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5 Dividend Growth Stocks I’m Watching

How to Find Dividend Growth Stocks for Higher Returns

Investors are losing out on hundreds of billions of dollars as dividend-paying companies cut or suspend their payouts this year, but you don’t have to be one of them! There are actually companies still growing their dividends to put more cash in your pocket!

In this video, I’ll show you a simple screener to find dividend growth stocks and then reveal the five best dividend stocks to watch for that cash payday!

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Dividend Cuts are Hitting 2020 Stocks

Nation, more than 770 companies have already cut or paused their dividends this year with 63 in the S&P 500 index. That’s the most since 2009 and more are expected through the rest of the year. More than $100 billion in dividends that you won’t be able to count on this year!

2020 Dividend Cuts
2020 Dividend Cuts

And it’s at times like this that focusing on those companies that are not only able to sustain their dividend but grow it becomes so much more powerful!

Any company that can grow its dividend payment in this environment needs to be on your radar!

So in this video, I’m screening for some of the best dividend growth stocks to buy. I’ll show you a screen for uncovering dividend stocks that are not only growing their dividends but also sales and earnings. I’ll then reveal five dividend growth stocks to watch and price targets for each.

Investing in a Different Kind of Dividend Growth

For the video, I’m going to be using a different definition of dividend growth than you might be used to seeing. Usually, dividend growth stocks are just those with a history of increasing the dividend. So you get a lot of stocks from the Dividend Aristocrats list or others like it.

But here, I want to broaden that into companies with overall growth in fundamentals like sales and earnings as well. This is not only going to make sure we find stocks with that commitment to shareholder cash return but also those with the certainty around that stock price return as well as the dividend.

I’ll be using the Stockcard.io platform to find and research these stocks. Besides some of the investing tools we’ll use today, Stockcard makes it easy to analyze a stock because it takes all the financial measures like quick ratio and debt-to-equity, and then puts them in these easy-to-understand levels for growth potential, operations and valuation.

In fact, I’ll be sharing the stock screen I use in this video through a link here. Click here to get this stock screen and your list of dividend stocks!

Dividend Growth Stock List for Cash Flow and Returns

Our first dividend growth pick here is BancorpSouth Bank, ticker BXS, a regional bank across eight states with 300 branches.

Now banks have been slammed hard this year, first on lower interest rates and then after the Fed Stress Test in June. Basically the Fed came out and limited how much banks could pay out in dividends or repurchases depending on their earnings, and the central bank was BRUTAL!

It was around this time that you saw a lot of the banks like Wells Fargo cut their dividends…but not BancorpSouth. If you scroll down, you see this earnings and dividend-related dates section but I want to scroll down further to the dividend information. The shares pay a 3.5% dividend and have increased it by more than 14% over the last year. Better here is the fact that it’s only paying out 38% of earnings to cover that dividend so some potential to increase the payment without hurting growth or cash flow.

BancorpSouth reported loan growth of 13% in the second quarter and has doubled its loan loss provisions account to $240 million this year.

Now if you remember from our previous video on bank stocks, we talked about that loan loss account. This is a cash reserves account the banks hold just in case loan defaults start creeping up. And all the banks have shifted billions of dollars of earnings into these accounts, that’s where the earnings trouble and lower dividends is coming from. But if the economy recovers and we don’t see the level of loan defaults that the banks are preparing for, a bank like BancorpSouth will have that roughly $120 million in additional cash to move back to earnings and pay out a lot of it as dividend growth.

Shares of BXS trade for a price-to-book value of 0.83-times which is well below the industry average and the average analyst target is around $24 per share, so potentially a 20% upside to this one besides that dividend yield.

Next here is weight loss and management leader Medifast, ticker MED, and its 2.6% dividend yield.

Medifast works through a coaching model with more than 32,000 representatives across the U.S. that offer services and sell the company’s subscription-based meal plans. It’s a solid approach because it not only motivates the area coaches but produces a consistently-rising sales trend through those subscriptions.

And sales have grown at a 37% annualized rate over the last three years with the company expecting to book a 22% increase even this year. So the pandemic has slowed sales a little but it’s still an impressive rate.

Medifast has turned that growth into a three-year dividend growth rate of 46% which is huge! The payout ratio is a little high for a consumer discretionary company but the growth is there so shouldn’t be a worry.

Analysts have an average price target of $193 per share which is about 10% higher though some of these valuation measures like the price-to-sales and PE ratio look a little stretched.

How to Invest for Dividends and Growth

We’ve still got three more dividend growth names but I want to show you how I found these, and in fact, I’ll be sharing this screener with the link in the description. To start with a list of dividend stocks, I went to the filter tab in Stockcard. The platform enables you to name your screeners and even share them with a link, so I’ll call this one Dividend Growth Stocks. And I’ll start by checking this box for companies with strong dividend paying status

Now the cool thing about Stockcard is that it boils down a lot of those financial ratios and fundamentals we talk about on the channel into these easy-to-understand levels. So instead of having to research through the dividend yield, payout ratio and annual dividend growth – Stockcard does the work for you by taking all three of these and assigning the stock one of those three levels; good, neutral or bad.

So we’ve filtered for good dividend payers but that still leaves us with over 1,000 stock picks so let’s also narrow these to stocks with good sales growth metrics and cash availability for the dividend stocks that could increase their payouts.

And you see that narrows are list to 80 stocks, a much smaller group, that we can dig into deeper to find the ones we really like.

Next on our dividends growth list is Tractor Supply, ticker TSCO, and a 1.2% dividend yield.

Tractor Supply operates the largest retail farm and ranch stores in the U.S. with nearly 1,900 stores in 49 states and 180 PetSense stores. These are all retail customers, only about 10% of the customers are full-time farmers and ranchers, and this could be a break-away market this year as people look for things to do at home.

Now the fundamentals here are solid, even if the dividend is a little low, but the reason this is my favorite isn’t because of the stock but…have you been inside one of these? It’s like hillbilly heaven in here! Seriously, check out one of their stores and you’ll be hooked.

Sales were up 35% last quarter when everything else retail was nosediving. The company expects to book 19% revenue growth for the year and its grown the dividend by 14% annually over the last three years. Here again, also a super-low payout ratio, just 24% of earnings going to meet that dividend which leaves plenty of room for investing back into the company and growing the cash payment.

Analysts have an average price target around $153 per share which is about 9% higher though I think this one is priced cheaply and it’s one of the few good models in retail stores.

Next here is one of the big winners of the year, the world’s largest gold producer Newmont, ticker NEM, and its 1.5% dividend.

Now even with the dividend growth we’ll look at, the payment just hasn’t kept up with the price on this one and that’s where you get that 1.5% dividend yield. In fact, I’ve had Newmont in an IRA account for just over a year with a 95% return so not too worried about the yield.

Even after the run in gold prices, there are reasons to be bullish here. The company had about 16% of its production shutdown earlier in the year but is now back to full operations. Management is expecting an all-in-sustaining-cost of $900 per ounce for next year. That’s down from $975 this year and costs are expected to fall through 2023.

Newmont is still working through those merger benefits from its Goldcorp add-on last year and with gold at $2,000 an ounce or higher, this one will continue to cash flow that can be paid out as dividends.

The payout ratio here is under 14% and I would put good odds on a special dividend being declared sometime this year or next. Even though the dividend hasn’t quite caught up with the share price, that 64% annualized growth over the last three years isn’t bad either.

Analysts have the shares up about 11% over the next year to just under $75 per share and I think this one can be a good long-term income stock with that safety exposure to gold.

We’ll get back to that list but I wanted to point out another feature for finding stocks on Stockcard, something I just found this week. Besides being able to lookup individual stocks with the search bar here, you can also search for investing themes and keywords.

For example, I can type in Dividend here and not only does the dropdown show me ETFs and funds with dividend in the name but also watchlists created like this one, Stocks for Dividend Seekers. Click through and I see over 100 dividend-paying stocks that I can then narrow down further in the screener.

I really like this next dividend stock for growth, Mantech International, ticker MANT, and a 1.7% dividend yield.

Mantech is in one of my favorite industries for growth. It’s a critical provider of cyber, IT and systems for the government sector serving just about every defense and federal agency. The company has a great project pipeline of $20 billion-plus and a $10 billion backlog that’s grown at 20% a year since 2016.

Sales grew at a nearly 18% pace last quarter, well above the three-year rate of 11.5% and could be the start of a faster trend in revenue.

While the dividend growth rate has been a little slow at 8.7% compared to the others in our list, the payout ratio is low and this is one of the most stable businesses for that cash certainty.

Analysts have this one around 11% higher to $82 per share over the next year and it’s trading for under the sector average on a PE basis.

Check out this filter for great dividend stocks on Stockcard!

Dividend investing doesn’t mean you have to give up on stock growth as well. Look for dividend stocks with strong sales growth along with cash flow to find those ready to grow the dividend as well as the stock price.

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