Gilead Sciences, American Electric Power, Sempra, Lockheed Martin, and MetLife come out on top in a stock screen for larger companies that have grown dividends.
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For a stock screen emphasizing safe and growing dividends, Barron’s pulled together a handful of criteria, such as consistent dividend growth and attractive yields.
With the help of Simply Safe Dividends, which publishes a newsletter and website dedicated to equity income investing, we started with a dividend yield of 3% to 4.5%. When yields get above the upper end of that range, it can signal problems for a stock, possibly a dividend cut in the offing.
Another requirement was that a stock had a price-earnings ratio in line with or below its five-year average, based on Simply Safe Dividends’ data. We also favored stocks with dividend safety scores above 60. Under Simply Safe’s rating system, 99 is the top possible score. A stock deemed safe by the company can score from 61 to 80; for very safe, it’s 81 to 99.
Barron’s additionally searched for companies that have grown their dividends for at least five years, again based on data from Simply Safe Dividends. The screen eschewed small-cap stocks, relying instead on mid- and large-caps. We narrowed down our final list of companies to five, based on market capitalization—the larger the better.
Safe and Steady
These stocks, based on criteria such as reasonable P/E ratios and yields from 3 to 4.5%, should provide steady and growing income ahead.
| Company/Ticker | Recent Price | Dividend Yield | Market Value (bil) | Dividend Safety Score | YTD Return |
|---|---|---|---|---|---|
| Gilead Sciences/GILD | $64.88 | 4.3% | $81.3 | 70 | 15.0% |
| American Electric Power/AEP | 84.71 | 3.7 | 44.3 | 81 | 4.4 |
| Sempra Energy/SRE | 127.63 | 3.4 | 40.8 | 79 | 2.7 |
| Lockheed Martin/LMT | 332.32 | 3.4 | 91.6 | 84 | -4.3 |
| MetLife/MET | 62.80 | 3.0 | 53.8 | 79 | 37 |
Data as of Oct. 29; Dividend safety scores are from Simply Safe Dividends, with 99 being the highest possible score.
Source: Simply Safe Dividends and FactSet
The five companies are, starting with the one sporting the highest yield, biopharmaceutical company Gilead Sciences (ticker: GILD), which yields 4.3%; utilities American Electric Power (AEP) and Sempra (SRE), which recently yield 3.7% and 3.4%, respectively; defense contractor and aerospace company Lockheed Martin (LMT), with a 3.4% yield; and insurer MetLife (MET), with a 3% yield.
Of the five stocks, Lockheed Martin has performed the worst, with a year-to-date return of about minus 4%. As Barron’s pointed out recently, the company’s third-quarter sales were worse than what the Street had expected.
The company, however, has a strong history of raising its dividend, most recently in September when the company’s board declared a quarterly dividend of $2.80 a share, up nearly 8% from $2.60.
As of Oct. 29, Sempra Energy and American Electric Power had returned 3% and 4% this year, respectively—examples of the tough time many utility stocks have had this year. That’s partly due to fears about higher inflation and bond yields, both of which can be headwinds for the sector.
Both companies, however, have been rewarding their shareholders with higher disbursements. In February, Sempra Energy’s board declared a quarterly dividend of $1.10 a share, an increase of 5%. American Electric Power said last month that it will boost its quarterly dividend by 4 cents a share, or about 5%, to 78 cents.
Gilead Sciences has returned about 15% this year, dividends included, versus about 24% for the S&P 500, also as of Oct. 29.
That company’s board declared a quarterly payout in February of 71 cents a share. That’s a 4% hike from 68 cents a share previously.
The best performer on the list this year has been insurer MetLife, which has returned 37%. It also sports a nice yield of 3%.
The company earlier this year boosted its quarterly dividend by 2 cents, or about 4%, to 48 cents a share.
Write to Lawrence C. Strauss at [email protected]
