You will need to setup a dividend stock screener to find quality, undervalued dividend growth stocks. Using my dividend growth stock screener and criteria, you should find a handful of undervalued dividend growth stocks that will help you build a dividend growth stock portfolio. I like to use FINVIZ stock screener in particular. FINVIZ is a free stock screener that offers a nice selection of fundamental valuation options to screen undervalued dividend growth stocks.
How to Screen for Undervalued Dividend Growth Stocks
No matter the market. There is value. You just have to go out there and find it. With that being said, how do you go out and find undervalued dividend growth stocks?
First off, we LOVE dividend growth stocks due to the opportunity for long-term potential for capital appreciation.
Dividend growth stocks are the single best way to combine a growth stock with consistent residual income. There is nothing better than seeing the dividend income on Personal Capital and realizing that you didn’t have to work to earn it.
I love a good bargain and I certainly don’t mind bargain dividend stocks. I used the following steps to buy Target Corporation at a +5% yield. In addition, we purchased Boeing stock at $129.11 per share and the stock is now trading at $344.25.
Use our dividend growth stock screener criteria below and you can improve the investment returns in your portfolio. This will help you to stop using annual dividend yield when making an investment decision.
Have you not built a dividend portfolio yet? We’ve created a guide to building a dividend portfolio to help you make all the necessary dividend investments.
Why Use a Dividend Stock Screener
A dividend stock screener can do wonders to your investment portfolio. By setting up a predefined screener for stocks, you automate your investment process one step further. I know my set of criteria for screener stocks and that is one of the easier parts about finding undervalued stocks to invest in.
I created a free dividend calculator you can download to see what it will take for you to retire off dividend income. The dividend calculator allows for you to input your own assumptions for contributions, dividend yield, growth and more. Develop your own plan for living off dividends.
However, what takes the most time is looking under the hood of the investment also known as the qualitative factors. If you are a dividend growth investor, a dividend stock screener takes your investment portfolio to the next level.
Personally, I like to use FINVIZ for screening for stocks. This is the best free stock screener available in my book.
In addition, I use FINVIZ futures to learn more about the market trends. If the market looks like it is due for a pullback, I use FINVIZ futures to lock in some gains on strong performers in my dividend growth portfolio. Check out how to use FINVIZ futures to your advantage.
Dividend Growth at a Reasonable Price (dGARP)
When finding undervalued dividend growth stocks, I like to call it the dGARP method. The dGARP method means “Dividend Growth at a Reasonable Price.” Finding Dividend Growth at a Reasonable Price (dGARP) stocks is an investment strategy that combines tenets of both dividend growth and value investing by finding companies that show consistent dividend AND earnings growth but don’t sell at inflated valuations.
Traditional Growth at a Reasonable Price investors look only for earnings growth. I want to find the best dividend growth stocks for the right valuation. Using our dividend growth screener and criteria, I believe we can find a list of undervalued dividend growth stocks.
Buying undervalued companies is the only way to maximize your total return. You literally get paid (through dividend income) to wait until the valuation has reached a reasonable price.
However, finding undervalued stocks is not easy so you must have the proper criteria set in place.
What criteria should I use to screen for undervalued dividend growth stocks?
Using the FINVIZ stock screener you can filter for stocks at a certain dividend yield, valuation, earnings growth and more. I like to use FINVIZ as a dividend growth screener since the platform is easy to understand and the criteria is very easy to filter. There are plenty of other stock screeners out there, so just use the Google machine to find one that you like.
Once you navigate to the stock screener on FINVIZ. Use the following criteria to screen for undervalued dividend growth stocks:
- Input dividend yield stocks greater than 0%. We only want stocks that pay a dividend.
- Market Capitalization of over $10bln. I only want companies with scale and a size advantage.
- We only want reasonably valued companies, so input P/E ratio less than 20x.
- I want to invest in companies that are growing their Earnings Per Share (“EPS”), so input EPS growth next year of greater than 5%.
- Long-term growth is important, so filter companies that are growing their EPS over the long-term. I input EPS growth next 5 years of greater than 5%.
- I don’t like to overpay for growth, so input Price to Earnings Growth (“PEG”) of less than 1.
- This is one of the most uncertain criteria because the growth component is highly subjective. Here’s how to forecast the dividend growth rate. At the same time, this is also one of the most important criteria in screening for undervalued dividend growth stocks because we are trying to find stocks that combine both dividends and growth potential AT A REASONABLE PRICE.
- The Price to Earnings Growth formula is typically used with Growth at a Reasonable Price (GARP) investors.
- Finally, I want dividend safety over the long-term. Use a payout ratio of less than 50%. This gives us a margin of safety. If EPS doesn’t grow, there is still sufficient dividend coverage.
Understand that making an equity investment, you are at the lowest point of the capital structure which means you are taking on more risk.
Use these 7 set of criteria for finding undervalued dividend growth stocks and you will be in great shape. I like to use FINVIZ Elite to build and monitor my dividend portfolios.
FINVIZ Elite is one of the better tools out there to help you gain an edge AND stay up to date on real-time news alerts.
How to Screen for Undervalued Dividend Growth Stocks (Infographic)
If you are like me and don’t want to read through a complete list and prefer visualization. I’ve created an infographic highlighting my favorite criteria to find and screen for stocks. This helps me find the best dividend stocks for a reason price. Finding undervalued dividend growth stocks shouldn’t be too hard.
I love stock screeners and getting alerts everyday when a certain stock reaches my valuation thresholds. Why not automate your investing process as much as possible? By using different stock screeners, you position yourself for success in investing. In addition, this gives you comfort that the stocks that you are investing in meet YOUR criteria. Not someone else’s.
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Okay, it’s great to have some list of stocks to choose from. How do you inteprate the results from your stock screener?
Ok, I have my list of dividend stocks… How do I interpret the results?
After you input all of the criteria identified above, you should have a list of stocks no more than 20-40 dividend growth stocks to evaluate further. I like to sort my list of stocks by lowest Price to Earnings ratio just to give me an understanding of the lowest priced stocks. Remember, a low Price to Earnings ratio does not always mean guaranteed success. A number of stocks with low Price to Earnings ratios are anticipated to have declining earnings growth.
Once you have your list of dividend stocks, filter through the list and choose the stocks that are easy to understand how they make money. We want companies that are easy to understand. This makes it much easier to understand the growth prospects and monitor industry trends relating to that particular company. Keep it simple stupid (KISS) applies here.
Compare Dividend Growth Screener Results with Dividend Aristocrats Index
To take it a step further, compare your list of stocks from the screener with the dividend aristocrat index. Dividend aristocrats are companies that have been increasing their dividend in consecutive years for more than 25 years.
Dividend Aristocrats are clearly stocks with consistent dividend growth. If you want to take it a step further, we have a list of Dividend Kings to help you make investment decisions. Dividend Kings are stocks that have been increasing their dividend for 50 consecutive years!
If you prefer to not invest in individual dividend growth stocks, you can build a dividend portfolio through global dividend growth funds. I’ve built a list of global dividend growth funds that will help you diversify your dividend portfolio.
In addition, do you ever try writing covered calls to boost your investment returns? Here are the best stocks for covered call writing.
Conclusion on Undervalued Dividend Growth Stocks
Once you have a selected list of undervalued dividend growth stocks. You are not done. You cannot just invest blindly in dividend stocks or growth stocks without further due diligence. Investing is both an art and a science, so take some time to listen to earnings calls or read industry reports before making your final decision.
Dividend or growth? Which is better for you? We believe both! Building a dividend growth stock portfolio can accomplish both of these goals. Use our primer on the short-form dividend discount model to build a dividend portfolio.
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- Top Dividend Stock Screeners to Use
- Follow our dividend growth investing blog
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