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U.S. DIVIDEND GROWTH STOCKS

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Name brands show potential for dividend hikes


JOHN HEINZL
The Globe and Mail
May 14, 2009



WHAT ARE WE LOOKING FOR?

Yesterday we searched for Canadian stocks with the highest expected dividend growth rates over the next three years. Today we'll use a similar screen to find U.S. companies that are poised to increase their dividends.

WHY GROWING DIVIDENDS?

Companies with growing dividends put more cash in your pocket. And, over the long haul, their stocks tend to outperform companies that pay no dividends or flat dividends. So you win in two ways.

When a board of directors authorizes a dividend increase, it's a sign of confidence about the future. It's also a sign of financial health, because dividends must be paid with cash.

TODAY'S SCREEN

Historical dividend increases can provide some clues as to whether a company will raise dividends in the future. Bloomberg takes this a step further with a formula to predict increases.

Bloomberg's forecasts take into account factors including company guidance, industry analysis and Wall Street estimates. They also factor in other measures, such as option market implied dividends and historical regression analysis of fundamentals compared to dividends.

Finally, Bloomberg calculates something called the Bloomberg Dividend Directional Thermometer (DDT) score. It's a reading from -100 to +100 using various fundamental, credit rating and company health data.

A negative score indicates a company might cut its dividend, while a positive score increases the potential for an increase. A score must be above +50 to be conclusive about a potential dividend hike. But a high DDT score doesn't always mean a big dividend increase is coming.

For instance, a company might have a high DDT score but indicate it's about to execute a large share buyback, which would lower its projected dividend increase rate. That's why Bloomberg takes into account more than the DDT score when making projections.

WHAT DID WE FIND?

Great dividend stocks have two attributes: A relatively high dividend yield and solid dividend growth. So we've included only companies with a current yield of more than 2 per cent. We've also included only companies with positive dividend growth over the past five years.

You'll find several household names here - Wal-Mart Stores Inc., Clorox Co. and Campbell Soup Co. among them. You may be less familiar with Molex Inc., a manufacturer of electrical, electronic and fibre-optic products whose projected dividend growth rate of 22.6 per cent leads the pack.

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U.S. stocks with the strongest projected dividend growth rates

Company Ticker Market cap, $b Dividend yield, % Projected 3-year dividend growth, % Past 5-year growth, % Last quarterly dividend, $ May 12 price, $ 1-year total return, %
Molex Inc MOLX 2.65 3.8 22.6 41.6 0.15 15.90 -43.98
Rockwell Collins COL 6.12 2.5 20.5 14.9 0.24 38.63 -38.41
ITT Corp ITT 7.50 2.1 19.6 17.8 0.21 41.23 -37.08
Baxter Intl Inc BAX 31.00 2.0 15.3 10.4 0.26 51.23 -15.53
Aflac Inc AFL 16.01 3.3 14.5 23.4 0.28 34.26 -47.43
Wal-Mart Stores WMT 199.17 2.1 13.5 25.7 0.27 50.90 -10.65
Wisconsin Energy WEC 4.52 3.5 13.4 8.4 0.34 38.69 -17.16
Becton Dickinson BDX 15.35 2.1 12.9 19.7 0.33 64.08 -26.10
WW Grainger Inc GWW 5.86 2.3 12.8 17.1 0.46 80.05 -7.01
Republic Svcs RSG 8.71 3.3 12.7 43.9 0.19 22.99 -26.68
Clorox Co CLX 7.23 3.5 11.6 11.2 0.46 52.00 -3.60
Microchip Tech MCHP 3.69 6.7 11.1 51.1 0.34 20.28 -42.76
Campbell Soup Co CPB 9.58 3.7 11.1 9.0 0.25 27.11 -21.89
Harris Corp HRS 3.88 2.7 10.8 31.6 0.20 29.27 -45.04
Lockheed Martin LMT 31.74 2.8 10.6 23.8 0.57 81.61 -21.91
Cummins Inc CMI 6.37 2.2 10.4 16.7 0.18 31.56 -52.61
Hudson City Bncp HCBK 6.69 4.7 10.1 22.8 0.15 12.83 -28.64
Honeywell Intl HON 24.63 3.7 10.0 8.5 0.30 33.11 -43.10
Abbott Labs ABT 70.18 3.5 9.8 8.3 0.40 45.41 -11.37
Xilinx Inc XLNX 5.13 3.0 9.7 62.1 0.14 18.70 -26.90

THE GLOBE AND MAIL

SOURCE: BLOOMBERG





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