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:
- 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.);
- Stocks with a PE of over 20 (expensive – I’m a cheapskate and always will be!);
- Stocks with a PE of less than 7 (is it a value trap? too good to be true?);
- 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;
- Stocks that have less than 7 years’ increasing dividends (unless the company has a wide ‘moat‘);
- Stocks I find morally incompatible with my beliefs (tobacco, gambling, sugar – yes, sugar! Bye-bye Tate & Lyle!);
- Stocks that are facing some kind of legal issues or suspected fraud (e.g. Tesco, Serco, Quindell);
- 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 Moreover, as it is done around the beginning of each month, it will get more and more out of date as you go along.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):
|BMY||Bloomsbury Publishing plc||FTSE-A/S||Media||3.52|
|IPF||International Personal Finance plc||FTSE-250||Financial Services||3.35|
|CTH||CareTech Holdings plc||AIM-A/S||Health Care Equipment & Services||3.34|
|AGK||Aggreko plc||FTSE-250||Support Services||2.96|
|NVA||Novae Group PLC||FTSE-A/S||Nonlife Insurance||2.94|
|HFG||Hilton Food Group PLC||FTSE-A/S||Food Producers||2.92|
|SXS||Spectris Group plc||FTSE-250||Electronic & Electrical Equipment||2.87|
|KGF||Kingfisher plc||FTSE-100||General Retailers||2.84|
|HILS||Hill & Smith Holdings PLC||FTSE-A/S||Industrial Engineering||2.74|
|SMJ||J. Smart & Co. plc||FTSE-FL||Construction & Materials||2.73|
|RWS||RWS HOLDINGS||AIM-100||Support Services||2.69|
|ROR||Rotork plc||FTSE-250||Industrial Engineering||2.69|
|PZC||PZ Cussons plc||FTSE-250||Personal Goods||2.66|
|DPLM||Diploma plc||FTSE-250||Support Services||2.65|
|ATK||Atkins (WS) plc||FTSE-250||Support Services||2.65|
|BEZ||Beazley plc||FTSE-250||Nonlife Insurance||2.61|
|CCC||Computacenter PLC||FTSE-250||Software & Computer Services||2.58|
|PRU||Prudential plc||FTSE-100||Life Insurance||2.50|
|BRBY||Burberry Group plc||FTSE-100||Personal Goods||2.48|
|CPG||Compass Group plc||FTSE-100||Travel & Leisure||2.42|
|MER||Mears Group plc||FTSE-A/S||Support Services||2.42|
|HSX||Hiscox Ltd||FTSE-250||Nonlife Insurance||2.38|
|BAG||A.G. BARR plc||FTSE-250||Beverages||2.34|
|CRDA||Croda International plc||FTSE-250||Chemicals||2.31|
|FSJ||James Fisher and Sons plc||FTSE-250||Industrial Transportation||2.29|
|DNLM||Dunelm Group plc||FTSE-250||General Retailers||2.16|
|SPX||Spirax-Sarco Engineering plc||FTSE-250||Industrial Engineering||2.16|
|WYN||WYNNSTAY GROUP||AIM-A/S||Food Producers||2.03|
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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image credit: freedigitalphotos.net/bplanet