The key focus for Dividend Growth Investors is obviously and quite simply, dividend growth. Or at least that's what it should be. A true DGI's intent should always be to find all those companies that grow their dividends at a pretty fast pace and on a regular and consistent basis over time. And then he should prioritize those companies based on their growth rates.
This can be done quite easily by any investor since the research and the lists are posted all over the internet. The lists are usually made up of companies that pay consistent and improving dividends over different periods of time. Some of the most popular lists are the two that identify the Dividend Kings and the Dividend Aristocrats. These two lists are extremely popular these days primarily because all the hard work has already been done by other investors who have simply posted that information out there for everyone to see.
This can be done quite easily by any investor since the research and the lists are posted all over the internet. The lists are usually made up of companies that pay consistent and improving dividends over different periods of time. Some of the most popular lists are the two that identify the Dividend Kings and the Dividend Aristocrats. These two lists are extremely popular these days primarily because all the hard work has already been done by other investors who have simply posted that information out there for everyone to see.
In analyzing any company from a dividend growth perspective, it's helpful to identify whether the rate of growth in the dividend is greater than the current and expected rate of inflation so that the investor's purchasing power will increase over time. This sounds important, simple and obvious, but most things in life are more difficult than they appear at first (usually due to expectations and assumptions).
Assuming that an investor has his entire life in front of him, or he is buying a stock that will eventually be handed down through the generations, the higher the sequential rate of dividend growth for a given company the better, regardless of the current yield. Most junior high school students can calculate the point at which the dividends on a high growth rate, low yield stock will surpass the dividends on a low growth rate, high yield stock. It's just a simple math problem. It may end up taking a few years but the higher dividend growth rate will always result in a larger dividend payout over time.
If your intent is to live forever, or to simply pass along all of your positions to your descendants, you needn't worry about the price you may end up paying for any given stock. You also don't have to worry the stock's current yield because regardless of whether you may or may not have gotten the best bargain on the stock of the company you just bought, in the end you'll have a larger stream of dividend income distributed to you than if you had bought a stock with a lower dividend growth rate. Be assured that eventually you, your children or your grandchildren will be better off having bought the company with the highest dividend growth rate than the one with the lower dividend growth rate.
So the obvious questions that immediately fall out of the above discussion are "Why analyze companies at all? Why not just buy the stock with the highest rate of dividend growth?" These are great questions. Many investors ignore all the research and do exactly that. For those who have the money to invest when they are young adults and end up living into their 90s, it's been an effective strategy and one that has built wealth and income beyond those investor's wildest dreams.
For the rest of us, however, this strategy just won't work. Buying stocks that are overpriced will create a portfolio that goes nowhere fast for years. It will take too many years, and sometimes decades, to overcome those bad entries into the market. What we need to do is find those companies that have a high rate of dividend growth and then determine where the best entry point occurs. It's those great entry points that give investors the highest starting dividend income that immediately starts to compound.
Below I've listed six companies that have relatively high dividend growth rates, nice annual dividend yields, reasonable price per earnings ratios, and relatively low payout ratios that will allow those companies to continue those dividend to continue and increase into the future. I've also included a four month daily price chart which includes the MACD Histogram in the background for visual coordination. As I have mentioned before, the MACD is my favorite confirming momentum indicator but I do use others as well.
Hopefully the information below will provide a few ideas that will drive other investors to do additional research into the fundamentals and technicals of these companies. There may just be a gem among these that can provide that desired financial freedom and security in the future.
JMP Group Inc. (JMP), together with its subsidiaries, provides investment banking and asset management services in the United States. The company operates through Broker-Dealer, Asset Management, and Corporate Credit segments. The Broker-Dealer segment offers services, such as underwriting and acting as a placement agent for public and private capital markets raising transactions; and financial advisory services in mergers and acquisitions, restructuring, and other strategic transactions. This segment also provides institutional brokerage services and equity research services to institutional investor clients. The Asset Management segment is involved in the management of a range of pooled investment vehicles, including the hedge funds of funds. The Corporate Credit segment includes the management of collateralized loan obligations, small business loans, and various principal investments. JMP Group Inc. was incorporated in 2000 and is headquartered in San Francisco, California.
 | 3yr DivGR 29.71% 5yr DivGR 40.62% 1yr Est Cap Gain 20.30% Annual Div Yield 3.47% Est 1yr ROIC 23.77% P/E Ratio 15.84 Payout Pct 54.90% |
Cummins Inc. (CMI) designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. It operates in four segments: Engine, Components, Power Generation, and Distribution. The Engine segment offers a range of diesel and natural gas powered engines under the Cummins and other customer brand names for the heavy-and medium-duty truck, bus, recreational vehicle, light-duty automotive, agricultural, construction, mining, marine, oil and gas, rail, and governmental equipment markets. This segment also provides new parts and service, as well as remanufactured parts and engines. The Components segment supplies after treatment systems, turbochargers, filtration products, and fuel systems for commercial diesel applications. It offers filtration systems for on-and off-highway heavy-duty and mid-range equipment, as well as supplies filtration products for industrial and passenger car applications. This segment serves engine and distribution segments, truck manufacturers, and other original equipment manufacturers. The Power Generation segment designs and manufactures components that make up power generation systems, including engines, controls, alternators, transfer switches, and switchgear, as well as power generation systems, components, and services. The Distribution segment provides maintenance contracts, engineering services, and integrated products. The company sells its products to original equipment manufacturers, distributors, and other customers worldwide. Cummins Inc. was founded in 1919 and is headquartered in Columbus, Indiana.
 | 3yr DivGR 28.31% 5yr DivGR 32.04% 1yr Est Cap Gain 12.65% Annual Div Yield 2.14% Est 1yr ROIC 14.79% P/E Ratio 16.40 Payout Pct 35.10% |
Invesco Ltd. (IVZ) is a publicly owned investment manager. It primarily provides its services to institutional clients including major public entities, corporations, unions, non-profit organizations, endowments, foundations, pension funds, and financial institutions. The firm manages separate client focused equity, fixed income, balanced portfolios. It also launches equity, fixed income, and balanced mutual funds for its clients. The firm invests in the public equity and fixed income markets across the globe. It invests in core, growth, and value stocks of small-cap, mid-cap, and large-cap companies. The firm employs a fundamental and quantitative analysis with a bottom-up stock picking approach to make its investments. It conducts in-house research to make its investments. Invesco Ltd. was founded in December 1935 and is based in Atlanta, Georgia.
 | 3yr DivGR 27.01% 5yr DivGR 19.38% 1yr Est Cap Gain 10.60% Annual Div Yield 2.48% Est 1yr ROIC 13.08% P/E Ratio 17.63 Payout Pct 43.67% |
Innophos Holdings, Inc. (IPHS), through its subsidiaries, produces performance-critical and nutritional specialty ingredients with applications in food, beverage, dietary supplements, pharmaceutical, oral care, and industrial end markets. It operates through Specialty Phosphates US & Canada, Specialty Phosphates Mexico, and GTSP & Other segments. The company’s specialty ingredients include specialty phosphate salts, specialty phosphoric acids, and other mineral and botanical based specialty ingredients that are used as flavor enhancers in beverages; electrolytes in sports drinks; texture modifiers in cheeses; leavening agents in baked goods; mineral and botanical sources for nutritional supplements; pharmaceutical excipients; and abrasives in toothpaste, as well as in industrial applications, such as asphalt modification and petrochemical catalysis. It also provides food and technical grade purified phosphoric acid (PPA) used in the production of fertilizer, and specialty phosphate salts and acids, as well as in beverage and water treatment applications; technical grade sodium tri polyphosphate (STPP), a specialty phosphate, which is used as an ingredient in cleaning products, such as industrial and institutional cleaners, automatic dishwashing detergents, and consumer laundry detergents, as well as in water treatment, clay processing, and copper ore processing activities; and detergent grade PPA that is primarily used in the production of STPP. In addition, the company offers granular triple super phosphate (GTSP), a fertilizer product line used for enhancing crop yields in various agricultural sectors. It serves primarily consumer goods manufacturers, distributors, and specialty chemical manufacturers in the United States, Mexico, Canada, and internationally. Innophos Holdings, Inc. was founded in 2004 and is headquartered in Cranbury, New Jersey.
 | 3yr DivGR 23.87% 5yr DivGR 20.94% 1yr Est Cap Gain 14.02% Annual Div Yield 3.27% Est 1yr ROIC 17.29% P/E Ratio 19.33 Payout Pct 63.16% |
Steelcase Inc. (SCS) designs, manufactures, and distributes an integrated portfolio of furniture settings, user-centered technologies, and interior architectural products. The company operates through Americas, EMEA, and Other Category segments. Its furniture systems portfolio comprises panel-based and freestanding furniture systems; and complementary products, such as storage, tables, and ergonomic worktools. The company’s seating products include ergonomic chairs; seating for collaborative or casual settings; and specialty seating for specific vertical markets, such as healthcare and education. Its interior architectural products consist of full and partial height walls and doors. The company also manufactures and sells surface materials consisting of textiles and wall coverings to architects and designers; and ceramic steel surfaces primarily for third-party fabricators to create static whiteboards and chalkboards. In addition, it provides workplace strategy consulting, lease origination, furniture and asset management, and hosted space services. Steelcase Inc. markets its products to corporate, government, healthcare, education, and retail customers under the Steelcase, Nurture, Coalesse, Details, Turnstone, Designtex, and PolyVision brands in the United States and internationally. The company distributes its products and services through a network of independent and company-owned dealers, as well as directly to end-use customers. Steelcase Inc. was founded in 1912 and is headquartered in Grand Rapids, Michigan.
 | 3yr DivGR 20.28% 5yr DivGR 21.29% 1yr Est Cap Gain 18.87% Annual Div Yield 2.30% Est 1yr ROIC 21.17% P/E Ratio 23.37 Payout Pct 53.85% |
The Dow Chemical Company (DOW) manufactures and supplies chemical products for use as raw materials in the manufacture of customer products and services worldwide. The Electronic and Functional Materials segment produces materials for chemical mechanical planarization; materials used in the production of electronic displays, including films and filters; metalorganic precursors for light-emitting diodes; organic light-emitting diode materials; materials used in the fabrication of printed circuit boards; integrated metallization processes for metal finishing and decorative applications; semiconductor design products; and materials for industrial applications. The Coatings and Infrastructure Solutions segment provides insulation, air sealing and weatherization products and systems, construction chemical solutions, building-integrated photovoltaics, water resistance and lower systems; purification and separation technologies; and acrylates, methacrylates, and vinyl acetate monomers. The Agricultural Sciences segment offers crop protection and plant biotechnology products, urban pest management solutions, seeds, traits, and oils. The Performance Materials segment produces amines; chlorinated organics; materials for automotive systems, formulated systems, and oil and gas, and mining industrial applications; plastic additives; epoxies; oxygenated solvents; polyglycols, surfactants, and fluids; polyurethanes; and propylene oxide/glycol. The Performance Plastics segment offers elastomers; wire and cable insulation, semiconductive and jacketing compound solutions, and bio-based plasticizers; and acrylics, polyethylene, polyethylene, polyolefin emulsions, and polyolefin plastomers. The Feedstocks and Energy segment provides ethylene, chlorine, caustic soda, and purified ethylene oxide. The Dow Chemical Company was founded in 1897 and is headquartered in Midland, Michigan.
 | 3yr DivGR 19.13% 5yr DivGR 20.58% 1yr Est Cap Gain 17.69% Annual Div Yield 3.65% Est 1yr ROIC 21.34% P/E Ratio 15.09 Payout Pct 55.08% |
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