My check list for dividend growth stocks

First of all, I'll only focus on S&P 500 Dividend Aristocrats and S&P High Yield Dividend Aristocrats.


For each stock, here is how I'll do the analysis.


Company financial analysis:-

1) ROE (Return on Equity) >15%.
2) Debt / Equity <50%.
3) FROIC (Free Cash Flow / Total capitalization) >15%.
4) Cap Flow (capital expenditure / operating cash flow) <50%.
5) T. Rowe Price Ratio (Return on Equity / (1-payout ratio)) >15%.
Source: here.

Stock price valuation:-

1) Price to owners earnings (=price / (FCF/outstanding shares))  <15.
2) Current P/E ratio should be less than 5-year average P/E ratio.
3) Current market price should be less than DCF valuation.
4) Current market price should be less than Graham valuation.

Dividend analysis:-

1) Payout ratio <50%.
2) Dividend / FCF <50%.
3) Yield >3%.
4) 5-year dividend growth rate & 10 year dividend growth rate should both be > 8%.