The Winter Olympics are nearing their end, and many athletes have already claimed their medals. This got me thinking, why don’t we have an Olympics for stocks, specifically dividend stocks? Let’s talk about the top dividend growth stocks on Wall Street right now—our gold, silver, and bronze medalists. Here’s how we evaluate which stocks make the cut.
Wall Street Olympics: Three Dividend Growth Stocks to Consider
With the world focused on the Olympics, it’s a great time to think about how dividend growth stocks could compete in their own games. Dividend growth investing is a fundamental passion of mine, but there are plenty of misconceptions around it. Larry Light from Forbes pointed out some common myths that investors should know about. In my view, building a dividend portfolio can be both fun and rewarding.
I appreciate the dual benefits of dividend growth investing: getting regular income while also having the potential for capital appreciation in the long run. So, which stock deserves the gold medal in the world of dividends? We’ve already covered how to spot undervalued dividend growth stocks.
What Qualifies Dividend Growth Stocks for the Wall Street Olympics?
To enter our Wall Street Olympics, these dividend growth stocks must be dividend payers and listed on a Wall Street exchange—but they’re not limited to just U.S. companies. Like the real Olympics, all global contenders are welcome, except perhaps for Russian stocks (just kidding, of course).
I’m so passionate about dividends that I wrote a book called “Dividend Investing Your Way to Financial Freedom,” which became a #1 new release. If you want more details, you can check out why I wrote it.
Here’s how we judge our dividend stock Olympians:
People often rely too much on the annual dividend yield when making investment decisions, so we’ve set our criteria differently. We rate each factor out of 50, summing to a total score of 150.
1. **Dividend Growth History:**
– How long has the company been increasing its dividend, and at what rate? Can we expect similar growth in the future?
2. **Valuation:**
– What’s the company’s current P/E ratio and EV/EBITDA? Is the stock reasonably priced?
3. **Financial Health:**
– What does the balance sheet look like? Is the company heavily in debt? Are dividends proportionate to their earnings?
**Bronze Medalist: CVS Health Corporation (CVS)**
CVS takes bronze among dividend growth stocks to buy now.
– **Dividend Growth History:** Score 40/50
– CVS has been raising its dividends for 21 years straight, with growth rates of 22.7% and 17.3% over the last decade and five years, respectively.
– **Valuation:** Score 41/50
– CVS appears undervalued with a PE ratio of 10x. Despite concerns about Amazon entering the pharmacy market and the Aetna acquisition financing, CVS’s strong position makes it a promising investment.
– **Financial Health:** Score 45/50
– The company maintains a decent Price to Book Value of ~1.4x, and the dividend payout is a safe 30.80% of current earnings.
**Silver Medalist: Nucor Corporation (NUE)**
Nucor earns the silver for dividend growth stocks at the moment.
– **Dividend Growth History:** Score 40/50
– With 25 years of increasing dividends, Nucor shows a recent growth rate concern. However, anticipated EPS growth in the next five years should boost its dividend rate.
– **Valuation:** Score 42/50
– Holding a PE ratio of 17.3x, with a forward ratio of 12.9x, Nucor is fairly priced.
– **Financial Health:** Score 45/50
– Nucor boasts a Price to Book Value of ~2.54x, with dividends accounting for 38.50% of current earnings.
**Gold Medalist: AFLAC Inc. (AFL)**
AFLAC stands out as our gold medalist for dividend growth stock.
– **Dividend Growth History:** Score 43/50
– AFLAC has a 35-year streak of raising dividends, with a growth rate of 6.7% and 5.2% over the past decade and five years.
– **Valuation:** Score 47/50
– AFLAC is undervalued with a PE ratio of 8x and a forward ratio of 11x. Rising interest rates might pinch short-term earnings, but long-term prospects remain strong.
– **Financial Health:** Score 45/50
– With a Price to Book Value of ~1.4x, AFLAC’s dividends are secure, representing just 25.50% of current earnings.
**Conclusion on the Dividend Growth Stock Olympics**
After evaluating over 600 stocks, it’s surprising that our top three medalists are all U.S.-based. AFLAC leads with its strong valuation and promising path for future dividend growth. This stock is a solid purchase at current prices.
All three stocks provide excellent value at reasonable prices, each from a different sector, offering a strong foundation for a dividend portfolio. With these stocks, you can explore the benefits of dividend growth and compound interest.
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We’d love to hear about your top picks for dividend growth stocks. Share your thoughts or ask any questions below.