Finding yield in a zero interest rate world isn’t easy. Finding growth and income can be even more difficult. In their 2010 outlook Goldman Sachs said the bull market was likely to continue and that high growth dividend stocks would play an important role in their portfolios. Goldman recently updated their high dividend growth model using the following criteria:
“We recommend buying a group of names with above-average yields that have shown an ability to grow dividends, and that possess a balance sheet that allows for sustainable payouts. Following a period of economic and financial duress we argue for added focus and value on companies that grew their dividend in 2009 and have plans to do the same in 2010. We screened our coverage with the following criteria to drive our core list of names that benefit from yield plus dividend growth”:
1) High dividend yield. We first screen our coverage universe for companies yielding greater than 2.5% on analyst projections for 2010 dividends.
2) Consistent payout. We remove companies that cut dividends in 2009.
3) Prospective dividend growth. We then further screen for names our analysts expect will grow their dividends in 2010.
4) FCF yield. Cash flow is necessary to maintain sustainable dividend growth; we exclude companies with FCF yields below 5%.
5) Balance sheet strength. Weak balance sheets limit both the capacity and propensity to pay and raise dividends; we remove companies with net debt/equity greater than 100%.
6) Buy rating.
Based on this criteria they came up with the following 10 names:
- AT&T (T)
- Verizon (VZ)
- McDonalds (MCD)
- Abbott Labs (ABT)
- Home Depot (HD)
- Molex (MOLX)
- Time Warner (TWX)
- Analog Devices (ADI)
- Illinois Toolworks (ITW)
- 3M Corp. (MMM)
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.