My Top 15 High Growth Dividend Stocks For September 2024

seekingalpha09-03

The SPDR S&P 500 ETF Trust posted a 2.34% gain in August, underperforming Vanguard's Dividend Appreciation Index Fund ETF Shares by +3.32%.The top 15 dividend growth stocks for September 2024 offer an...

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Vanguard Dividend Appreciation Index Fund ETF Shares (VIG) posted a more impressive gain of 3.32%, outperforming SPY during the month for the second time this year. And my watch list performed the best, posting a gain of 3.41%. Despite another strong return 2024 has not been a good year for my watch list. Year-to-date, the watch list is up only 3.47%, meanwhile, VIG is up 15.64% and SPY is up 19.35%. While this underperformance is very large, strong past performance has kept the watch list marginally ahead of VIG since inception. This isn't the first time the watch list found itself in a rough patch, and it likely won't be the last. However, relying on long-term data, I have conviction the strategy will bounce back and recoup lost ground in the months to come. Since inception, in September 2020, the watch list has a CAGR of 12.93% compared to 12.69% for VIG and 14.40% for SPY. My goal is not to beat SPY or VIG, but to generate a long-term rate of return of at least 12%. The strong performance from July and August saw the watch list build a small cushion above its target. The main goal of this watch list is to find the best combination of high-quality companies trading for attractive prices. I believe this is the optimal long-term strategy for building wealth. The top 15 dividend growth stocks for September 2024 offer an average dividend yield of 1.23%. Collectively, they have increased dividend payments at a rate of 22.14% during the last 5 years. Based on dividend yield theory, these 15 stocks are about 26% undervalued right now, and I think they are poised to offer strong long-term returns. I would suggest considering two approaches to dividend investing. The first involves dollar-cost averaging into a diversified portfolio comprising at least 10-20 high-quality dividend-paying stocks spanning various sectors and industries. By adopting a dollar-cost averaging strategy, you mitigate the risk associated with attempting to time the market. Over an extended period, this method allows you to acquire shares at market highs, lows, and in-between, ultimately establishing an average cost basis situated in the middle. The second method introduces a slightly higher level of risk. It entails investing in undervalued stocks while still adhering to a dollar-cost averaging strategy. In this approach, you diversify across a minimum of 10-20 distinct, high-quality companies spanning multiple sectors and industries. The increased risk stems from the possibility that your valuation methodology may prove inaccurate. However, by spreading investments across multiple stocks, the likelihood of correctly identifying undervalued opportunities may improve. The potential upside resulting from accurate selections may well outweigh any underperformance stemming from less successful picks. Watch List Criteria The criteria used to determine which stocks are included in my high-growth dividend stock watch list remain unchanged for September 2024. It is made up of the 8 factors listed below that have historically outperformed the broad universe of dividend-paying stocks when analyzed collectively.  Market Cap of at least $10 billion. Payout Ratio no greater than 70%. 5-year Dividend Growth rate of at least 5%. 5-year Revenue Growth rate of at least 2%. 5-year EPS Growth rate of at least 2%. S&P Earnings and Dividend Rating of B+ or better. Wide or Narrow Moat (Morningstar). Exemplary or Standard Management Team (Morningstar).  The rules identified 110 stocks for the month that were all ranked based on the above-mentioned metrics with the exclusion of market cap. I then computed the current valuation for each stock using dividend yield theory. All stocks were ranked for both quality and valuation and sorted by the best combination of both. Next, I computed a forecasted rate of return for the next 5-year period for each of the stocks. This return is based on forecasted earnings growth, a return to fair value, and the dividend yield. The highest-ranked 15 stocks with a forecasted return greater than or equal to 12% were chosen for the watch list. The long-term hypothesis for this watch list is that it will outperform a broad-quality dividend fund such as Vanguard's Dividend Appreciation ETF, VIG, and that it will generate a 12% annualized rate of total return. Watch List For September 2024 Created by Author Above are the 15 stocks I am considering for further evaluation during the month. They are sorted in descending order by their rank and 5-year dividend growth rate. The \"O/U\" column represents potential undervalue; this is a comparison of the current dividend yield to the historical dividend yield as a function of share price. The expected return in the table above was computed using a discounted 5-year EPS forecast, a return to fair value, and the current dividend yield. There is also a margin of safety built into the forecasted return. These figures are just assumptions based on the available data, and there is no guarantee these returns will be attained. There are 3 changes to the top 15 list from the prior month. Coca-Cola Europacific Partners PLC (CCEP), Elevance Health, Inc. (ELV) and UnitedHealth Group Incorporated (UNH) have fallen further down the list, or do not meet the 12% expected rate of return threshold and were replaced by Intuit Inc. (INTU), Nordson Corporation (NDSN) and ResMed Inc. (RMD). Past Performance The top 15 list from August posted a solid gain of 3.41%, outperforming both benchmarks, and as a result, the long-term alpha has improved. The long-term annualized rate of return for the watch list increased from 12.25% last month to 12.93%. My target rate of return is 12%, and the modest improvement in August helped the watch list expand its cushion above the target.   Month Top 15 All VIG SPY   1 Month 3.41% 1.83% 3.32% 2.34%   3 Month 9.49% 7.04% 8.94% 7.23%   6 Month 5.50% 7.53% 10.47% 11.66%   2020 6.27% 6.15% 9.09% 7.94%   2021 33.81% 31.55% 23.75% 28.76%   2022 -8.58% -15.12% -9.80% -18.16%   2023 20.89% 21.88% 14.50% 26.18%   2024 3.47% 11.16% 15.64% 19.35%   Since Inception 62.62% 60.59% 61.25% 71.29%   Annualized 12.93% 12.57% 12.69% 14.40%   Click to enlarge Top 5 past and present watch list stocks in August 2024:  Starbucks Corporation (SBUX) +22.05%. The Progressive Corporation (PGR) +17.78%. Best Buy Co., Inc. (BBY) +16.04%. NIKE, Inc. (NKE) +11.30%. FMC Corporation (FMC) +10.66%.  One of the top 15 stocks selected for the month of August was amongst the top 5 performing stocks last month, Nike. In total, there have been 84 unique dividend stocks selected by this watch list since September 2020. It is worth noting that Activision Blizzard was amongst this list prior to being acquired by Microsoft. Top 5 Stocks by Total Return since joining the watch list:  NVIDIA Corporation (NVDA) +796.05% (41 months). The Progressive Corporation (PGR) +198.21% (43 months). KLA Corporation (KLAC) +170.35% (40 months). Cintas Corporation (CTAS) +162.31% (43 months). Monolithic Power Systems, Inc. (MPWR) +155.78% (42 months).  Since not all stocks have been on the watch list for the full 48 months of their existence, comparing a monthly average return can help normalize the results. Here are the top 5 stocks with the highest average monthly return since joining the watch list.  NVIDIA +5.49% (43 months). Discover Financial Services +3.88% (12 months). Bank of America +3.15% (12 months). Coca-Cola Europacific +3.09% (5 months). Progressive +2.57% (43 months).  Drivers Of Alpha The watch list outperformed VIG in August. Nine watch list stocks outpaced the ETF last month.  (NKE) +11.30%. (GPN) +9.22%. (CCEP) +9.11%. (MSCI) +7.67%. (ROL) +5.07%. (APH) +4.96%. (ELV)) +4.67%. (V) +4.24%. (MA) +4.23%.  The remaining 6 stocks underperformed VIG.  (UNH) +2.44%. (ZTS) +1.92%. (CNI) +1.79%. (DPZ) -3.38%. (SIRI) -3.83%. (ODFL) -8.27%.  Total Return For All Watch List Stocks Here are the total returns for all past and present watch list stocks since first appearing on the watch list. Out of the 84 stocks that are on this list, 67 (65 last month) have positive total returns and 17 have negative total returns, the average return is 48.31% (44.83% last month). The watch list has been around for 47 months, and the average duration for all 84 stocks is 34.94 months.   Symbol Since Joining Count   NVDA 796.05% 41   PGR 198.21% 43   KLAC 170.35% 40   CTAS 162.31% 43   MPWR 155.78% 42   COST 151.98% 48   APH 123.37% 43   BK 118.31% 48   ADP 115.74% 48   AMAT 110.45% 43   TSCO 100.56% 43   TJX 94.21% 43   JPM 92.27% 43   MSFT 91.31% 48   INTU 87.08% 48   UNH 86.00% 43   CDW 78.66% 43   LRCX 76.43% 43   MCO 71.67% 48   SHW 70.98% 43   BBY 69.15% 26   LMT 69.02% 48   ROL 68.65% 31   NOC 61.75% 48   MSCI 61.57% 48   BLK 59.49% 48   CI 58.82% 30   DFS 57.88% 12   FAST 55.70% 48   LOW 54.79% 48   ICE 53.24% 43   ACN 50.90% 48   BX 48.80% 25   GS 48.33% 37   WRB 48.05% 17   BAC 45.13% 12   GGG 43.72% 48   EXPD 43.41% 43   HD 43.27% 48   TXN 42.54% 43   USB 41.94% 46   FDX 41.52% 30   MA 37.95% 48   TMO 35.80% 41   V 34.21% 48   ROP 32.71% 48   SCHW 29.65% 43   MS 27.59% 39   NTRS 26.41% 48   FDS 25.37% 48   EOG 21.45% 18   SSNC 18.28% 42   ALLE 17.53% 14   KR 16.66% 14   CCEP 16.42% 5   DE 15.78% 33   ELV 13.57% 7   ZTS 12.46% 19   MCHP 12.08% 15   WST 11.48% 48   JKHY 10.00% 48   CMCSA 7.29% 48   WTRG 7.01% 8   CRH 6.11% 5   DPZ 5.91% 48   ATVI 4.39% 29   ROST 2.87% 5   CNI -0.26% 2   HUM -4.20% 42   ALB -5.52% 2   TROW -10.81% 48   ODFL -12.62% 6   SBUX -13.83% 32   GPN -14.02% 6   LAD -21.10% 41   NKE -22.68% 8   SWKS -24.43% 32   BALL -31.50% 32   FMC -43.94% 27   SIRI -47.50% 29   MKTX -53.52% 43   DG -57.43% 41   AAP -72.45% 26   PARA -74.78% 38   Click to enlarge Dividend Analysis For New Stocks Below are a 7-year dividend yield theory chart, a dividend history chart, and a dividend growth table for the 3 new stocks on the watch list this month. First up is Intuit. The chart below shows the actual price of Intuit (black line) graphed along with the following 3 valuation zones. The dark green zone shows valuations of 15% below fair value and above. The light green zone shows a fair value of 15% below the fair value range. And the red zone shows the fair value to the 15% overvalued zone. Created by Author Here is the historical dividend yield. Created by Author Here is the dividend history.         Year Dividend Growth CAGR   2024 3.74 15.43%     2023 3.24 14.89% 15.43%   2022 2.82 15.10% 15.16%   2021 2.45 12.39% 15.14%   2020 2.18 12.37% 14.45%   2019 1.94 18.29% 14.03%   2018 1.64 16.31% 14.73%   2017 1.41 13.71% 14.95%   2016 1.24 18.10% 14.80%   2015 1.05 28.05% 15.16%   2014 0.82 17.14% 16.39%   2013 0.70 12.90% 16.46%   2012 0.62   16.16%   Click to enlarge Up next is Nordson. Created by Author Here is the historical dividend yield. Created by Author Here is the dividend history.         Year Dividend Growth CAGR   2024 2.92 9.77%     2023 2.66 14.66% 9.77%   2022 2.32 28.89% 12.19%   2021 1.80 16.88% 17.50%   2020 1.54 5.48% 17.35%   2019 1.46 12.31% 14.87%   2018 1.30 14.04% 14.44%   2017 1.14 11.76% 14.38%   2016 1.02 10.87% 14.05%   2015 0.92 15.00% 13.69%   2014 0.80 21.21% 13.82%   2013 0.66 20.00% 14.48%   2012 0.55   14.93%   Click to enlarge Up next is ResMed. Created by Author Here is the historical dividend yield. Created by Author Here is the dividend history.         Year Dividend Growth CAGR   2024 2.02 9.78%     2023 1.84 6.98% 9.78%   2022 1.72 6.17% 8.37%   2021 1.62 3.85% 7.63%   2020 1.56 2.63% 6.67%   2019 1.52 5.56% 5.85%   2018 1.44 5.88% 5.80%   2017 1.36 7.94% 5.81%   2016 1.26 8.62% 6.08%   2015 1.16 9.43% 6.36%   2014 1.06 26.19% 6.66%   2013 0.84 147.06% 8.30%   2012 0.34   16.01%   Click to enlarge Final Thoughts While this watch list has produced some terrific investment ideas, it has also pointed out some awful stocks along the way. Four of the stocks presented during the last 48 months have gone on to lose more than 50%. A watch list, much like an index, includes both good and bad companies. It's very difficult to create an automated stock selection strategy that only produces great ideas. However, rather than focusing on the few bad apples that have appeared on this list, let's shed a little light on its success. Eleven stocks identified by this process have gone on to produce returns in excess of +100% and another twenty-one have generated returns in excess of 50%.  I have used this list to find many great stocks that I have added to my personal portfolio, but I encourage you to use it primarily as a starting point for further research. The watch list aims to find the best combination of high-quality companies trading for attractive prices. 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