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Dividend Growth Feature

Dividend Growth Stocks for the Intelligent Investor – September 2015

Dividend Growth Stocks

 

Dividend growth investing is a very popular approach which can fit within the ModernGraham methods.  This article will look at companies reviewed by ModernGraham which have grown their dividends annually for at least the last 20 years.

Recently, I began tracking the number of years a company has grown its dividend, and providing that information in my individual company valuations.  I have covered 125 companies since that tracking began.  Eventually I will have this data on each of the more than 550 companies covered by ModernGraham, so this list should continue to grow for the next few months.

Out of the 125 companies on which I have dividend growth data, only 17 have grown dividends annually for at least the last 20 years.  Here is an overview of those companies:

The Elite

The following companies have been rated as the most undervalued and suitable for either the Defensive Investor or the Enterprising Investor:

Franklin Resources Inc. (BEN)

Franklin Resources Inc. qualifies for both the Defensive Investor and the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $2.23 in 2011 to an estimated $3.41 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.47% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Dover Corporation (DOV)

Dover Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  Both investor types are only initially concerned with the low current ratio. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.58 in 2011 to an estimated $5.03 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.72% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Helmerich & Payne Inc. (HP)

Helmerich & Payne Inc. qualifies for the more conservative Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment. As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the valuation.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $3.24 in 2011 to an estimated $4.77 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 1.85% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

People’s United Financial Inc. (PBCT)

People’s United Financial Inc. is suitable for either the Defensive Investor or the Enterprising Investor.  The company passes all of the requirements of both investor types, a rare accomplishment indicative of the strong fundamentals.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the next stage of the analysis.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $0.40 in 2011 to an estimated $0.78 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 5.44% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Ross Stores Inc. (ROST)

Ross Stores Inc. qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.07 in 2012 to an estimated $2.11 for 2016.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 7.57% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

Cintas Corpoartion (CTAS)

Cintas Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be undervalued after growing its EPSmg (normalized earnings) from $1.83 in 2012 to an estimated $3.33 for 2015.  This level of demonstrated earnings growth outpaces the market’s implied estimate of 8.17% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value above the price.  (See the full valuation)

Genuine Parts Company (GPC)

Genuine Parts Company qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio.  The Enterprising Investor is only initially concerned by the low current ratio.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.08 in 2011 to an estimated $4.43 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 5.18% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

Parker-Hannifin Corporation (PH)

Parker Hannifin Corporation qualifies for both the Defensive Investor and the Enterprising Investor.  The company meets all of the initial requirements of both investor types, a rare accomplishment indicative of the company’s strong fundamentals.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $5.65 in 2011 to an estimated $6.78 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 3.64% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

VF Corporation (VFC)

VF Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PEmg and PB ratios.  The Enterprising Investor has no initial concerns.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.48 in 2011 to an estimated $2.70 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 9.13% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Full List

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Clicking on the company name will take you to the company’s latest valuation.  For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ALB Albemarle Corporation D 8/12/2015 $21.94 $43.03 196.13% 14.20 2.70%
AOS A. O. Smith Corp E 8/21/2015 $43.86 $67.46 153.81% 27.88 1.13%
BDX Becton, Dickinson and Co. S 8/19/2015 $57.33 $135.71 236.72% 24.67 1.77%
BEN Franklin Resources, Inc. D 9/4/2015 $83.40 $39.66 47.55% 11.63 1.51%
BMS Bemis Company, Inc. E 9/4/2015 $32.27 $42.09 130.43% 20.33 2.66%
CTAS Cintas Corporation E 8/24/2015 $110.24 $85.04 77.14% 25.54 1.00%
DOV Dover Corp E 9/1/2015 $103.80 $60.51 58.29% 12.03 2.78%
GPC Genuine Parts Company E 9/8/2015 $96.04 $82.99 86.41% 18.73 2.96%
HP Helmerich & Payne, Inc. D 8/16/2015 $108.12 $50.66 46.86% 10.62 5.43%
JNJ Johnson & Johnson D 9/3/2015 $81.84 $92.24 112.71% 17.81 3.25%
MKC McCormick & Company, Incorporated S 8/15/2015 $50.89 $79.88 156.97% 25.52 2.00%
NEE NextEra Energy Inc S 8/13/2015 $72.64 $95.30 131.19% 18.47 3.23%
PBCT People’s United Financial, Inc. D 8/24/2015 $29.05 $15.41 53.05% 19.76 4.35%
PH Parker-Hannifin Corp D 9/8/2015 $98.43 $105.47 107.15% 15.56 2.39%
ROST Ross Stores, Inc. E 8/23/2015 $79.79 $49.38 61.89% 23.40 0.95%
SYY SYSCO Corporation S 9/8/2015 $5.10 $39.60 776.47% 25.06 3.03%
VFC VF Corp E 9/8/2015 $88.94 $70.77 79.57% 26.21 1.81%

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

For the investor type, a “D” indicates the company is suitable for the Defensive Investor, an “E” indicates the company is suitable for the Enterprising Investor, and an “S” indicates the company is considered speculative at this time.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
ALB Albemarle Corporation D 8/12/2015 $43.03 2.70%
AOS A. O. Smith Corp E 8/21/2015 $67.46 1.13%
BDX Becton, Dickinson and Co. S 8/19/2015 $135.71 1.77%
BEN Franklin Resources, Inc. D 9/4/2015 $39.66 1.51%
BMS Bemis Company, Inc. E 9/4/2015 $42.09 2.66%
CTAS Cintas Corporation E 8/24/2015 $85.04 1.00%
DOV Dover Corp E 9/1/2015 $60.51 2.78%
GPC Genuine Parts Company E 9/8/2015 $82.99 2.96%
HP Helmerich & Payne, Inc. D 8/16/2015 $50.66 5.43%
JNJ Johnson & Johnson D 9/3/2015 $92.24 3.25%
MKC McCormick & Company, Incorporated S 8/15/2015 $79.88 2.00%
NEE NextEra Energy Inc S 8/13/2015 $95.30 3.23%
PBCT People’s United Financial, Inc. D 8/24/2015 $15.41 4.35%
PH Parker-Hannifin Corp D 9/8/2015 $105.47 2.39%
ROST Ross Stores, Inc. E 8/23/2015 $49.38 0.95%
SYY SYSCO Corporation S 9/8/2015 $39.60 3.03%
VFC VF Corp E 9/8/2015 $70.77 1.81%

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Disclaimer: 

The author held a long position in Dover Corporation but did not hold a position in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here.  This article is not investment advice and all readers are encouraged to speak to a registered investment adviser prior to making any investing decisions.  Please also read our full disclaimer.

 

2 thoughts on “Dividend Growth Stocks for the Intelligent Investor – September 2015

  1. Why do you feel A.O. Smith Corp is a enterprising selection? It passes all of the Defensive qualitative criteria…the only thing it doesn’t pass is the quantitative criteria…If you have it as enterprising, it should have a PE less than 10 and a PB of less than 1.2, which it doesnt. It would pass all the Enterprising qualitative criteria but not the quantitative criteria. If that is the case, wouldn’t it be Defensive the way that you do some criteria and not all instead of Enterprising? Honestly, I do t understand why you only do some criteria and not all for selection. I have never read anything that Graham wrote suggesting that. I understand you are trying to get more stocks to include as recommendations, but the purpose of the criteria are to be extremely selective. I would be interested to hear your perspective about why you feel this is a good way to approach today’s markets. I am not trying to question your methods as much as I am looking for some intelligent discourse on some of your research and critiquing it. I do my own research and have others critique it, so just trying to understand your perspective.

    1. Craig,

      A.O. Smith does not pass the Defensive Investor’s requirements for the PEmg ratio or the PB ratio, but it passes all of the Enterprising Investor requirements.

      I’ve slightly modified some of the criteria to better fit today’s markets. They still are extremely selective and I believe achieve the goals Graham had in mind. Graham provided them as suggested criteria to help narrow down the list of companies to the strongest. A company must pass 6 of the 7 Defensive Investor requirements, or it must pass 4 out of the 5 Enterprising Investor requirements. This approach eliminates 90% of large-cap stocks for the Defensive Investor and nearly 60% of large cap stocks for the Enterprising Investor. When you add in the fact that the criteria become even more selective for the Defensive Investor as you look at smaller and smaller companies, I would consider the current setup to be extremely selective.

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