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5 Discounted Dividend Contenders

These high-quality dividend growth stocks have dividend increase streaks of 10-24 years. Each stock is discounted and offers generous and safe dividends and strong total return prospects.

This article presents five high-quality that are discounted and offer generous and safe dividends and strong total return prospects.

Dividend Contenders are companies listed on U.S. exchanges that have dividend increase streaks of 10-24 years. There are 315 Dividend Contenders in my watchlist of dividend growth stocks, , a free resource for DG investors maintained and published every Friday by .

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. The system assigns quality scores to dividend growth stocks based on from trusted sources. To rank dividend growth stocks, I sort them by quality scores and use tie-breaking metrics when necessary.

In many of my articles, I provide fair value estimates of the stocks I cover. There are many ways to do stock valuation, but I prefer to use a survey approach. I reference fair value estimates and price targets from several sources and calculate a single, representative fair value [FV].

Quality and Valuation Screens

I generally consider five stock-picking criteria when evaluating dividend growth stocks for my portfolio. The criteria relate to stock quality, dividend safety, growth outlook, income outlook, and stock valuation.

For this article, in addition to considering only Dividend Contenders, I used the following screens:

  1. Stock Quality: High-quality stocks with quality scores of 19-25.
  2. Dividend Safety: Stocks with Very Safe and Safe Dividend Safety Scores, according to .
  3. Growth Outlook: Stocks likely to deliver annualized total returns of at least 8%, according to the .
  4. Income Outlook: Stocks with a 5-year yield on cost of 3.5% or higher.
  5. Stock Valuation: Stocks trading below my FV estimate and stocks whose forward dividend yield exceeds their 5-year average dividend yield.

I rate dividend growth stocks according to their quality scores: Exceptional (25), Excellent (23-24), Fine (19-22), Decent (15-18), Poor (10-14), and Inferior (0-9). Only stock rated Exceptional, Excellent, or Fine qualified for this article.

High-quality Discounted Dividend Contenders

Here are the Dividend Contenders that pass my quality and valuation screens:

Screen Shot 2021-11-01 at 10.24.05 AM

Note that I’m long all these stocks in my DivGro portfolio.

1. Lockheed Martin Corporation (LMT)

Founded in 1909 and headquartered in Bethesda, Maryland, LMT is a global security and aerospace company engaged in researching, designing, developing, manufacturing, integrating, and sustaining advanced technology systems. LMT operates through four segments, Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems.

2. Bristol-Myers Squibb Company (BMY)

BMY discovers, develops, licenses manufactures, markets, distributes, and sells biopharmaceutical products worldwide. The company's pharmaceutical products include chemically synthesized drugs administered as tablets or capsules. It also uses biologics to produce products administered through injections or by infusion. BMY was founded in 1887 and is headquartered in New York, New York.

quality score
  • Fwd Yield: forward dividend yield for a recent share Price
  • 5-Avg Yield: 5-year average dividend yield
  • 5-DGR: 5-year compound annual growth rate of the dividend
  • 5-YOC: the projected yield on cost after five years of investment
  • C#: , a popular metric for screening dividend growth stocks
  • 5-TTR: 5-year compound trailing total returns
  • VL Safety Rank: 's
  • VL Fin Stren: Value Line's ratings
  • MS Econ Moat: 's
  • S&P Cred Rating: 's
  • SSD Divi Safety: '
  • Buy Below: my risk-adjusted buy below price
  • –Disc +Prem: discount or premium of the recent share Price to my Buy Below price
  • Price: recent share price
  • Screen Shot 2021-11-01 at 10.28.08 AM
    Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

    Sources: Dividend Radar • Value Line • Morningstar • FASTGraphs • Simply Safe Dividends

    Commentary

    Three Dividend Contenders are rated Excellent (quality scores 23-24), and two are rated Fine (quality scores 19-22).

    Except for SNA, the stocks are trading well below my FV estimates. Depending on your risk tolerance, you may want to wait for a better entry price for SNA.

    At 3.43%, BMY offers the highest forward yield of the five stocks. Along with AMGN and LMT, both also yielding more than 3%, these are great candidates for income investors.

    Only LMT does not boast a 5-year dividend growth rate. So investors looking for the best dividend growth candidates should prefer the other Dividend Contenders.

    The best combinations of forward dividend yield and 5-year dividend growth rate are ALL and BMY (C#) and AMGN and BMY (5-YOC).

    ALL is the best performer over the past five years, based on 5-TTR (price appreciation and dividends). But let’s compare the 10-year trailing total returns of these stocks:

    Comparison of the total returns of the five Dividend Contenders versus SPY over the past ten years (source: Portfolio-Insight.com)

    Comparison of the total returns of the five Dividend Contenders versus SPY over the past ten years (source: Portfolio-Insight.com)

    :

    Lockheed Martin (LMT)

    Screen Shot 2021-11-01 at 10.33.24 AM
    LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

    LMT non-GAAP EPS and dividends paid (TTM), with stock price overlay

    LMT has an impressive dividend growth record, but the stock price has not matched the company’s non-GAAP EPS growth, particularly over the past four years or so. I think this creates a potentially lucrative opportunity for patient dividend growth investors.

    .

    Bristol-Myers Squibb (BMY)

    Screen Shot 2021-11-01 at 10.35.58 AM
    BMY non-GAAP EPS and dividends paid (TTM), with stock price overlay

    BMY non-GAAP EPS and dividends paid (TTM), with stock price overlay

    financials posted for Q3 2021

    Amgen (AMGN)

    Screen Shot 2021-11-01 at 10.37.55 AM
    AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

    AMGN non-GAAP EPS and dividends paid (TTM), with stock price overlay

    AMGN’s dividend increases are impressive and remarkably consistent. The stock price growth has tracked non-GAAP EPS growth rather well, and the recent price drop is creating a great opportunity, in my view.

    Snap-on (SNA)

    Screen Shot 2021-11-01 at 10.39.24 AM
    SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

    SNA non-GAAP EPS and dividends paid (TTM), with stock price overlay

    SNA’s dividend growth rate has accelerated in recent years and attests to a company with confidence in future growth prospects. The stock price went nowhere in 2015-2019 before dropping with concerns about the COVID-19 pandemic on the economy. The recovery has been remarkable, though!

    Allstate (ALL)

    Screen Shot 2021-11-01 at 10.40.57 AM
    ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

    ALL non-GAAP EPS and dividends paid (TTM), with stock price overlay

    its headquarters in Chicago due to a strong preference to work remotely. I wonder how many companies will follow this trend!

    Concluding Remarks

    I encourage readers to take a look at these high-quality, discounted Dividend Contenders, as they offer generous and safe dividends and attractive total return prospects.

    Thanks for reading!

    You can follow me here:

    • Twitter: @div_gro
    • Facebook: @FerdiS.DivGro

    I’d be happy to answer any questions you may have!

    Note: Interested in getting periodic e-mail notifications when articles are published here? Drop your e-mail in the box below!

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