Dividend Growth Investing & Retirement is supported by its readers through donations and affiliate links. If you purchase through a link on my site, I may earn a commission. Thanks! Learn more.

As dividend growth investors, we know that wide moat stocks make a good starting point, but it is just one of many considerations on our hunt for high-quality dividend growth stocks.

Which of these companies with strong sustainable competitive advantages make good dividend growth investments?

To help answer this question,

  1. I’ve identified all the US wide moat dividend growth stocks.
  2. I ranked them using a quality scoring system that includes overall safety, financial strength, credit ratings, moat analysis, and dividend safety.
  3. I’ve provided some screening results and additional dividend metrics like yield, valuation, dividend streaks, future dividend growth estimates, etc. so you can get a better sense of which stocks to focus on.

76 Wide Moat Dividend Growth Stocks

Of the 187 US Wide Moat Stocks I identified in my Every Wide Moat Stock in the USA article, 76 have dividend growth streaks of 10+ years.

US Wide Moat Stocks with Dividend Growth Streaks of 10+ Years Table

This is a good starting point on our search for high-quality wide moat dividend growth stocks.

Keen observers will note that of 187 wide moat stocks listed in my other article, MSA Safety Inc, Badger Meter Inc, and Oracle Corp, also have dividend growth streaks larger than 10 years, but Morningstar has since downgraded these from wide to narrow moats. As a result, I’ve excluded them.

Before we dig into the quality rankings for each company, let me explain how I calculate a quality score.

[Back to Table of Contents]

Dividend Growth Quality Ranking Systems

I’m basing my US quality rankings on David Van Knapp’s quality snapshot scoring system. 

David Van Knapp’s Quality Scores

In lesson 20 of David Van Knapp’s dividend growth investing lessons series he summarizes his quality snapshot scoring system as the following:

David Van Knapp's Quality Snapshot Scoring System
David Van Knapp's Quality Snapshot Ranking System

Source: David Van Knapp’s DGI Lesson 20: My ‘Quality Snapshot’ Grading System

The scoring system is comprised of five different factors:

  1. Safety Ranks from Value Line,
  2. Financial Strength Grades from Value Line,
  3. S&P Credit Ratings,
  4. Morningstar Moat Ratings, and
  5. Dividend Safety Scores from Simply Safe Dividends.

For a more in-depth explanation refer to his article, or for that matter, take a look at his whole series of dividend growth investing lessons. It’s a resource so good that you will keep referring back to it.

I really like his methodical approach for analyzing the quality of US dividend stocks, but it doesn’t work for all 76 companies that I want to review. 

For example, some companies didn’t have an S&P credit rating or were missing a dividend safety score.

As a result, I’ve tweaked David’s system so I could give quality scores to all 76 stocks.

Introducing the US Quality Ranking System …

[Back to Table of Contents]

US Quality Ranking System

As much as possible l, I’ve kept David’s system the same, but I’ve supplemented it with additional criteria when a stock isn’t covered by one of the research companies.

Here’s what I came up with. 

US Quality Ranking or Scoring System - DGI&R

Here is a summary of how I evaluate each of the five quality factors.

[Back to Table of Contents]

Overall Safety – Factor #1

1st Choice = Value Line’s Safety Rank

Factor #1 - Overall Safety

All 76 stocks were covered by Value Line so I was able to find safety scores for all companies.

Value Line’s Safety Rank is a combination of a stock’s weekly price stability over a five year period and its financial strength.

Safety Rank = Price Stability + Financial Strength

Here’s the link to Value Line’s more in-depth explanation of their scoring system.

High safety ranks come from highly stable prices and a strong financial strength. Low scores, the opposite.

[Back to Table of Contents]

Financial Strength – Factor #2

1st Choice = Value Line’s Financial Strength Grade

Factor #2 - Financial Strength

“Quite a few ingredients go into Value Line’s Financial Strength ratings. Balance sheet leverage, business risk, the level and direction of profits, cash flow, earned returns, cash, corporate size, and stock price, all contribute to a company’s relative position on the scale. The amount of cash on hand, net of debt, is an important consideration. […]    

It’s important to note that financial strength doesn’t always translate into stock market outperformance. Shares of smaller companies and companies that are more leveraged often do significantly better when the economy is coming out of a recession. Since those groups are more sensitive to broader business conditions, their profits stand to rise more on a percentage basis in the early stages of a recovery. But, for investors looking for dividend-paying stocks and stocks to hold on to for a long period of time, it pays to be aware of a company’s financial standing.”

Source: Value Line Educational Article: Financial Strength (Emphasis added)

[Back to Table of Contents]

Credit Rating – Factor #3

1st Choice = S&P | 2nd = DBRS |  3rd = Fitch | 4th = Moody’s | 5th = Debt Metrics (Interest Coverage & D/C)

Factor #3 - Credit Ratings

First I’ll check the 4 major credit rating agencies.

If I can’t find a credit rating from one of the rating agencies (Standard & Poors (S&P), DBRS, Fitch, or Moody’s), I use a combination of the Debt-to-capital ratio and Interest Coverage ratio.

Interest Coverage Ratios & Synthetic Credit Ratings

Using the research of Aswath Damodaran on the link between interest coverage ratios and credit ratings I use the table below to find a synthetic credit rating. 

Source: Ratings, Interest Coverage Ratios and Default Spread by Aswath Damodaran

The table above only works for non-financial firms, so don’t use this for banks, insurance companies, etc.

Debt-to-Capital Ratio

A debt-to-capital ratio of 50% or less is used as a pass/fail metric for the higher points (4 & 5).

If the debt-to-capital ratio is higher than 50% then the highest possible points are 3. 

You can’t get a 4 or 5 if the debt-to-capital ratio is above 50%, regardless of how good the interest coverage ratio is.

Why a debt-to-capital ratio of 50% or less?

Well, this was one of the criteria mentioned in The Single Best Investment: Creating Wealth with Dividend Growth written by Lowell Miller:

“Half debt and half equity would give you a debt/capitalization of 50%. Except in specific cases weʼll be discussing later, your company should not have a ratio of more than 50%. In other words, it should not have—unless there is a compelling reason to make an exception—more debt than equity.”

[Back to Table of Contents]

Moat – Factor #4

1st Choice = Morningstar Analyst Rating | 2nd = Morningstar Quantitative Rating

Factor #4 - Moat Ratings

If I can’t find a moat rating from a Morningstar analyst, then I’ll use their quantitative (computer figures it out instead of a human) moat rating.

I think the quantitative ratings are less reliable as they don’t get the same level of scrutiny as analyst ratings. 

As a result, I’ve knocked wide moat quantitative ratings down a point in my ranking system.

A wide moat, from an analyst, gets 5 points, but a wide moat quantitative rating only gets 4.

[Back to Table of Contents]

Dividend Safety – Factor #5

1st Choice = Simply Safe Dividend Score | 2nd = Judgement 

Factor #5 - Dividend Safety

First, I try to use the Simply Safe Dividend Score, which uses a score out of 100 to rate the dividend safety of a company.

Source: Simply Safe Dividends

If the dividend safety score isn’t available from Simply Safe Dividends, I use my judgment.

Dividend Safety Judgment Factors

To come up with a score out of 5 for dividend safety I’ll look at a number of different factors like:

  • Payout Ratios,
  • Dividend History,
  • Financial Health, 
  • Etc.

[Back to Table of Contents]

Quality Scores for Every US Wide Moat Dividend Growth Stock

I’ve ranked all 76 US wide moat dividend growth stocks by quality score. For stocks with the same quality score, I used dividend safety as a tie-breaker.

I’ve sorted them below into 4 categories to make it a bit more manageable to analyze:

  1. Excellent Quality (23-25 Points) – 30 Stocks
  2. Above Average Quality (19-22 Points) – 29 Stocks
  3. Acceptable or Investment-Grade Quality (15-18 Points) – 15 Stocks 
  4. Risky or Speculative Quality (0-14 Points) – 2 Stocks

Excellent Quality (23-25 Points) – 30 US Wide Moat Dividend Growth Stocks

Excellent Quality 23-25 Scores - US Quality Scores Table - DGI&R

[Back to Table of Contents]

Digging Deeper – More Dividend Data 

Excellent US Wide Moat Dividend Growth Stocks - Dividend Analysis Table

[Back to Table of Contents]

Some Interesting Names to Focus On

These are the best of the best, so most of these stocks should be on your radar. 

Unfortunately most are overvalued right now, so I’d keep a lot of them on the watch list for now.

After all, as dividend growth investors, we prefer undervalued, high-yield, high dividend growth companies.

Aerospace & Defense Stocks

Looking at this list, it was stocks in the Aerospace & Defense industry that jumped out at me the most.

Aerospace & Defense Excellent Quality Stocks

General Dynamics Corp (NYSE:GD), Lockheed Martin Corp (NYSE:LMT), and Raytheon Technologies Corp (NYSE:RTX) all sport:

  • Reasonably high yields around 3%,
  • Decent future dividend growth estimates at 7-8%/year, and
  • Appear undervalued.

I’d probably start looking at General Dynamics first as its 3.1% yield is the highest of the three, and showing a discount to fair value of 24%, it’s also the most undervalued.

8 Moderately High Yield Stocks with a Reasonable Future Dividend Growth Estimate

These next 8 names come from my 4th screen in the screening results I share later on in the article.

8 Moderately High Yield Stocks with Reasonable Future Dividend Growth

I was looking for future dividend growth of +5%/year and a dividend yield that was at least 1.5 times the S&P 500s yield of 1.75%. This meant at least a yield of +2.625%.

From this screen there were 8 excellent quality stocks that meet this criteria. I’ve sorted them by their Forward Chowder Number. 

Chowder Number for Excellent Quality Wide Moat Dividend Growth Stocks

With the exception of Texas Instruments Inc (NYSE:TXN), which is overvalued, they are all either undervalued or around fair value.

The Chowder Number normally adds the current yield and 5-year dividend growth rate together. I’ve used the future dividend growth estimate instead of the historic 5-year dividend growth rate to make it a forward-looking Chowder number.

The Chowder Rule is meant to focus on +12% scores as these provide a good mix of dividend yield and growth. As you can see all 8 of these companies are under 12%.

Just goes to show you that despite a global pandemic, it’s a difficult time to find high-quality, high dividend growth and high yield stocks.

[Back to Table of Contents]

Above Average Quality (19-22 Points) – 29 US Wide Moat Dividend Growth Stocks

Above Average Quality 19-22 Scores - US Quality Scores Table - DGI&R

[Back to Table of Contents]

Digging Deeper – More Dividend Data 

Above Average US Wide Moat Dividend Growth Stocks - Dividend Analysis Table

[Back to Table of Contents]

Some Interesting Names to Focus On

Focusing on these above-average quality stocks in addition to the excellent quality stocks would make for a good watchlist. 

I say watchlist because most of these stocks are overvalued, so it’s worth waiting for better valuations. 

For example, there are currently only 3 undervalued above average quality stocks and an additional 4 that are trading around fair value.

3 Undervalued Names

The 3 companies that show as undervalued from the above average quality list are:

  1. Northrop Grumman Corp (NYSE:NOC)
  2. Kellogg Co (NYSE:K)
  3. International Flavors & Fragrances Inc (NYSE:IFF)
3 Undervalued Above-Average Quality Stocks

Of these 3, Kellogg’s has the highest yield and is the most undervalued, but it’s dividend growth is too low for me to get excited.

As a result, I’d skip Kellogg and start your research with Northrop Grumman or International Fragrances & Flavors.

Northrop Grumman is another aerospace and defense stock. The yield, at 1.9%, is on the low side considering there are 3 other higher quality aerospace and defense stocks with higher yields and similar dividend growth prospects that I already went over in the excellent quality category.

That leaves International Fragrances & Flavors.

Of the 3 undervalued stocks with an above average quality score, International Fragrances & Flavors piques my interest a bit. 

They haven’t been on my radar until now, so I have to admit that I don’t know much about them.

With a yield of 2.8% and future dividend growth estimated at 9.0%, IFF seems to provide a decent mix of yield and growth. That said, their most recent dividend increase was only 2.7%. 

The dividend growth from the past 2-3 years seems to be slowing so I recommend a bit more due diligence to see how they might do post pandemic and just how much you trust the 9.0% future dividend growth estimate from Value Line.

4 Fair Value Above Average Quality Dividend Growth Stocks
  1. Roper Technologies Inc (NYSE:ROP)
  2. CME Group Inc (NASDAQ:CME)
  3. McDonald’s Corp (NYSE:MCD)
  4. Starbucks Corp (NASDAQ:SBUX)
4 Fairly Valued Above-Average Quality Stocks

Of the 4, I think McDonald’s and Starbucks are the most interesting because of their higher dividend growth estimates. Roper Technologies has a high (9%) dividend growth estimate too, but its 0.5% yield is too paltry.

Starbucks has an impressive 12% dividend growth estimate from Value Line. Compare this to McDonald’s 8%, and I think I’d look more into Starbucks first.

A word of caution though as both stocks are in the restaurant industry which has been greatly impacted by the COVID-19 pandemic.

I should also mention that McDonald’s most recent dividend increase is actually 3.2%, not the 7.8% showing in the tables above.

The table uses information from the September 30, 2020 US Dividend Champions list, but McDonald’s recently announced the 3.2% dividend increase in October.

[Back to Table of Contents]

Acceptable/Investment Grade Quality (15-18 Points) – 15 US Wide Moat Dividend Growth Stocks

Acceptable or Investment Grade Quality 15-18 Scores - US Quality Scores Table - DGI&R

[Back to Table of Contents]

Digging Deeper – More Dividend Data 

Acceptable or Investment Grade US Wide Moat Dividend Growth Stocks - Dividend Analysis Table

[Back to Table of Contents]

Some Interesting Names to Focus On

Anything in this acceptable or investment-grade quality category should be looked at cautiously, and if possible I’d try to focus more on the higher quality score names.

Sticking to the higher quality scores of 17 or 18 in this category there are only two currently undervalued:

  1. Philip Morris International Inc (NYSE:PM), and
  2. Enterprise Products Partners LP (NYSE:EPD)
Philip Morris and Enterprise Products Partners LP

Phillip Morris has a high yield of 6.5%, but Value Line is only estimating 3% dividend growth. You also have to be comfortable investing in a cigarette company.

Enterprise Products Partners LP’s insane yield of 10.1% is bound to attract some attention. In addition, Value Line is estimating 8.5% dividend growth. I had some trouble believing this ,so I looked more into the dividend growth estimate.

Enterprise Products Partners LP - EPD Distribution Estimate from Value Line

It turns out Value Line isn’t estimating any dividend growth in 2020 or 2021, but by 2023-2025 the distributions are estimated to be at $2.80.

This is a US MLP, so as a Canadian investor I generally avoid these types of stocks. If you plan to look into it more, I’d start by checking debt levels and dividend safety.

Having been burned by Kinder Morgan’s 2015 dividend cut, this is always my generic tip for pipeline stocks.

Related article: 8 Lessons I Learned from One of My Worst Dividend Growth Investments, A 5-Part Series. Lessons 1 & 2

[Back to Table of Contents]

Risky/Speculative Quality (<15 Points) – 2 US Wide Moat Dividend Growth Stocks

Risky or Speculative Grade Quality 0-14 Scores - US Quality Scores Table - DGI&R

[Back to Table of Contents]

Digging Deeper – More Dividend Data 

Risky US Wide Moat Dividend Growth Stocks - Dividend Analysis Table

[Back to Table of Contents]

Some Interesting Names to Focus On

None. 

These are the worst of the bunch, spend your time focusing on better options.

[Back to Table of Contents]

Screening Results 

To narrow the results down a bit I ran various screens so I thought I’d share these results too.

Think of these as quick lists to continue your research.

Screen #1 High Future Dividend Growth Estimate (>=8%). High Yield (>=3.5%). Above Average Quality (>=19)

Screening criteria:

  • High Future Dividend Growth Estimate
    • >=8% Value Line 3-5 Year average annual future dividend growth estimate.
  • High Yield 
    • >=3.5%. I picked 3.5% as a high yield because it is currently double the S&P 500’s yield of 1.75%.
  • Above Average Quality 
    • >=19 quality score.

Results:

  • None. 

It’s a difficult time to find high yield, dividend growth and quality, but I was still surprised that nothing passed this screen.

Because this screen had no results, I lowered the yield requirement for my next screen.

[Back to Table of Contents]

Screen #2 High Future Dividend Growth Estimate (>=8%). Moderately High Yield (>=2.625%). Above Average Quality (>=19)

Screening criteria:

  • High Future Dividend Growth Estimate
    • >=8% Value Line 3-5 Year average annual future dividend growth estimate.
  • Moderately High Yield 
    • >=2.625%. I picked 2.625% as a moderately high yield because it is currently 1.5 times the S&P 500’s yield of 1.75%.
  • Above Average Quality 
    • >=19 quality score.

Results:

  1. Lockheed Martin Corp
  2. Amgen Inc
  3. International Flavors & Fragrances Inc
Screen #2 Results

[Back to Table of Contents]

Screen #3 High Yield (>=4%). Above Average Quality (>=19)

Screening criteria:

  • High Yield 
    • >=4%.
  • Above Average Quality 
    • >=19 quality score.

Results:

  1. Pfizer Inc
Screen #3 Results

Pfizer has a long dividend history. The dividend they declared in late September 2020 “will be the 328th consecutive quarterly dividend paid by Pfizer.” … BUT

I do also want to point out that despite the long dividend history, they did cut the dividend 50% in early 2009 when they bought Wyeth (an American pharmaceutical company).

[Back to Table of Contents]

Screen #4 – Reasonable Future Dividend Growth Estimate (>=5%). Moderately High Yield (>=2.625%). Above Average Quality (>=19)

Screening criteria:

  • Reasonable Future Dividend Growth Estimate
    • >=5% Value Line 3-5 Year average annual future dividend growth estimate.
  • Moderately High Yield 
    • >=2.625%. I picked 2.625% as a moderately high yield because it is currently 1.5 times the S&P 500’s yield of 1.75%.
  • Above Average Quality 
    • >=19 quality score.

Results:

  1. Johnson & Johnson
  2. General Dynamics Corp
  3. Texas Instruments Inc
  4. Lockheed Martin Corp
  5. Pfizer Inc
  6. 3M Co
  7. Amgen Inc
  8. Raytheon Technologies Corp
  9. International Flavors & Fragrances Inc
Screen #4 Results

Screen #5 – Perfect Quality Score (25/25)

Screening criteria:

  • Perfect Quality 
    • 25/25 quality score.

Results:

  1. Microsoft Corp
  2. Johnson & Johnson
  3. Automatic Data Processing Inc
  4. Visa Inc
  5. Nike Inc
  6. Procter & Gamble Co
Screen #5 - Perfect Quality Score 25 out of 25

[Back to Table of Contents]

Summary

As dividend growth investors, we know that wide moat stocks make a good starting point, but it is just one of many considerations on our hunt for high-quality dividend growth stocks.

We want to know, which of these companies with strong sustainable competitive advantages make good dividend growth investments?

To help answer this question,

  1. I identified 76 US wide moat dividend growth stocks.
  2. I ranked them using a quality scoring system that includes overall safety, financial strength, credit ratings, moat analysis, and dividend safety.
  3. I provided some screening results and additional dividend metrics like yield, valuation, dividend streaks, future dividend growth estimates, etc. so you can get a better sense of which stocks to focus on.

There were some interesting stocks that popped up from the aerospace and defense industry. In fact, out of all 76 stocks, it was General Dynamics that I’m currently most interested in.

That said, it was hard to find a lot to choose from among the undervalued companies.

Just goes to show you that despite a global pandemic, it’s a difficult time to find high-quality, high dividend growth and high yield stocks.

[Back to Table of Contents]

PS. Don’t forget to check out the rest of the wide moat articles in this series.

  1. What is a Moat? With 5 Canadian Wide Moat Examples
  2. Why Invest in Wide Moat Stocks?
  3. 3 Ways to Find Wide Moat Stocks
  4. Each & Every Wide Moat Stock in Canada
  5. Every Wide Moat Stock in the USA
  6. International Wide Moat Stocks – Every Single One Listed
  7. 8 Canadian Dividend Growth Wide Moat Stocks
  8. 76 US Wide Moat Dividend Growth Stocks (This is the article you just read)
  9. 23 International Wide Moat Dividend Growth Stocks
  10. 100 Canadian Narrow Moat Stocks
  11. 44 Canadian Wide & Narrow Moat Dividend Growth Stocks 

Disclosure: I own shares of Caterpillar Inc, Emerson Electric Co, McDonald’s Corp, PepsiCo Inc, and United Parcel Service Inc.

Newsletter Sign-Up & Bonus

Have you enjoyed our content?

Then subscribe to our newsletter and you'll be emailed more great content from Dividend Growth Investing & Retirement (DGI&R).

BONUS: Subscribe today and you'll be emailed the most recent version of the Canadian Dividend All-Star List (CDASL).

The CDASL is an excel spreadsheet with an abundance of useful dividend screening information on Canadian companies that have increased their dividend for five or more years in a row.

The CDASL is one of the most popular resources that DGI&R offers so don't miss out!

We won't send you spam. Unsubscribe at any time. Powered by ConvertKit

Similar Posts

6 Comments

  1. Such great analysis. I’ve learned a lot about how to evaluate companies. Is it safe to say that the Value Line, Morningstar and Simply Safe ratings all only available with paid subscriptions to these sites? Thanks so much.

    1. I’m actually in the process of writing an article on resources I can’t live without. Morningstar and Value Line will be in the article, but it won’t be released until December probably.

      In the meantime …

      For a list of all the libraries in Canada that provide free online access to Value Line, read this article: How to get free online access to the Value Line Investment Survey in Canada

      https://dividendgrowthinvestingandretirement.com/2018/09/get-free-online-access-value-line-investment-survey-canada-list-canadian-stocks-covered-value-line/

      I wrote this a few years ago, but I think it’s still mostly up to date. This is for a Canadian audience, so if you are from the US check your local library. You’ll have better luck at larger city Center libraries.

      For free Morningstar access check your broker.

      As far as I can tell these are all Canadian brokers that provide Morningstar as one of their free research tools: (As of September 2020)
      BMO InvestorLine
      CIBC Investor’s Edge
      Desjardins Online Brokerage
      HSBC InvestDirect
      National Bank Direct Brokerage
      Qtrade Investor
      Questrade
      RBC Direct Investing
      TD Direct Investing

      Canadian brokers that don’t provide free Morningstar research:
      Interactive Brokers Canada – $15 US / month for Morningstar.
      Laurentian Bank Discount Brokerage – No Morningstar access.
      Scotia iTrade – No Morningstar access.
      Virtual Brokers – No Morningstar access.
      Wealthsimple Trade – No Morningstar access.

      Hope that helps!

      Cheers,

      DGI&R

Leave a Reply

Your email address will not be published. Required fields are marked *