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Twelve U.S. dividend growth stocks that provide stable income

By

Gary Christie

on

October 13, 2020

WHAT ARE WE LOOKING FOR?

Large-cap U.S. stocks with decent dividend yields and strong dividend track records.

As the markets remain volatile amid a global pandemic and the runup to the U.S. election, we searched for companies that provide stable income during times of market instability.

THE SCREEN

We will be using Trading Central Strategy Builder to search for large-cap U.S. stocks with good dividend yields and a track record of dividend growth.

We begin by setting a minimum market capitalization threshold of US$20-billion. We wish to focus on larger, more established companies in the U.S. market because of their inherent quality and stability during turbulent times.

Next, we will use three dividend-related criteria to select our dividend stocks.

  • We will select only companies with dividend yields of more than 2 per cent.
  • We will screen for companies with a dividend coverage ratio of at least 200 per cent, or two times net income. Dividend coverage is defined as the earnings per share over the past year divided by the dividend paid in the same period. A higher dividend coverage ratio is preferred because it means more earnings are available to maintain or even raise the dividend.
  • Finally, we will look for companies with a track record of raising their dividend payments. We will look for a five-year average dividend growth rate that is above 5 per cent.

We have also included each stock’s price-to-earnings ratio, as well as year-to-date and one-year price performance for your reference.

MORE ABOUT TRADING CENTRAL

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Its product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder, our stock screener, is available through leading retail brokers in Canada and worldwide.

WHAT WE FOUND

Our screener ranks the list based on all performance and revenue criteria.

Topping our list is the global investment firm Morgan Stanley. The company is indicating a dividend yield of 2.9 per cent, which is above the average of stocks on our list of 2.7 per cent (averages not shown), and a dividend growth rate of 18.2 per cent, which is also above the average of 15.4 per cent. The company’s dividend coverage is the second-highest on our list, after Allstate Corp.

On Thursday, Morgan Stanley announced it has agreed to purchase asset manager Eaton Vance Corp. for about US$7-billion. The acquisition, subject to conditions, is expected to close in the second quarter of 2021. This follows on the heels of Morgan Stanley’s recently closed deal to acquire E-Trade Financial Corp.

Financial services firm State Street Corp. has the highest yield on our list at 3.3 per cent with a dividend growth rate of 11.2 per cent and a fairly low price-to-earnings of 10.1 compared with the average P/E on our list of 15.3 per cent.

The best performer, in terms of price performance so far this year, is engine manufacturer Cummins Inc., which is trading at record highs. Its share price is up 23.1 per cent year to date and an impressive 40.9 per cent in the past 52 weeks. Even with the stock’s impressive performance, the dividend yield is 2.4 per cent with an annual dividend growth rate of 10.4 per cent.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

The investment ideas presented here are for information only.  They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing. Learn more.

Gary Christie

Head of North American Research
Gary has over 15 years in financial markets. Prior to joining TC, he served as an equity & derivatives specialist with TD Bank and Bank of America. Gary is regularly quoted in Bloomberg News, conducts many education and market outlook webinars for investment institutions all over the world and has been a guest speaker at the New York Traders Expo.
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