November Dividend Stocks Watch List

how to choose dividend growth stocks

It’s time for this month’s dividend growth stocks watch list. I’ve already made my purchase for this month, however I’m thinking of maybe adding another purchase before the month is out. It could be a top-up to National Grid (not exactly a dividend growth stock, but a sturdy high-yielder), or I might buy something totally new.

How to Choose Dividend Growth Stocks

First things first – I go through a set of criteria every time I come to investigating shares in a given stock. I rule out:

  1. Stocks that don’t pay dividends (you need to give me something back, mate! I’m trying to earn passive income here! Dividends are one of my strategies for wealth, a new income stream I’m trying to build up alongside p2p lending, salary, interest, cashback, etc.);
  2. Stocks with a PE of over 20 (expensive – I’m a cheapskate and always will be!);
  3. Stocks with a PE of less than 7 (is it a value trap? too good to be true?);
  4. Stocks with a dividend cover of less than 1.5 – I prefer to buy those with a 2 upwards – this is equivalent to a 50% payout ratio in US terminology;
  5. Stocks that have less than 7 years’ increasing dividends (unless the company has a wide ‘moat‘);
  6. Stocks I find morally incompatible with my beliefs (tobacco, gambling, sugar – yes, sugar! Bye-bye Tate & Lyle!);
  7. Stocks that are facing some kind of legal issues or suspected fraud (e.g. Tesco, Serco, Quindell);
  8. Stocks that have not increased their dividend by at least 2% per year (my default inflation figure, although I sometimes ignore this if the company has a wide moat. Moreover, UK inflation is almost 0% right now, so I’ve gotten even more lax on this point – now down to 1.25%).

I draw my initial list of stocks from Trevor’s UK Dividend Champions website. Do check it out, it’s a fantastic resource. However, just like anything, it may differ slightly in data compared to other websites. Moreover, as it is done around the beginning of each month, it will get more and more out of date as you go along. Yahoo Finance or Google Finance may differ from Interactive Investor, which may differ from Investegate, which may differ from Digital Look, which may differ from Morningstar. You are basically on your own! We are not financial advisors or IFAs, and none of this is a recommendation to invest. Remember, this site is just for informational, educational, and entertainment purposes only. Always do your own research and consult a certified professional for legally-covered advice if you really want to.

Now before you get too picky, what did I do recently? I bought GlaxoSmithKline. This stock does not actually fit all of the criteria listed above. Despite having some bad figures which may initially rule them out, you may want to invest into sectors such as the pharma giants or mining which are pretty beaten down right now. This is under the expectation that they will return to growth soon, and also because you may not have any/enough exposure to these sectors, like me! I had nothing in pharma before buying GSK (except via trackers), and I still have almost nothing in mining. In GSK’s case, they were the better stock vs. AstraZeneca, the other large pharmaceutical company in the UK (although incidentally I think AZ will do very well in the long-term, I just don’t want to buy into that just yet).

So, which stocks did my screening criteria generate this month? This is the initial list, sorted by yield and is of the entire UK stock market (including FTSE Fledgling and AIM stocks):

EpicNameIndexSectorYield %
BMYBloomsbury Publishing plcFTSE-A/SMedia3.52
IPFInternational Personal Finance plcFTSE-250Financial Services3.35
CTHCareTech Holdings plcAIM-A/SHealth Care Equipment & Services3.34
DGEDiageo plcFTSE-100Beverages3.00
SKYSky plcFTSE-100Media2.99
AGKAggreko plcFTSE-250Support Services2.96
NVANovae Group PLCFTSE-A/SNonlife Insurance2.94
HFGHilton Food Group PLCFTSE-A/SFood Producers2.92
WPPWPP plcFTSE-100Media2.91
SXSSpectris Group plcFTSE-250Electronic & Electrical Equipment2.87
KGFKingfisher plcFTSE-100General Retailers2.84
HILSHill & Smith Holdings PLCFTSE-A/SIndustrial Engineering2.74
SMJJ. Smart & Co. plcFTSE-FLConstruction & Materials2.73
RWSRWS HOLDINGSAIM-100Support Services2.69
RORRotork plcFTSE-250Industrial Engineering2.69
PZCPZ Cussons plcFTSE-250Personal Goods2.66
DPLMDiploma plcFTSE-250Support Services2.65
ATKAtkins (WS) plcFTSE-250Support Services2.65
BEZBeazley plcFTSE-250Nonlife Insurance2.61
CCCComputacenter PLCFTSE-250Software & Computer Services2.58
PRUPrudential plcFTSE-100Life Insurance2.50
BRBYBurberry Group plcFTSE-100Personal Goods2.48
VCTVictrex plcFTSE-250Chemicals2.46
CPGCompass Group plcFTSE-100Travel & Leisure2.42
MERMears Group plcFTSE-A/SSupport Services2.42
HSXHiscox LtdFTSE-250Nonlife Insurance2.38
TETTreatt plcFTSE-FLChemicals2.37
BAGA.G. BARR plcFTSE-250Beverages2.34
CRDACroda International plcFTSE-250Chemicals2.31
FSJJames Fisher and Sons plcFTSE-250Industrial Transportation2.29
DNLMDunelm Group plcFTSE-250General Retailers2.16
SPXSpirax-Sarco Engineering plcFTSE-250Industrial Engineering2.16
WYNWYNNSTAY GROUPAIM-A/SFood Producers2.03

Now, as I said before, this is a list for further investigation, not for just going out there are buying from. There may be issues with these companies that could be ticking time bombs, waiting to blow up in your face, along with your FIRE funds! Ticking time bombs include: legal proceedings, enormous pension obligations, mergers/sales/acquisitions of assets/divisions/other companies, etc.

What do you think of these companies? Any which catch your eye? Some which surprised you, or some which you already own? Let me know, leave a comment below.

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13 Comments

  1. Hi M,
    I am interested in buying Diageo plc. I already have some GSK shares and do wonder about their fraud issues in China as others have commented on. I want to diversify my income dividends across a number of sectors and am mainly doing this via ISA funds. I pick up a few individual shares now and again as I can only buy them outside a ISA at the moment as the ISA account I have only permits me to buy funds.
    I wait you next list and see if anything else pops on there that looks interesting.
    Happy investing.
    SB

    1. Hi sparklebee, thanks for stopping by. I am also quite interested in Diageo… it’s been on my watch lists for ages, sometimes popping in and out due to the higher PE… but it’s a strong contender, for sure.

      With regards to GSK, they are one of many foreign (to China) companies who are penalised by the Chinese when their own national companies engage in the exact same practices and the authorities turn a blind eye to it. I’m not making a moral judgement on what GSK did or didn’t do, but it’s just one of those things that we can’t really be too sure of I think. In a similar vein, BMW have been trying to sue Chinese car manufacturers unsuccessfully for quite a while, they have had several of their models blatanlty ripped off – I mean the design is just the same, but the Chinese courts rule that they weren’t copied… SO basically what I’m saying is you can’t really trust what goes on in Chinese business practices and how they choose to enforce (or not) the law.

      On your ISA – why not just open another ISA? One that does stocks as well as anything else you may want? You could try AJ Bell for example – pretty cheap and you can do £1.50 trades once per month

    1. True. Although if you’re buying in US$ then the exchange rate is already way in your favour. The Euro is getting killed right now, and the £ is not exactly high, but not as bad as the Euro, so if anything you may like to look towards Euro-traded stocks like Munich Re and the like? Just a thought.

  2. Have you ever considered Gfrd? Price has slipped back and yield is attractive. Dividend cover may a little tight for your criteria though. You would also need to wait a year for the main payout as currently ex div. Thinking of topping up my holding but fear over exposure to the sector in my portfolio.

    1. Hey Simon,

      thanks for your comment and suggestion of Galliford Try. In previous monthly watch lists, they’ve never met all my criteria, but as I’ve been saying recently, I do go beyond the bounds of my criteria sometimes, and GFRD might be such a stock in which I might some shares… They do have a good dividend history though, and depending on which website you look at, the figures seem to suggest a dividend cover of around 1.7 which would, in fact, tick my 1.5+ criterion.

      The only related stock I hold is Carillion, so if anything, I’m underexposed in construction/housebuilding types of stocks right now.

      Thanks for stopping by and pointing towards GFRD

      Cheeers

  3. Hi M, I wish I’d had your criteria list years ago when I did invest in individual stocks. I was always looking for a succinct strategy that was thought through, as opposed to the “monkey with a pin” approach I was using! And you’re flexible with your approach, which is a good thing, because “scandal” and GSK will never be far apart. Aren’t they in trouble in China with bribery allegations? I’m afraid, and know from experience, that if you want to be a global company, you are going to be involved in some shady practices somewhere in the world. If I was buying today (literally) I’d be buying Rolls Royce. They’ve taken a hammering this week, but what a fantastic brand. Unfortunately, I know very little else about their business other than their name, which was why I stopped buying individual stocks. “Buy what you know” is undermined when you don’t actually “know” very much!

    1. If you were buying today, I’d be wondering how you’re doing that, because the market’s closed! But I wouldn’t be joining you in buying RR, because they’ve never matches my criteria… Yes, as you say I’m flexible sometimes but RR have got a pretty scary pension funds situation… The company is indeed a fantastic brand, but boy are their finances not great!

      With regards to the GSK situation, I think I put a link to an article about businesses in China in my exclusive subscriber news… The article mentions the GSK situation, and it’s probably not as bad as we think.

      I’m also always aware that I don’t know a lot, but I do try to be confident in the known factors enough to compensate for things I can’t find out about. However, too much digging cab easily lead to the paralysis of analysis, where you do nothing for fear of doing it wrong… I certainly don’t want to go down that road, so I’d just buy trackers if I thought it might be a problem.

      Thanks for stopping by and commenting, always appreciate your opinions!

  4. Dividend should not be the only criteria to chose stocks though it is something passive income earners must look for when choosing the stocks. Betting on growth and capitalizing on gains should also be one of the considerations as companies which dividends are often mature companies with no future growth prospects therefore they do nothing except paying dividends.

    Nice screening technique though M. Picked Stocks are really good bargain to look into.
    adnan @ themoneyhabits recently posted…Financial Planning – Why it is more than just numbersMy Profile

    1. Hey Adnan,

      thanks for your thoughts. Since I am looking for income, dividends are 100% an absolute must. However, I recently had a conversation with Vivianne of wellroundedinvestor.com about maybe opening another account – one for growth stocks. Because I feel like I need to keep the main NISA account for my income purchases.

      Cheers

    1. I know! That is my dilemma… There are more on the list than I’ve ever had before I think…

      I wouldn’t mind adding to Bloomsbury myself too, but I’m gonna wait ’til nearer the regular investing date to decide. Also need to do a wee bit more research before narrowing it down to 1-2 final contender stocks… Wish me luck!

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