5 Dividend Growers That Are Finally Bargains

Brett Owens, Chief Investment Strategist
Updated: November 9, 2016

With the S&P 500 recently off a 9-day losing streak – its longest since 1980 – this is a great time to go shopping. Especially for dividend growers.

These special types of stocks are rarely cheap, because who doesn’t want yield AND upside? But general market jitters about the Fed, the election and the economy have presented us with some early holiday bargains.

Let’s start with five stocks that have traded up over the last three months while the broader market dipped 3.7%. Price strength amidst market weakness is an admirable trait. It can be worth asking yourself why investors and money managers are buying these particular stocks while they dump the rest of their portfolios in a panic.

Weak Market? No Problem


The Appeal of Growing Payouts

Dividend growth investing is the gift that keeps on giving. Not only do you get your payouts today, but your stocks will also enjoy price appreciation that is roughly in line with their dividend boosts.

If it feels like your favorite blue chip stocks never pay more than 2% or 3%, it’s likely because their stock prices are bid up to keep their yields more or less constant for “new money” that comes in.

Let’s look at three popular dividend stocks – 3M (MMM), Procter & Gamble (PG) and UPS (UPS) – to see this in action. Over the last five years, the trailing yield for each of these issues has been relatively constant:

Steady Yields for Over Time…


There’s a reason – their price returns have tracked dividend growth almost to a tee.

… As Dividend Growth Predicts Price Returns


Buying stocks that grow their dividends the fastest is a proven strategy for double-digit returns. But we can further improve on it by timing our buys when value is high.

Momentum + Value

Some successful money managers like to combine momentum and value strategies – which basically means they buy cheap stocks when they start to go up. Like the five we highlighted at the outset.

Investors who rely on momentum alone are really traders. They look at price action only and aim to buy high and sell higher.

Value folks have historically been the complete opposite. They look at fundamentals and aim to buy cheap – and wait for inevitable price appreciation.

The problem with value investing is that there’s no guarantee someone will later be willing to pay “fair value” for the stock you buy at a discount to its intrinsic worth. Without a catalyst to drive the price higher, cheap stocks can stay cheap indefinitely.

This is why yield is the only true measure of value. A dividend is its own catalyst, especially in today’s yield-starved world. The higher the payout, the better the value.

Back to 3M – the best time to buy it is when its yield is at the high end of its historical range. If you only purchase shares when they pay 2.5% or better, you’ll maximize your price returns, too:

High Yield Tips Off Low Price


2 Dividend Growers With High “Relative Yields”

A stock’s current payout percentage with respect to its historical norm is such a powerful tool for dividend investors that it’s not worth getting distracted by anything else.

If you simply buy dividend growers when their yields are high, and sit on your hands otherwise, you’re likely to bank 10% to 15% annual returns or better.

My two favorite dividend growers today pay 7.4% and 8.1% respectively. These are the highest relative yields they’ve paid in four years, which means this is the perfect time to buy them.

Two Abnormally High Yields


High relative yields mean big dividends for us plus 20%+ price upside as investors discover these two “under the radar” dividend growers. It’s impressive enough to find secure yields like these of 7% or 8%. And these firms actually raise their payouts regularly – as frequently as every quarter in one case!

Lesser-known high-income plays like these are the cornerstones of my “no withdrawal” retirement portfolio strategy. In today’s low-yield world, I specialize in finding safe, under-the-radar high-income options like these. Click here and I’ll explain more about my no withdrawal approach – plus I’ll share the names, tickers and buy prices of my two favorite high paying dividend growers for 7.4% and 8.1% yields.