Wednesday, March 14, 2012

17 Cheap Dividend Aristocrats on Sale

As part of my dividend retirement plan, I add new money to my portfolio every single month. I have found that purchasing dividend stocks with growing dividends, reinvesting these distributions selectively and adding new capital consistently is the key recipe for success that will help me reach the dividend crossover point.

I determine which stocks to purchase based on portfolio weights and valuation. I typically use the dividend aristocrats index as a starting point in my research, since it includes quality names that have boosted distributions for over 25 years in a row.

Using the dividend aristocrats index, and my entry criteria, I came up with the following screen:

1) Price/Earnings Ratio of less than 20
2) Dividend yield exceeding 2.50%
3) Dividend Payout Ratio of less that 60%

The following companies are just ideas for further research. Before committing money to new ideas, I typically do an analysis of the company, where I look for the following pieces of information:

1) Ten year trends for earnings, dividends, returns on equity, dividend payout ratios and stock prices
2) Qualitative information such as competitive advantages, strong brands and understanding the business

In addition, I also attempt to gauge whether the companies will be able to generate future growth. Identifying drivers for future growth often requires a fair degree of guesstimation. After all, without earnings growth, future dividend growth will be hard to come up.

Many of the companies listed above will grow thanks to the rise of the middle class in emerging markets such as Brazil, Russia, China and India. Others will grow by becoming more efficient in their operations, gaining market share or innovating their way to increased profits. While not terribly exciting, reading annual reports, analyst reports and familiarizing yourself with each company could literally pay dividends in the long run.

Full Disclosure: Long AFL, APD, CL, CLX, EMR, ITW, KO, MCD, MDT, MMM, PEP, SYY, WAG, WMT

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