A Top Dividend Growth Stock Screener Strategy + Criteria

Building A Dividend Growth Stocks Portfolio Is A Wise Move. We Help You With The Right Strategy, Criteria & How To Implement It In A Screener

Do you want to find companies that are continually raising their dividends?  It is a wise move as businesses that have a significant dividend growth are usually growing sales and market dominance.

What if you could find companies that have experienced dividend growth over the last 10 years and that on sale at bargain-basement prices by the stock market?  This is called Dividend Growth + High Margin of Safety.

This is exactly what I will show you in this article.

Dividend Growth Stock Screener Strategy:

  1. Choose A Great Stock Screener
  2. Understand the Strategy
  3. Target Good Looking Stocks
  4. Perform Final Company Analysis
  5. Build & Maintain Your Portfolio

1. Choose A Great Stock Screener

Using Microsoft Excel to number crunch company financials is a thing of the past, you will need a powerful yet simple Stock Screening platform that will enable you to implement first-class dividend growth investing strategies.

Option 1 – Get Stock Rover – For U.S.A. & Canadian Investors

The best tool for the job is Stock Rover the Winner of our Top 10 Best Stock Screeners Comparison. Also, Stock Rover won our Best Value Investing Stock Screener Comparison.

Stock Rover Review

Sign Up For A Free 14 Day Trial of Stock Rover (no card required), this will give you the Premium Plus Service for free for 14 days.  You need the Premium Plus Service to access the awesome 10-year dividend & financials history, Fair Value and Margin of Safety criteria, exclusive to Stock Rover.

Get A Free 14 Day Stock Rover Premium+ Trial

Option 2 – For International Investors

If you are planning to build a portfolio of dividend stocks outside of the USA & Canada, then you will need to select either TradingView or MetaStock

MetaStock + Refinativ Xenith provides a great package of fundamental screening through Refinativ and also real-time news. Very powerful technical analysis and system backtesting is also part of the package. Try MetaStock 3 for 1

TradingView provides detailed value and dividend stock screening for nearly every stock on the planet.  Easy to use yet powerful, TradingView is an excellent choice for international investors. Try TradingView Free

Alternatively, read our Review of the Top 3 Best Value & Dividend Stock Screeners

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2. Understand the Strategy

10 Year Dividend Growth Strategy

10 Year Dividend Growth Screening Criteria

  • Dividend Yield > 1.5%
  • Dividend 1 Year Change > 8%
  • Dividend 3 Year Change > 8%
  • Dividend 5 Year Change > 8%
  • Dividend 10 Year Change > 8%
  • Payout Ratio >10 < 40
  • Sales 5 Year Average (%) > 4%
  • Margin of Safety > 0

The Dividend Kings or Dividend Aristocrats strategy essentially means investing in companies that have a long history of continually paying and increasing dividends.

For this, you will need a stock screener with a significantly large historical database (at least 10 years) of earnings and dividend payments, such as Stock Rover.

The criteria shown here is the calculation for a 10-year period.

Dividend Growth Criteria Explanation:

  • Dividend Yield > 1.5%.  This is a simple filter designed to ensure only companies actually paying a dividend above 1.5% are listed. Anything less than 1.5% will not even payout in line with inflation.
  • Dividend 1 Year Change > 8%. Here we want to see only companies who have increased dividends in the last fiscal year of over 8%.
  • Dividend 3 Year Change > 8%. Next, we filter down to those companies that have at least an average increase of 8% over the last 3 years.

    Dividend Growth Screener - Criteria Implemented Into Stock Rover
    Dividend Growth Screener – Criteria Implemented Into Stock Rover
  • Dividend 5 Year Change > 8%. Again, only those companies increasing dividends more than 8% over the last 5 years.
  • Dividend 10 Year Change > 8%. You get the idea. 🙂
  • Payout Ratio >10 < 40. The payout ratio is designed to ensure the company is making enough profits to continue to pay the dividends and sustain the increases.  You can reduce the “<10” to see more stocks in the scan. We do not want to see companies paying more than 40% of their profits out in dividends, they do need to retain cash flow for future growth and capital investments.
  • Sales 5 Year Average (%) > 4%. This is designed to ensure that the company is indeed increasing sales at least on average to pay for the above growth in dividends.
  • Margin of Safety > 0(Exclusive to Stock Rover) For me the most important criterion of all, the Margin of Safety, using Warren Buffett‘s calculation, the forward discounted cash flow (see our article on Intrinsic Value).  Essentially, the higher the margin of safety the more of a discount you are buying a stock for.

These criteria would typically return a list of only 5% of the NYSE or NASDAQ listed stocks.

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3. Target Good Looking Stocks

The image below shows we have a choice of 39 stocks. Some well know names meet these criteria today, such as Accenture, Comcast & Prudential.  Now we need to scan through the potentials and short-list them for further research.

Dividend Growth Screener - Analysing PRU Prudential - Courtesy of Stock Rover
Dividend Growth Screener – Analysing PRU Prudential – Courtesy of Stock Rover

One that specifically caught my attention is Prudential (Ticker: PRU).

The dividend yield is 4.6% which is quite good.  The “Fair Value” of the stock, based on forward discounted cash flow is $123 whereby the current stock price is $87, meaning the market is currently undervaluing this stock e.g. a Value Stock.

This means we have a margin of safety of 40% which I think Warren Buffett would approve of.

We can also see in the right-hand pane that dividends have actually increased solidly for the last 10 years.  This is a great candidate for our watchlist of potential buys.

Finally, in the image above we can see that the proprietary Stock Rover Value Score of 99 which is very high. The Value Score looks at EV / EBITDA, P/E, EPS Predictability, Price / Tangible Book, and Price / Sales. The Price / Tangible Book and Price / Sales values are compared within a sector whereas the other metrics are compared across all stocks with adequate data. The best companies score a 100 and the worst score a 0.

Now that we have selected a few stocks we like at first glance, we can deep-dive the financials.

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Dividend Growth Screener - Financial Deep Dive PRU - Courtesy of Stock Rover
Dividend Growth Screener – Financial Deep Dive PRU – Courtesy of Stock Rover

4. Perform Final Company Analysis

Using Stock Rover we can quickly and easily assess the company financials, by clicking on Summary in the right-hand pane (see image right).

Here we can see that the Value Score is stable over the last 8 years (99), and the Growth Score is improving strongly (82).

The Quality Score shows improvement to (46), it compares profitability and balance sheet metrics to find high-quality companies. This computation includes ROIC, Net Margin, Gross Margin, Interest Coverage, and Debt / Equity ratio values. The best companies score a 100 and the worst score a 0.

The sentiment score shows a low (13), this is good because finding stocks at very low undervalued prices means that the market sentiment should be very low.

Next, the Earnings per Share EPS Current Year is expected to be an improvement of 38.2%.

Finally, in the Returns vs Benchmark, we can see that Prudential has historically lagged the S&P 500, however at the current super-low valuation I think it might be worth an investment on the understanding that they can maintain the solid 10-year dividend growth rate.

In this situation, I would encourage you to read further on the company’s market and competitive outlook in the annual shareholder report and decide for yourself.

Finally, if this is not enough information, you can, of course, drill into the deep financials and perform industry-specific competition comparisons.

In the next example, we look at Microsoft, which is actually an excellent dividend stock.

Stock Ratings – Financial Strength Report

Deeper Dividend Research Financial Strength & Balance Sheet Analysis - Stock Rover
Deeper Dividend Research Financial Strength & Balance Sheet Analysis – Stock Rover – (figure 4)

In figure 4, I have selected the Financial Strength tab because I need to evaluate the financial health of the company.

  • We can see that Stock Rover rates MSFT with a Financial Strength Score of 73 (out of 100)
  • The first chart Financial Strength Industry Percentiles shows that MSFT is below the industry average in terms of Debt to Equity but higher than average for the Interest Coverage Ratio.
  • The following two charts show the 10-year trend for Total Debt to Equity and the Interest Coverage Ratio.
  • In the charts at the bottom Peers Financial Strength Scores, you can see the excellent visualization of the financial strength of this company against its competition.  This is extremely useful for uncovering potential new opportunities.

 

Stock Ratings – Dividend Analysis Report

In-depth Dividend Analysis & Peers Comparison With Stock Rover
In-depth Dividend Analysis & Peers Comparison With Stock Rover (figure 5)

In the Dividends section of Stock Ratings we see the following interesting comparisons for Apple Ticker: AAPL

  • The Dividend Industry Percentiles chart shows that AAPL has a slightly below-average dividend yield (45th percentile) compared to the industry, but that the dividend growth is amongst the best in the industry (92nd percentile), which could be very promising.
  • The Trailing Yield shows us that APPL historically keeps its dividend yield to between 1.5 and 2.5% of stock price. Notably, the dividends were re-established in 2012 and the Dividend per Share has seen strong growth since.
  • Finally, in the Peers Dividend Scores report, we see that Hewlett Packard Inc. (Ticker: HPQ) is currently offering a vastly superior Dividend Yield, but Apple’s Dividend Growth is industry-leading.

So now you have analyzed the companies you are interested in, it may be time to build your portfolio.  If you need further food for thought on the topic of qualitatively analyzing a business and its industry see this section in the article “How to Build a Buffett Value Screener“,

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5. Build & Maintain Your Portfolio

If you do not already have a broker, or your broker is charging you more than $1 per trade, the next section will help.

Commissions Free Stock Trading with Firstrade
Commission Free Stock Trading with Firstrade

1. Select The Best Commission Free Broker

Now you have narrowed down the stocks that you want to buy so that you can build your portfolio. Remember, Warren always says:

The best time to sell is never

Although not a strict rule, it pertains more to the fact that you need to buy and hold for the long-term.  If you have done your job well, you will not need to sell for the foreseeable future.

If you do not already have a broker to enable the purchase of shares, I would recommend the only major $0 commissions broker Firstrade, the winner of our Top 10 Stock Brokers Comparison.

2. Connect Stock Rover To Your Brokerage Account To Get Dividend Portfolio Analytics

Connecting Stock Rover To YOur Brokerage for Dividend Portfolio Analytics
Connecting Stock Rover To YOur Brokerage for Dividend Portfolio Analytics

If you have indeed selected Stock Rover as your stock screener of choice, you can move ahead to connecting it to your Broker if you so wish.

Making this connection enables some excellent portfolio reporting through Stock Rover that is not usually available with most brokers.

You will still execute the trades with your selected broker, but the portfolio performance and risk reporting will be handled by Stock Rover.

Simply select Brokerage Connect from the left navigation menu and follow the instructions.

3. Manage Your Portfolio With Excellent Dividend Income Reporting

You can connect Stock Rover to your broker, or simply add the stocks you have purchased manually or via a text file import.  Either way you will be presented with some nice portfolio reporting.

Portfolio Analytics

In the example below, I have selected the Warren Buffett Top 25 Holdings portfolio.  This is pre-built and reflects the Top 25 companies that Warren Buffett owns.

Selecting the Value Over Time Tab we can see the following metrics:

  • This portfolio has made an annual rate of return of 7.3% over the last 10 years.
  • The selection of stocks has appreciated in value by 88.1%
  • The total return on investment is 116%
  • The total income generated through dividends is $26 M
Analysis of your Dividend Income Portfolio - Featuring Warren Buffett's Top 25 Stocks
Analysis of your Dividend Income Portfolio – Featuring Warren Buffett’s Top 25 Stocks
Get A Free 14 Day Stock Rover TrialRead The Stock Rover Review10 Best Stock Screeners Comparison

 

Summary

The 5 easy steps to building a powerful dividend growth stock screener entail finding the rights stock screening software and then deciding on your dividend growth stock investing strategy.  You follow by building your screening criteria to form your list of great companies.  Finally, you perform deep analysis and decide which stocks will for the foundation of your future portfolio.

Let me know how you get on, any questions or feedback, please leave a comment below, I promise to reply 🙂

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