that makes sense.

      Cheers
      FerdiS

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  3. Hi FerdiS,

    MAT had been in my watch list for many months now. The reason for me not triggering a buy yet, as I did not see they had managed to turnaround their business. Quarter to quarter reporting had been bad, I'm waiting to see if they can report better numbers in the coming quarter.

    David

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    Replies
    1. That's a good reason to wait! I'll look at that particular aspect (and other things) when I research MAT.

      Thanks for your comment!

      Cheers
      FerdiS

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  4. Nice list. I haven't really used David Fish's CCC list for much more than quickly looking up some of the information about a stock that I am currently interested in.

    I own both MAT and GIS. I want to add to both, but it easier at the moment to buy MAT (since it is in my Loyal3 account).

    Of the 10 selected, which do you think will best fit your portfolio?

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    Replies
    1. Thanks, InvestLikeGrampa!

      The CCC list is my #1 go-to resource. It's wonderful to have updated data every month! I certainly don't have the time to compile that data myself, so I'm glad somebody is doing it for me (and us!)

      If I were not still trying to diversify, I would seriously look at HP. But I need to add to Consumer Discretionary, so I'll look at MAT first...

      Take care!

      Delete

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