Top 5 Low Dividend Yield, High Dividend Growth Stocks

I’m very excited to dive into this research and find what we think are the best 5 low yield, high dividend growth stocks.  We are only going to focus on the dividend aristocrats, who have increased dividends for 25+ years consecutively, as a baseline/filter out of stocks.  This will then keep us focused on a good barrel fool instead of a whole potential market full of stocks.  As the dividend world goes – typically if you invest into a lower yielding stock, it is compensated by a high dividend growth percentage, at least one would hope.  The case would be vice versa – a high dividend yield stock, would typically have a low dividend growth percentage.  Who is on our list for the top 5 spots?  Let’s find out!

Low Yield High Growth

The Metrics for Top 5 Low Dividend Yield, High Dividend Growth

As we all know, you need to have metrics or screening filters when you are doing investment research, to find what you are seeking.  A great example is when I look for a stock, I typically use our dividend diplomat stock screener, find a great valuation, solid yield, solid payout ratio and boom – those stocks could now be a potential for my portfolio.  Obviously there are other measures I include, which everyone has seen in our analysis, such as the recent Norfolk Southern (NSC) analysis.  Here are the metrics we will use to find the top 5 low dividend yield, high dividend growth stocks from the dividend aristocrat list:

  1. Dividend Yield Below 2%.  I feel that if you are at or below the S&P 500 yield as a whole, that is a low yield and if you don’t know what you’re doing or are buying stocks with a low yield and not considering much else, should probably just invest into an S&P 500 Exchange Traded Fund (ETF).  I will set a 2.00% or below yield.
  2. Dividend Growth Rate: I will base it on the 5 year dividend growth rate of above 10%.  If you have a yield at 2.00%, a dividend growth rate of 10.00%, that is a dividend factor of 12.00%, which would be a very attractive investment, especially if they have consistently raised it at this level, given their track record.  We all know how strong this metric is and the importance to your portfolio, as well as tracking your yield on cost or The YOC.
  3. Payout Ratio: We will use our traditional – below 60% but also above 20%.  This shows that they do retain quite a bit of their retained earnings for future business performance/growth, which helps fuel earnings to continue to pay and raise dividends
  4. Dividend Aristocrat Metric: They have to be an aristocrat, which means they have increased their dividend for 25+ years in a row.  Very important for this tool, as it’s the longest history/track record to pad the stats.
  5. Current Yield to be > the 5 year dividend yield average: This then will show a nice comparison if the stock is undervalued potentially or has a yield currently that is higher than their historical yield, which could show a sign of a purchase.

The Top 5 Low Dividend Yield, High Dividend Growth Stocks

Okay.. this was a very fun research project to perform.  I went with those that had the highest dividend growth track record combined with the current yield, as the top 5.  Further, I had to lean a little bit away from the 5 year dividend yield average, as these stocks have continuously trudged upward and made it extremely difficult to find a stock that covered this, it’s quite interesting.  Here are what I find to believe to be the Top 5 Low Dividend Yield, High Dividend Growth stocks that are from the Dividend Aristocrat List:

  1. W W Granger Inc (GWW) – W.W. Grainger, Inc. is a distributor of maintenance, repair and operating (MRO) supplies and other related products and services. The Company offers its products and services to businesses and institutions in the United States and Canada, with presence also in Europe, Asia and Latin America.  Why did they make the list here?  Pretty simple – They currently sport a 1.90% dividend yield, have an 18.64% 5 year dividend growth track record, their 5 year yield is 1.40% (therefore, yielding higher than in the past) and a solid payout ratio of only 38.00%, adding plenty of room to continue an 18%+ growth to their dividend.  The dividend factor, therefore, of the yield plus the growth rate is 20.54%, which is phenomenal.  Further, their P/E currently is below 20, at roughly 19.77 estimating for 12/15 figures and going forward into 2016 has a P/E of 17.44.  I am keeping my eye out for this stock, for sure.  This definitely fits the bill for being one of the top 5 low dividend yield, high dividend growth stocks and could be a great part of a dividend investors portfolio!  This may even slide into a foundation stock for a dividend investors portfolio as well, uh oh!
  2. EcoLab Inc. (ECL) – Ecolab Inc. (Ecolab) develops and markets products and services for the hospitality, foodservice, healthcare and industrial markets. The Company offers water, hygiene and energy technologies and services that protect people and vital resources. The Company delivers programs and services to promote safe food, maintain clean environments, optimize water and energy use and improve operational efficiencies for customers in the food, energy, healthcare, industrial and hospitality markets.  Why did ECL make the list here?  The metrics – They currently sport a 1.20% dividend yield, have an 15.48% 5 year dividend growth track record, their 5 year yield is 1.10% (therefore, yielding higher than in the past) and a solid payout ratio of only 31.00%, adding plenty of room to continue an 15%+ growth to their dividend.  The dividend factor, therefore, of the yield plus the growth rate is 16.68%, not as high as GWW, but solid.  The price to earnings (P/E) valuation isn’t the best right now at 25 for the current P/E based on 2015 projects and a forward P/E of 21.96, a smidge high.
  3. Lowe’s (LOW) – Lowe’s Companies, Inc. is a home improvement retailer. Lowe’s operated approximately 1,832 home improvement and hardware stores in the United States, Canada and Mexico representing 200 million square feet of retail selling space.  Now, this was an add in by me, as there was one metric of the 5 year dividend yield being higher than the current, but I gave this one the head nod, simply because of how close it was.  The metrics – They currently sport a 1.30% dividend yield, have an 20.81% 5 year dividend growth track record (WHOA!), their 5 year yield is 1.60% (smidge higher) and a solid payout ratio of only 34.00%, adding plenty of room to continue an 20%+ growth to their dividend.  The dividend factor, therefore, of the yield plus the growth rate is 22.11%, much higher than the previous two, awesome!  The price to earnings (P/E) valuation is “OKAY” right now at 21.30 for the current P/E based on 2015 projects and a forward P/E of 18, appropriately valued from an earnings perspective here, but not a bad dividend investing stock, not bad at all.
  4. Cardinal Health (CAH) – Cardinal Health, Inc. is a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals and other healthcare providers focus on patient care.  Think I am biased that this is Headquarter’d in Ohio? Hehe…  Joking, but lets take a look at their metrics.  They currently sport a 1.60% dividend yield, have an 14.43% 5 year dividend growth track record, their 5 year yield is 1.90% (similarly, a tad higher) and a solid payout ratio of 42.00%, right smack in the middle of 20-60%.  The dividend factor, therefore, of the yield plus the growth rate is 16.03%, a very solid total.  The price to earnings (P/E) valuation shows a little under valuation right now at 19.67 for the current P/E based on 2015 projects and a forward P/E of 17.5, not a bad stock if you are looking to get into the healthcare with a dividend aristocrat that has strong dividend growth!
  5. Franklin Resources, Inc. (BEN) – Franklin Resources, Inc. (Franklin), is a holding company. Franklin together with its various subsidiaries (collectively, the Company), is referred to as Franklin Templeton Investments, is a global investment management organization offering investment management and related services under the Franklin, Templeton, Mutual Series, Bissett, Fiduciary and Darby brand names.  Okay.. I had to make a concession here again, as their 5 year yield is higher than their current yield, but with the other items within this valuation, it was hard NOT to put on the list.  Here is what I analyzed.. They currently rock out with a 1.20% dividend yield, have an 13.96% 5 year dividend growth track record without any special dividends (they gave a special dividend of $0.50 in 2015, $1.00 in 2012 and $0.667 in 2011), with a great payout ratio of only 27.00%, huge room for additional special dividends and the growth rate.  The dividend factor, therefore, of the yield plus the growth rate is 15.16%, a sound total and with special dividends, is obviously much higher.  The price to earnings (P/E) valuation shows that they are under valued right now at 14.3 for the current P/E based on 2015 projects and a forward P/E of 13.5, out of the 5, this one has the most “undervalued” price to earnings metric.  A lot of dividend investors have been scooping up Franklin Resources

Conclusion & Summary

These were, from what I can see, the top 5 low dividend yield, high dividend growth stocks that are out there amongst the dividend aristocrat list.  This obviously, then, didn’t include Visa, Apple, Starbucks and the other newly praised low yield, high dividend growth companies out there.  Time will bring them to the round table, I believe, however.  As of now – I own 0 of the companies mentioned above and will be looking at Cardinal Health and W W Granger, to see if they fit in the portfolio.  At the end – it’s all about saving as much money as you can from the money you make, investing consistently, plugging through your goals that you set and finding that right balance of happiness.  These stocks could help lead you there and I hope that you found this article insightful and resourceful.

Do any of you own the stocks above?  Considering any of them now that there is a brief analysis?  Any new stocks that you never thought of?  Also – are you aware of stocks that I should have looked at further?  Thanks everyone, appreciate the feedback and insight!

-Lanny

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25 thoughts on “Top 5 Low Dividend Yield, High Dividend Growth Stocks

  1. Lanny,
    I really like these kinds of companies. They provide so much value in the long run, and will probably the purchase that you look back on and say “wow, did not think this would carry my butt back then.” I really like BEN especially, and have a few similar style positions including AAPL and DIS. This type of stock is such a great complement to the high payers-lower growers along with those in the middle.
    Nice write up, GWW and ECL tickle my fancy a little bit because I use them in my day job (or similar products).
    -Gremlin

    • DGremlin,

      Thanks for coming by. That’s cool that you use those products during your day job/similar products at least – definitely goes to show – they are out there, in use and are in our every day lives. GWW would be one I have my eyes on and Lowes, as well. The growth rates are fairly strong and the YOC, in time, will be incredible. I think you do bigger purchases with these at the end of the day. Thoughts?

      -Lanny

      • Lanny,
        I would agree, making a bigger purchase on them would make sense unless they are open on Loyal3 – I am adding to DIS and AAPL there for example.

        As far as Lowes goes, they have shown improvement, but big time contractors and guys who use tons of equipment still go to Home Depot (HD), so Lowes has a lot of room to grow or tough competition ahead (depending on how you want to look at it). As far as GWW goes, big and small companies order plenty of stuff from their catalogs – that is my personal experience. Their stuff is pretty good quality for our field work and crews.
        -Gremlin

        • Gremlin,

          Thanks for the details and makes sense that you can buy smaller within the Loyal3 account, smooth move.

          With the products – of course, competition is there and competition is good, eh? Good tips to know about GWW, what I really need right now is… C A P I T A L haha, don’t we all?

          Looking forward to new purchases Gremlin!

          -Lanny

  2. This is a different approach than what I use, but interesting nonetheless. Usually I want to receive at least a 1.8% dividend yield, but I can see how an even lower yield can help you in the long term. I have looked at most of these companies, but none are on my current watch list. Thanks for the food for thought.

    – HMB

    • HMB,

      Thanks! Its definitely a different mindset here. I’m usually the same way, and look at something above 2%. If you are long term focused – these stocks could be potential now, their growth rates are pretty amazing. Always interesting, thanks!

      -Lanny

    • Empire,

      Thanks for the post. UNP does look great right now, no lie about that. I do like the train track stocks, for sure. This was hopefully a post to bring in a different approach and possibly another way to look at things. Thoughts?

      -Lanny

  3. I don’t own any. I don’t mind low yield if it means growth, but I rather have nearer 2% or a well assumed 2% than the ones you propose here. Still a list to keep in mind! 😉

    Cheers!

    Mike

    • DivGuy,

      Thanks for checking this one out. I like GWW from the list, as I feel within 24 months you may have a nice YOC if it follows suit with the track record. I rarely will ever even look/consider a stock with the lower yields as displayed here. I may have to see/dive into how much institutional ownership there is for these to see if that’s where the bulk is being held…

      -Lanny

  4. Thanks for sharing! It’s always kind of annoyed me that lower-yield companies don’t get a lot of coverage by most bloggers, so I’m glad you took a look at thse. I’m long GWW, and have looked at all except CAH in the past. They’re definitely worth adding, should you be willing to trade a lot of income now for high dividend growth. I personally like them in this order, highest to lowest: GWW, BEN, ECL, LOW (like I said, IDK enough about CAH to make a judgment).

    • DivDeveloper,

      Thank you for coming by. I know, there isn’t much out there on them – but quite a few have great track records of dividend increases, they are actually in my eyes incredible, just have to formulate how to purchase them and which one. I’ll definitely agree that GWW is higher on my list and BEN’s special dividends are very tempting and nice. I’m finding out where it all fits. I was excited to write this one, for sure. I hope you found it interesting and partly informational. Thanks again DD!

      -Lanny

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  7. I like to sprinkle in the low yield/high growth companies in my portfolio as well. They help to balance out some of the high yield/low growth companies. Two companies that I like in this area are ROST and TJX, ROST a bit more because there’s more room for growth since they are the smaller player. But both have great track records and I expect they’ll continue to reward shareholders in the future. I also really like BEN from your list. Thanks for highlighting some excellent companies that don’t get a lot of love in the DGI space because of the low yields.

    • JC,

      Thanks for coming by, I really appreciate it. I’ll have to check out ROST and TJX and see what metrics they hold. From the looks of it, ROST has great history for dividend increases and and TJ maxx does as well – how do you feel about retail stores then in general?

      BEN is really nice, with and without the special dividends they put out there.

      It is interesting and you’re right, we don’t hear much in the community about them, hopefully this is one of many posts we all end up having about the low yielding higher div growth Cos!

      -Lanny

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  12. Home Depot (HD) has perhaps received more attention, but Lowe’s (LOW) is quite a competitor.

    Both have a 2% dividend.

    Between these 2 companies, I like to invest in (and shop at) Lowe’s.

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