Nine future dividend growth stocks

As a dividend investor, I often focus on companies that have a demonstrated history of dividend growth, like the Dividend Aristocrats. As wonderful as many of these investments are, and may continue to be, I often wonder which companies will join that elite group in the next ten, twenty or thirty years?

Dividend Tree was apparently wondering the same thing, and has compiled a list of nine potential dividend growth opportunities – companies that have started showing early signs of being a dividend grower. As it turns out, one of these “potential” dividend growers is in fact a Dividend Aristocrat, and a second has a 20-plus-year history of growing its dividend, but it’s an interesting list of candidates nevertheless.

Here’s my quick take on the nine dividend stocks mentioned (the stars represent Dividendinvestor.com’s star ranking system – three stars are five years of consecutive dividend increases, four stars are ten, and five stars are 20):

Analog Devices [[ADI]] (***) – This maker of analog and mixed-signal integrated circuits has grown its dividend for five consecutive years, with a three-year growth rate of 22%. Whether the current dividend is sustainable or not is another story. Trading at about $20 and yielding 4.1%, the stock appears somewhat undervalued here based on recent historical valuation ratios and its long-term price trendline, but potentially overvalued based on 2009/10 earnings estimates. A strong balance sheet is a plus. I would certainly give this another look if it were to drop back toward the $10 level.

Becton Dickinson [[BDX]] (*****) – Trading at about $66 and yielding 2%, the shares of this medical instruments company appear roughly fairly valued to somewhat overvalued here. The stock is still well above its long-term linear regression uptrend line (located at about $48) suggesting potential for downside risk. BDX has grown its dividend for 36 consecutive years and is in fact a Dividend Aristocrat and a proven dividend grower. I would start getting interested if it were to drop to $40 or below.

Campbell Soup [[CPB]] (***) – The shares of this packaged food products company appear roughly fairly valued here at about $27 and yielding 3.8%. Ths company has increased its dividend for five consecutive years, but appears to have cut it back in 2001 – not a particularly distinguished record. I would probably look elsewhere for a future dividend superstar.

CME Group [[CME]] (***) – Trading at about $265 and yielding 2%, the shares of this futures exchange holding company appear somewhat undervalued by some measures and fairly valued to somewhat overvalued by others. CME has increased its dividend for five consecutive years, but at a recent unsustainable pace of over 60%. I generally don’t invest in stocks priced at over $100 per share, so I’ll leave this one to others.

Intel [[INTC]] (***) – By some measures the stock of this computer chip maker is undervalued here (at about $15 and yielding 3.8%), but by others – based on conservative 2009/10 earnings forecasts – it’s overvalued. INTC has grown its dividend for five consecutive years, with a three-year growth rate of 19%. Like ADI, it has a strong balance sheet. I’m staying away for now but might get interested if the stock were to break below its 2002 lows of $12.

Linear Technology [[LLTC]] (***) – Trading at about $24 and yielding 3.7%, the shares of this maker of analog (or linear) integrated circuits appear somewhat undervalued by some measures and somewhat overvalued by others, depending on the earnings estimates used. The company has increased its dividend for the last eight consecutive years and has a five-year dividend growth rate of about 27%. Given the wishy-washy valuation results and the company’s negative book value, I’m staying away.

Qualcomm [[QCOM]] (***) – This maker of wireless telecommunications products has increased its dividend for five consecutive years and has a five-year dividend growth rate of over 30%. Trading at about $39 and yielding 1.7%, the stock appears undervalued in comparison to some recent historical valuation ratios, but overvalued based on conservative 2009 earnings estimates. QCOM’s relatively low yield and unclear valuation are enough to keep me away for now.

T. Rowe Price Group [[TROW]] (*****) – Trading at $29 and yielding 4%, the shares of this asset management service appear undervalued by some measures, but overvalued based on 2009 earnings estimates. The company has increased its dividend for 21 consecutive years and has a five-year dividend growth rate of 26%. This looks potentially promising, but I would need to see lower prices – below its recent lows of $21 – to really get me interested.

Waste Management [[WM]] (***) – Trading at about $26 and yielding 4.5%, the shares of this waste services provider appear about fairly valued to somewhat undervalued here by most valuation measures. The company has increased its dividend for five consecutive years with a three-year dividend growth rate of over 10%. I would start getting interested in WMI below $20.

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