14 Dividend Growth Stocks to Buy on a Dip

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In the past week, share prices started going down for the first time in a few months. As a buyer of quality businesses, I’m excited. When prices for good businesses decrease, I’m able to purchase them at lower valuations, and I am also able to get more dividend income for every dollar I put to work.

I screened my list of dividend ideas and came up with the following group of companies that I purchased. I am mostly looking for value these days — cheap dividend growth at a low price multiple. I was lucky that last week prices of many companies started falling. If I am more lucky, prices will finally start a correction, and I will be able to put my future contributions to work at lower prices.

I was able to allocate the funds for the next two months, which is why I won’t be able to make another purchase until sometime in September.

14 Dividend Growth Stocks to Buy on a Dip

Aflac (AFL), through its subsidiary, American Family Life Assurance Company of Columbus, provides supplemental health and life insurance products in Japan and in the U.S. I really like Aflac stock, particularly given the low valuation and dedication to dividend growth. Unfortunately, AFL stock is one of my top 10 holdings, which is why I’m not likely to add to my positions now. Aflac is a dividend champion that has been able to increase dividends for 31 years in a row. Over the past decade, AFL has been able to boost dividends by 16.8%/year. Aflac stock is selling for 9.1 times forward earnings and yields 2.5%. Check my analysis of Aflac.

Baxter International (BAX) makes products for people with hemophilia, immune disorders, infectious diseases, kidney diseases, trauma, and other chronic and acute medical conditions. Baxter has been able to increase dividends for eight years in a row. Over the past decade, Baxter has been able to boost dividends by 12.4%/year. BAX stock is selling for 13.8 times forward earnings and yields 2.8%. I like the low valuation on Baxter stock and the opportunities for further growth in earnings and distributions. BAX stock was a dividend champion until a spinoff 1998, but then froze its payout for eight years. Currently, Baxter is in the process of splitting in two parts sometime in 2015, a move that could unlock some value for BAX shareholders. Check my analysis of Baxter.

Chubb (CB), through its subsidiaries, provides property and casualty insurance to businesses and individuals. Chubb stock is a dividend champion that has been able to increase dividends for 32 years in a row. Over the past decade, Chubb has been able to boost dividends by 9.2%/year. CB stock is selling for 11.2 times forward earnings and yields 2.3%. I like the valuation for Chubb, and I believe that management is of great quality and integrity. Therefore, I believe Chubb has the discipline to keep earning more over time and allocate company resources intelligently. Chubb’s management has been on a mission to repurchase a large amount of shares each year since 2006. My position is small, but I would welcome even lower prices in order to build it higher and provide me more exposure to financials with dividend growth streaks. Check my analysis of Chubb.

Deere (DE) makes agriculture, construction and forestry equipment worldwide. Deere stock is a dividend achiever that has been able to increase dividends for 11 years in a row. Over the past decade, Deere has been able to boost dividends by 16.3%/year. DE stock is selling for 11.2 times forward earnings and yields 2.8%. As I discussed in my analysis of Deere, the company is cyclical, which means that earnings rise and fall with the economic cycle. But I believe a growing and more affluent global population will drive demand for Deere’s equipment.

Diageo (DEO) makes spirits, beer, wine, and ready-to-drink beverages. Diageo stock is a dividend achiever that has increased dividends for 15 years in a row. Over the past decade, Diageo has boosted dividends by 5.8%/year. DEO stock is selling for 16.5 times forward earnings and yields 2.9%. In fact, Diageo is the cheapest spirits maker that pays dividends out there. My position there is small, so I would welcome further declines in order to build my exposure further. Check my analysis of Diageo.

General Electric (GE) operates as an infrastructure and financial services company worldwide. General Electric has increased dividends for five years in a row. GE stock is selling for 13.9 times forward earnings and yields 3.5%. This is the first purchase of General Electric I have made since 2008 — I am starting out slow, and plan to ultimately build this position into a sizable one. I also sold a few puts and actually used the premiums to purchase that first initiation position in GE. Check my analysis of GE.

General Mills (GIS) makes branded consumer foods in the United States and internationally. GIS stock is a dividend achiever that has increased dividends for 11 years in a row. Over the past decade, General Mills has been able to boost dividends by 9.9%/year. GIS stock is selling for 16 times forward earnings and yields 3.2%. I want to build my position in General Mills, which is why I keep nibbling here and there. GIS is another opportunity where I sold puts and then used the premium to purchase shares in the underlying company. Check my analysis of General Mills.

IBM (IBM) provides information technology products and services worldwide. IBM stock is a dividend achiever that has increased dividends for 19 years in a row. Over the past decade, IBM has been able to boost dividends by 19.4%/year. IBM stock is selling for 9.4 times forward earnings and yields 2.4%. I am slowly building my exposure to IBM; I like the consistency of share repurchases and dividend increases. When you consistently repurchase 4%-5% of outstanding shares at low prices and you pay an almost 2.5% annual dividend yield, you can generate total returns even without growing revenues by much. Any gain in organic earnings per share will further turbocharge investor returns. Check my analysis of IBM.

McDonald’s (MCD) franchises and operates McDonald’s restaurants worldwide. MCD stock is a dividend champion that has increased dividends for 38 years in a row. Over the past five years, McDonald’s has been able to boost dividends by 13.9%/year. The stock is selling for 15.4 times forward earnings and yields 3.5%. As I build out my portfolio and don’t add to my legacy positions for a while, those legacy positions’ relative weight tends to shrink. I have a good exposure to McDonald’s but need to add more to my allocation there. Check my analysis of McDonald’s.

United Technologies (UTX) provides technology products and services to the building systems and aerospace industries worldwide. UTX stock is a dividend achiever, able to increase dividends for 20 years in a row. Over the past decade, United Technologies has been able to boost dividends by 14.5%/year. UTX stock is selling for 13.8 times forward earnings and yields 2.3%. I like United Technologies and believe that it offers a compelling value for the growth potential here. Plus, United Technologies also provides exposure to industrials for my dividend portfolio. Check my analysis of United Technologies.

Wells Fargo (WFC) provides retail, commercial, and corporate banking services to individuals, businesses, and institutions. Wells Fargo has been able to increase dividends for four years in a row. WFC stock is selling for 11.8 times forward earnings and yields 2.8%. I initiated a small position in 2013 and am adding to it now. Wells Fargo is one of the best-run banks in the U.S. and has pretty good returns on capital, sells at an attractive price-to-book, and has managed to grow book value pretty consistently in the past. Check my analysis of Wells Fargo.

Walmart (WMT) operates retail stores in various formats worldwide. Walmart stock is a dividend champion, meaning it’s increased dividends for 42 years in a row. Over the past decade, Walmart has been able to boost dividends by 18%/year. WMT stock is selling for 13.1 times forward earnings and yields 2.6%. While sales and dividend growth appear to be slowing down, and size is a drag on future growth, I like the scale and moat for Walmart. While everyone claims that Amazon will disrupt retail sales, I believe Walmart to be one of the few retailers that will compete successfully on the Web. Check my analysis of Walmart.

McCormick (MKC) makes spices, seasoning mixes, condiments, and other flavorful products to retail outlets, food manufacturers, and food-service businesses. McCormick stock is a dividend champion that has increased dividends for 28 years in a row. Over the past decade, McCormick has been able to boost dividends by 11.4%/year. MKC stock is not cheap — it is selling for 18.9 times forward earnings — and it yields 2.2%. Check my analysis of McCormick.

Eaton (ETN) operates as a power management company worldwide. Eaton has been able to increase dividends for five years in a row. Over the past decade, Eaton has been able to boost dividends by 13.8%/year. ETN stock is selling for 12.5 times forward earnings and yields 2.9%. I have been monitoring Eaton stock for several months now and finally initiated a decent-sized position in the company last week. While Eaton froze dividends during the financial crisis, and it doesn’t raise them every year, it has never cut its payout, and Eaton tends to grow earnings and dividends over time — good enough for me. I am also increasing my exposure outside consumer staples with this Eaton investment and am buying future dividend growth at a compelling valuation. I will do a more detailed analysis of Eaton shortly.

Bottom Line

I hope stock prices decrease further from here and that the 20% correction everyone has been waiting for over the past two years actually does finally materialize. I hope for a further correction because I was only able to allocate two months or so worth of investment savings at those prices. The problem is that I am planning on saving and investing for several years. Therefore I need lower prices in order to get more stock for my buck and further speed up my goals.

Thanks to my switch to Interactive Brokers early last month, my investment costs are now about $1/trade. This means that if I put $1,000 in a dividend paying stock, I will end up paying 0.1% in a one-time commission. If I hold this stock for more than one year, the investment costs will be cheaper than even the cheapest mutual fund out there. Over time, investment savings add up and could result in more capital working for me.

This list is not a recommendation to buy or sell any stocks. Just because I managed to buy so many companies doesn’t mean that you should do that. I am able to monitor a lot of companies pretty regularly, which is probably not the case for the majority of investors out there. Many of those purchases were bolt-on additions to existing positions, with only a few being newly initiated positions for me.

Full Disclosure: Long all stocks mentioned above

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