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3 October 2013

This Is 10 Dividend Stocks With High Integrity

Filed under: business — freezeru @ 13 h 36 min

Using my concept of Dividend Integrity, I listed twelve stocks that I thought had the potential to pay increasing dividends over time. Checking that list today, all twelve of the stocks have indeed raised their dividends year-over-year. 

How can the concept of Dividend Integrity help you as an investor right now?



Perhaps you are concerned that the Federal Reserve will commence “tapering” soon, which should cause interest rates to increase over time. Current narratives imply that any day now, most income-oriented investors will start dumping their dividend stocks in anticipation of a Fed action.

This is based on the conjecture that dividend stocks provided income in a low interest rate environment. If interest rates were to move upward, it is assumed that many of these investors will no longer see the merit of holding dividend stocks that are paying stable but static dividends per share.

One way around this is to look for stocks that have the potential to raise their dividends regardless of what actions the Fed will take. Rising dividend stocks also provide a hedge against higher interest rates, since the idea is to pick stocks that will, at a minimum, keep raising payouts to match the Fed’s hikes. I have also found that low dividend payers have the greater potential to increase their payments compared to very high yielding stocks.

My Dividend Integrity approach also may lead us to stocks that have the best balance sheets and cash flow management around. That’s because a company with a steady track record of consistently raising dividends has to honor that discipline when it makes any operating decisions. In short, these companies tend to be better managed because they want to continue their track record of steadily increasing the dividend. Better managed companies tend to have higher stock prices, too.

It’s time to update my list, so I’ve just run the Dividend Integrity Screen to identify the stocks with the best potential for raising dividends in a financially responsible manner. Four of the stocks from last year’s run dropped out, because their Integrity Ratio dipped under the threshold for inclusion (Altera ALTR -0.46%, RPC, Stryker SYK -0.32% and Union Pacific UNP -0.35%).  There are two newcomers to the list:

  • Comcast CMCSA -0.37% (CMCSA). This large cap company provides media and broadcast services—one of my favorite sectors. It has a history of raising dividends as its five year dividend growth is more than 40 percent. Comcast yields 1.7% now and I think the company has a long runway to raise dividends.
  •  Inter Parfums (IPAR). In contrast to Comcast, Inter Parfums is a small-cap company with market capitalization of under $1 billion.IPAR pays out $0.12 quarterly for a current yield of 1.6%. IPAR makes fragrances and related products. Although in a risky industry, the company has an excellent balance sheet and cash flow profile.

The other dividend stocks remain the same from last year’s list: United Health Care (UNH) increased its dividend from $0.21 to $0.28 per quarter; Aetna AET -0.22% upped its payout from $0.175 to $0.20 in January; Amerisource (ABC) boosted its quarterly dividend from $0.13 to $0.21; Reinsurance Group of America (RGA) increased its quarterly dividend from $0.24 to $0.30.

Reliance Steel (RS) bumped its dividend $.05 to $0.30 in March and then again to $0.33 in August; CVS Caremark (CVS) increased its dividend from $0.163 to $0.225 per quarter; Equifax (EFX) upped its dividend $0.04 to $0.22; and Ingredion (INGR) increased its payout $0.12 from $0.26 to $0.38 per quarter.

To see how well these stocks will do from a dividend perspective, I’ll revisit this concept again in September 2014.  See you then and happy dividend hunting!

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