16 Attractive Dividend Growth Stocks: BMI, MDP

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Dec 12, 2011
Dividend stocks have many benefits. One of them is the empirical evidence linking payout with higher earnings growth which in turn translates into stronger returns. In addition, higher-yielding stocks tend to be less volatile in uncertain markets like today.

However, when I look for dividend stock ideas I am not just looking for a high yield, I am looking for companies whose dividend is steadily growing and who are not spending all their money on their dividends as they also need to growth their business!

In order to identify dividend growth candidates, I usually start by looking for companies with the following characteristics:

· I generally avoid financial stocks as I don’t understand their financials.

· Market cap higher than $50 million to avoid liquidity problems at buying/selling.

· Dividend yield in excess of 2%: I’m investing in dividend stocks to get some yield!

· Payout ratio below 50% to make sure the company has enough money to reinvest in growth.

· Positive free cash flow: to make sure the company has the cash to continue paying its dividends in the short term.

· A debt to equity ratio of less than 50% to avoid companies with too much leverage.

· Growing year over year dividends for the last seven years.

· A dividend growth rate of 5% on average or more per year over the last seven years.

· Current yield above the average of the last seven years to identify companies relatively underpriced compared to recent history.

Only the following 16 companies meet those criteria as of today:

CompanyTickerMarket CapYieldPayout ratioDebt / Equity7-year dividend

Badger Meter, Inc. BMI 428 2.2 35.8 0 9.8
Best Buy Co., Inc. BBY 9,934 2.3 19.7 27.9 11.5
Cardinal Health, Inc. CAH 14,266 2.1 30.8 38.4 30.7
ConocoPhillips COP 94,296 3.7 32.1 34.2 14.8
General Dynamics Corporation GD 22,845 2.9 25.5 28.7 14.8
Illinois Tool Works Inc. ITW 22,382 3.1 33.8 35.8 15.6
Intel Corporation INTC 125,823 3.4 30.7 15.3 34.3
Lowe's Companies, Inc. LOW 31,164 2.2 36 35.8 32
Medtronic, Inc. MDT 37,211 2.7 29.6 49.1 17.6
Meredith Corporation MDP 1,085 4.9 36.8 25.6 12.3
Northrop Grumman Corporation NOC 14,553 3.5 28.4 32.9 12.6
Procter & Gamble Company, The PG 177,378 3.2 48.6 34.9 11.3
Raytheon Company RTN 15,505 3.8 33.5 35.2 9.4
Teva Pharmaceutical Industries TEVA 37,782 2.2 26.5 19.1 25.4
Texas Instruments Incorporated TXN 34,188 2.3 21.3 38.2 27.4
United Technologies Corporation UTX 67,386 2.5 33.3 42.1 16.9

I am surprised not to see more health care firms, but I guess my dividend growth target over the last seven months combined with a strong balance sheet filtered out a lot of them. I am also surprised to see BBY here and a few names that I was not familiar with such as BadgeMeter (BMI, Financial) and Meredith Corp. (MDP, Financial). What do you think of these companies? Do you own or have you analyzed any of them recently? Disclosure: I do not own any of the stocks mentioned here.
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