Building long-term wealth is the goal for many. Building a passive income stream from dividend stocks is a dream. Personally, I’ve always been drawn to dividend growth investing, so it’s natural that companies on the Dividend Aristocrats and Kings lists often come to mind, as they have a long-standing history of increasing dividends.
However, dividends alone aren’t enough to support the long-term growth of an investment portfolio. It's important that we look at other factors such as cash flow and net income growth, and then reinforce it with what the analysts say before taking the plunge. I also like to look at price targets to get an idea of where the stock might go in one year. Naturally, we don't want to buy high, only for the stock to drop.
Identifying prospective dividend stocks to buy isn't just about picking the highest yield. It's about finding quality names with a history of increasing their dividends, while not overextending themselves.
As I often do, I started by using Barchart’s free stock screener tool to compile my list.
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Annual Dividend Yield: I left this blank, so I rearranged the results from highest to lowest..
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Current Analyst Rating: 4 (Moderate Buy) to 5 (Strong Buy) for the most positive consensus.
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Cash Flow Growth Last Year: 10% or more. Higher cash flow means better headroom for a potential dividend increase.
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5-Year Revenue Growth: 30% or more. I prefer companies that have increased their top line figures over the past 5 years.
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Net Income Growth Last Year: 30% or more. Mature companies often exhibit relatively low net income growth; however, we aim for growth of 30% or more to support dividend increases.
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Watchlists: Dividend Aristocrats and Kings. These companies have increased dividend payments for 25 and 50 years, respectively, and have weathered various market downturns.
After setting the filters, I ran the screener, seven companies came up, and I sorted them from highest to lowest dividend yield.
I’m going to skip Middlesex Water Company for this list as the stock price has been declining over the past 5 years.
So that will make my top three dividend stocks: California Water Service Group Holding, Air Products and Chemicals, and Abbott Laboratories.
California Water Service is a public utility company that’s been around for almost a century. Today, it serves clients in California, Washington, New Mexico, and Hawaii. What it does is pretty straightforward – sources water, treats it to become drinkable, and distributes it to the consumer.
