Ten U.S.-listed large cap stocks with a history of dividend growth

What are we looking for?

Large-cap U.S.-listed stocks indicating dividend yields that are above the broad market average and are supported by strong dividend track records.

The screen

North American equity markets remain volatile amid geopolitical tensions and rising inflation. This week we searched for names that provide stable income during times of market instability.

We will use Trading Central Strategy Builder to search for U.S. large capitalization stocks that are indicating above-average dividend yields and a history of dividend growth.

We begin by setting a minimum market cap threshold of US$10-billion. We wish to focus on larger, more established companies because of their inherent quality and stability during a volatile market.

Next, we will apply three dividend-related criteria to our screen.

• We will select only companies with dividend yields of more than 2.5 per cent, which tops the 1.4 per cent yield currently indicated for the S&P 500 index.
• We will screen for companies with a dividend coverage ratio of at least 200 per cent. Dividend coverage is defined as the earnings per share over the past year divided by the dividend paid in the same period. A higher dividend coverage ratio is preferred as it means more earnings are available to maintain or even raise the dividend.
• Continuing with dividend criteria, we will look for companies with a track record of raising their dividend payments over time. We screened for stocks indicating a five-year average dividend growth rate above 15 per cent.

Finally, in order to avoid companies that are highly leveraged in a rising rate environment, we screened for companies that are indicating a debt-to-equity ratio that is less than one. The higher the ratio, the more leveraged the company is.

We have also included price-to-earnings, as well as year-to-date and one-year price performance for your reference.

More about Trading Central

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What we found

Our screener ranks the list based on all performance and revenue criteria. Out of the 10 top ranked stocks, three are in the oil and gas sector, which has been a top performing sector as of late. Six are in the financials sector, and one is a tech name.

Topping our list is EOG Resources Inc., which has the second-best dividend coverage and debt-to-equity ratio on our list at 495.5 per cent and 0.27, respectively. The stock also has the second-best year-to-date price performance on our list at 29.9 per cent.

Canadian Natural Resources Ltd., which trades on the TSX as well as the New York Stock Exchange, has the largest market cap on our list at US$72.6-billion. The stock is indicating a dividend yield of 3.9 per cent, the second-best on our list. The stock has performed well, with a year-to-date return of 44.7 per cent, the highest on our list. Despite the higher price performance, the stock’s P/E is only 12, below those of the S&P 500 and S&P 500 energy sector indexes, which sit at 23.4 and 18.3, respectively.

Hewlett Packard Enterprise Co., an enterprise information technology company, is the only technology company to make the list. The company has the cheapest stock price on our list at around US$15 and the lowest P/E on our list at 5.6. The company has the highest dividend coverage at 583.4 per cent.

Trading Central Strategy Builder provides a back-testing capability to evaluate how well an investing strategy would have worked in the past. Using a five-year historical period with quarterly rebalancing, the screen described had a 17 per cent annualized total return compared with 14 per cent for the S&P 500.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.