Monday, November 3, 2014

10 Dividend Growth Stocks for November, 2014

One of my goals for 2014 is to balance DivGro's holdings across all 10 sectors in my watch list. Rather than targeting an equal number of holdings in each sector, I prefer to target a distribution proportional to the number of candidates in each sector of my watch list. The reason for not targeting an equal number of holdings in each sector is that there are many more dividend growth candidates in the Financials and Energy sectors, for example, than in the Materials and Telecommunication Services sectors.

I have a dynamic watch list, which means that the ideal sector distribution changes from month-to-month. I update my watch list every month when David Fish's CCC list is updated. The CCC list contains all U.S.-listed stocks that have raised their dividends for at least five consecutive years. David Fish distinguishes between Dividend Champions (25 or more years), Dividend Contenders (10-24 years), and Dividend Challengers (5-9 years).

In a continuing effort to diversify DivGro by sector, I search for the best available candidates by sector and bias my purchases to sectors that are under-represented. I apply a series of filters to reduce the CCC list to a more manageable number of candidates, then rank those stocks using a proprietary ranking system (out of 7 stars). For November, 48 stocks made the cut.

Following are the top ten stocks by rank, regardless of sector, with DivGro holdings highlighted:


The sector winners for November contain three DivGro holdings:
XOM and COP (Energy) and BBL (Materials)
Since I'm still below my target portfolio size of 36-42 stocks, I'm interested in the top sector candidates that I don't yet own. In the following list, I replaced one sector winner (BBL) with a runner-up (ALB) and marked that sector (Materials) with a diamond (◊):

Helmerich & Payne Inc. (HP) • rank   1 (*******) Energy
 NEW  Gap Inc. (GPS) • rank   6 (******-) Consumer Discretionary
 NEW  Qualcomm Inc. (QCOM) • rank   7 (******-) Information Technology
Copa Holdings SA (CPA) • rank   8 (******-) Industrials
Horace Mann Educators Corp. (HMN) • rank   9 (******-) Financials
 NEW  Albemarle Corp. (ALB) • rank 17 (*****--) Materials 
 NEW  Novo Nordisk A/S (NVO) • rank 18 (*****--) Health Care
 NEW  Coca-Cola Enterprises Inc. (CCE) • rank 20 (*****--) Consumer Staples
 NEW  Verizon Communications (VZ) • rank 25 (****---) Telecommunication Services
 NEW  CMS Energy Corp. (CMS) • rank 38 (****---) Utilities

Seven stocks are new since last month's list. HP repeats in the top spot for the sixth time in a row, while HMN repeats for the fifth time in a row. CPA repeats from last month.

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

Helmerich & Payne (HP) | growth 42 yrs | yield 3.17% @ $86.82 | 5-yr CAGR 46.9% | 10-yr CAGR 23.3%
Headquartered in Tulsa, Oklahoma, 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. The company's existing fleet includes 338 U.S. land rigs, 36 international land rigs and nine offshore platform rigs. HP is trading at a discount of 15.9% to my fair value estimate of $100.60. It is a Dividend Champion with an exceptional growth rate.

• The Gap Inc. | growth 10 yrs | yield 2.32% @ $37.89 | 5-yr CAGR 13.3% | 10-yr CAGR 21.4%
Dividend Contender GPS is a global specialty retailer offering apparel, accessories, and personal care products for men, women, children and babies under the Gap, Old Navy, Banana Republic, Piperlime, Athleta and Intermix brands. The company has 3,500 stores across the world, though more than 75% of its revenues are generated from U.S. operations. My fair value estimate for GPS is $45.95, so the company is trading at a discount of 21% to fair value.

• Qualcomm Inc. (QCOM) | growth 12 yrs | yield 2.14% @ $78.51 | 5-yr CAGR 16% 10-yr CAGR 26.9%
Founded in July 1985 and headquartered in San Diego, California, QCOM designs and manufactures innovative digital wireless communications products and services based on the company's CDMA digital technology. The company also licenses many of its 5,700+ patents and intellectual property to wireless equipment manufacturers. QCOM is a Dividend Contender with an impressive dividend growth rate. My fair value estimate is $83, so QCOM is trading at discount of about 6%.

• Copa Holdings SA (CPA) | growth 5 yrs | yield 3.28% @ $116.92 | 5-yr CAGR 58.6%
Incorporated in 1998, CPA is a Latin American provider of airline passenger and cargo service through two principal operating subsidiaries, Copa Airlines and Copa Columbia. As of November 1, 2013, Copa Holdings operates a fleet of 90 passenger aircraft, servicing 65 destinations in 29 countries. The stock is trading at a discount of 5% to my fair value estimate of $122.87.

Horace Mann Educators Corp. (HMN) | growth 5 yrs | yield 3.03% @ $30.41 | 5-yr CAGR 16.2%
Founded in 1945 and headquartered in Springfield, Illinois, HMN is an insurance holding company that focuses on the financial needs of educators in the U.S.A. Through subsidiaries, the company provides auto and homeowners insurance, retirement annuities, life insurance and other financial solutions to teachers, school administrators and their families. The stock is trading at a slight premium of 3.5% to my fair value estimate of $29.36.

• Albemarle Corp. (ALB) | growth 20 yrs | yield 1.88% @ $58.38 | 5-yr CAGR 14.9% 
10-yr CAGR 13%
Dividend Contender ALB is a major producer of specialty chemicals targeting customer needs across various end markets, including petroleum refinement, consumer electronics, plastics/packaging, construction, automotive, lubricants, pharmaceuticals, crop protection, food-safety, and custom chemistry services. The company serves about 3,000 customers in over 100 countries. My fair value estimate is $59, so ALB is trading 1% below fair value.

Novo Nordisk A/S (NVO) | growth 14 yrs | yield 1.84% @ $45.18 | 5-yr CAGR 26.9% 10-yr CAGR 28.1%
Denmark based NVO is a global healthcare company and a leader in the worldwide diabetes market. The company is also a key player in hemophilia care, growth hormone therapy and hormone replacement therapy. NVO markets its products in 180 countries. My fair value estimate is $46, so the company is trading at a discount of about 2% to fair value. NVO is a Dividend Contender with an impressive dividend growth rate.

Coca-Cola Enterprises Inc. (CCE) | growth 7 yrs | yield 2.31% @ $43.35 | 5-yr CAGR 2.6%
Headquartered in Atlanta, Georgia, CCE is engaged in the marketing, production and distribution of non-alcoholic beverages in Western Europe. More than 90% of sales volume comprises products of The Coca-Cola Company (KO), of which CCE is the bottling partner. CCE and KO have a 10-year bottling agreement in place through October 2020, with each partner having the right to request a 10-year renewal. CCE is trading at a discount of 12% to my fair value estimate of $48.60.

• Verizon Communications (VZ) | growth 10 yrs | yield 4.38% @ $50.25 | 5-yr CAGR 3.5% | 10-yr CAGR 3.0%
Based in New York, VZ was formed through the merger of Bell Atlantic and GTE Corp. The company offers communication services in the form of local phone service, long distance, wireless and data services. Following acquisitions of MCI Corporation and Alltel Wireless Corporation, VZ surpassed AT&T (T) as the largest wireless carrier in North America. VZ is trading at a premium of 2% to my fair value estimate of $49.45.

CMS Energy Corp. (CMS) | growth 8 yrs | yield 3.31% @ $32.67 | 5-yr CAGR 23.2%
CMS is a holding company based in Jackson, Michigan. The company's principal subsidiary, Consumers Energy, is Michigan's largest electric and natural gas utility, serving 6.6 million of the state's 10 million residents. Another subsidiary, CMS Enterprises, is engaged in independent power generation and owns power generation facilities fueled mostly by natural gas and biomass. My fair value estimate for CMS is $29.12, so the stock is trading at a premium of about 11% to fair value.

Given my usual position size of $2,500, I have enough cash for a single buy. HP looks very attractive, here, though DivGro is overweight in Energy. Based on the latest sector distribution in my watch list, DivGro is under-represented in Utilities, Industrials, and Materials. CMS does not look very appealing to me, as it is trading at a premium to my fair value estimate. CPA trades at a 5% discount, but the company's risk profile makes me hesitate. ALB is trading at about fair value.

Do you like any of these stocks? 


  1. I'm really liking HP. I think I may buy HP or IBM this Friday.

    1. I'm going to look into HP, too. Even though DivGro is overweight in Energy stocks at the moment...

  2. QCOM trading at $18, your fair value estimate is $83? I think there's a typo somewhere, because you also mentioned that it's a 6% discount.

    1. Thanks, DividendGarden, for alerting me -- I fixed the typo... the recent price is $78.51.

  3. From your names above HP and CPA look interesting to me. HP has been a long time solid dividend payer in the oil services sector and CPA I think will power ahead even more with reduced fuel prices for the time being.

    1. Yes, I like those names. I'm a little hesitant on CPA, but I'll take a look at it carefully, anyway. Thanks for your perspective!


  4. HP growth numbers look nice but I fear it is a bit too volatile for me.

    1. Yes it is volatile, but as how much of a concern is that from a dividend growth point of view? As long as it keeps on raising dividends (42 year streak now) at a good (great!) growth rate, the fact that the price jumps around a lot shouldn't overly concerning. At least, that's what I'm thinking now before having looked into HP in a detailed analysis. I'll post details when I do...

  5. I do like CPA, and analyzed it a while ago. Think it presents a compelling value; my FV is a little higher. I hope to buy it soon. What's your take on the Venezuelan situation?

    1. I've only read a few articles on CPA and haven't done a thorough analysis yet. Some writers seem to think the Venezuelan situation is already priced into the stock. I'm not familiar enough with the matter, though. I do have some colleagues from South America that I will ask.

      Good luck on your purchase!

  6. Any thoughts on QCOM given today's drop?

    1. Interesting! It fascinates me that an earnings miss has such an impact on share price. This despite the fact that earnings increased 20% from the same quarter last year... With the 10% drop in share price, QCOM is now yielding 2.44%! I'm at equal weight in Information Technology, but this is looking quite attractive. I'll need to see the reasons behind the earnings miss and lower guidance, though...

    2. One additional thought. Several analysts are downgrading QCOM by as much as 10%. If I slash my fair value estimate by 10%, QCOM would now trade at a discount of about 8% -- which is "better" than the 6% discount listed in my post.

    3. From what I can see there are litigation concerns for anti-trust issues in China which are contributing to the drop.

    4. And potential legal issues with the FTC...


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