Dividend screen of the week: FTSE 100 dividend growth stocks

FTSE 100 5% dividend stocks

Regular readers will know I’m a big fan of dividend growth. It’s the heart of my investment strategy.

While I own a couple of high yielders that are not currently increasing their payouts (Shell, Glaxo), every other stock in my portfolio has grown its dividend at a healthy rate in recent years.

I believe that a dividend growth strategy is one of the most effective ways of building long-term wealth through the stock market. There’s so many advantages of the strategy, including enhanced compounding power and the potential for capital gains.

With that in mind, today I’m screening the market for dividend growth stocks.

Dividend growth screen

I’ve screened for:

  • FTSE 100 stocks (there’s some excellent dividend growth stocks in the FTSE 250, but I’ll stick with the FTSE 100 for now)
  • A rolling dividend yield of 3.5%
  • 5-year dividend growth CAGR above 5%
  • 3-year dividend growth CAGR above 5%
  • 1-year dividend growth above 5%
  • Forecast dividend growth above 5%.

The reason I’ve screened over five, three and one year periods, is that this provides a more accurate filter of stocks that have consistently raised their dividends.

If I was to only screen with the 5-year filter, the screen could pick up a stock that raised its dividend by 30% five years ago, but had not raised its payout since. I prefer consistent growth.

I haven’t included a dividend coverage filter this week.

Here are the results.

UK dividend growth stocks

Source: Stockopedia

The screen returns six names. From that list I own four – Imperial Brands, Legal & General, WPP and ITV.

WPP and ITV are relatively new purchases for me. They both look oversold, in my view, and currently trade very cheaply. Legal & General and Imperial I’ve owned for a while now, and I added to my Imperial holding recently.

I rate British American Tobacco quite highly as a dividend growth stock, however, its valuation is quite a bit higher than Imperial’s (forward rolling P/E of 16.2 vs 11.4). I also figure one tobacco stock in my portfolio is probably enough, given the uncertainty over the long-term outlook of the industry.

Taylor Wimpey – a housebuilder. I’m not a fan of the sector from a dividend investing perspective.

Interestingly, if I play around with the screen and lower the minimum yield criteria to 2% instead of 3.5%, quite a few more names pop up. Some high-quality stocks such as Unilever, Prudential and Diageo all appear. I own the latter, and have my eye on the first two.

UK dividend growth stocks

Source: Stockopedia

St James’s Place, Hargreaves Lansdown and Schroders are three other dividend growth stocks I wouldn’t be averse to owning. However, I’d rather pick them up when their yields are a little higher. As such, I’ll keep these stocks on my watchlist for now, and monitor for attractive entry points.

Disclosure: Edward Sheldon, CFA owns shares in Royal Dutch Shell, GlaxoSmithKline,  ITV, Legal & General Group, WPP, Diageo and Imperial Brands. 

This article is provided for general information only and is not intended to be investment advice. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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