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Investing, Options  | March 11, 2019

To become a "Dividend Aristocrat," a dividend paying company must accomplish an incredible feat: consistently increase shareholder dividends every year for at least 20 consecutive years. Companies with this kind of track record tend to attract a lot of investor attention — and furthermore, "tracking" funds that follow the Dividend Aristocrats Index must own them. With all of this demand for shares, dividend growth stocks can sometimes become "fully priced," where there isn't much upside to analyst targets.

But we here at ETF Channel have looked through the underlying holdings of the SPDR S&P Dividend ETF (which tracks the S&P High Yield Dividend Aristocrats Index), and found these five dividend growth stocks that actually still have fairly substantial upside to the average analyst target price 12 months out. Which means, if the analysts are correct, these are five dividend growth stocks that could produce capital gains in addition to their growing dividend payments.

In the first table below, we present the five stocks. The recent share price, average analyst 12-month target price, and percentage upside to reach the analyst target are presented.

StockRecent PriceAvg. Analyst 12-Mo. Target% Upside to Target
Cardinal Health$47.50$55.0015.79%
Sherwin-Williams$414.05$450.608.83%
A. O. Smith$50.72$55.008.44%
Nordson$133.24$142.336.82%
T Rowe Price Group$96.27$101.605.54%

The average 12-month analyst targets are only targets for the share pricehowever, and each of these stocks are expected to pay dividends during that holding period — so the expected total return if these stocks reach their analyst targets is actually the share price upside seen by the analysts plus the dividend yield shareholders can expect. To ballpark that total return potential, we have added the current yield to the analyst target price upside, in order to arrive at the 12-month total return potential:

StockDividend Yield% Upside to Analyst TargetImplied Total Return Potential
Cardinal Health4.01%15.79%19.8%
Sherwin-Williams1.09%8.83%9.92%
A. O. Smith1.73%8.44%10.17%
Nordson1.05%6.82%7.87%
T Rowe Price Group3.16%5.54%8.7%

Another consideration with dividend growth stocks is just how much the dividend is growing. We looked up the trailing twelve months worth of dividends shareholders of each of the above five companies have collected, and then also looked up the same number for the prior trailing twelve months. This gives us a rough yardstick to see how much the dividend has grown, from one trailing twelve month period to another.

StockPrior TTM DividendTTM Dividend% Growth
Cardinal Health$1.835$1.893.00%
Sherwin-Williams$3.41$3.718.80%
A. O. Smith$0.6$0.833.33%
Nordson$1.17$1.3515.38%
T Rowe Price Group$2.28$2.822.81%

A revolutionary initiative is helping average Americans find quick and lasting stock market success.

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