12 Dividend Growth Stocks That Meet My “Magic Formula for Dividend Growth Investors”

Investing Thesis

When investing for dividend growth there are several key attributes that I consider crucial for long-term success. My definition of long-term success is first and foremost to generate a steadily-rising dividend income stream, and secondarily, the opportunity to generate a reasonable level of capital appreciation. With this article I will present 12 dividend growth stocks that currently meet my “dividend growth magic formula for success.”

The dividend growth magic formula: quality+ value+ above-average dividend yield+ future growth = long-term success. In truth, there is no such thing as a magic formula for investment success. However, the above characteristics, when available, will be as close to a magic formula for dividend growth investing as you could ever expect. However, after such a long and extended bull market, finding stocks that fit every criterion in the above formula has become extremely difficult – to say the least. Unfortunately, finding quality stocks at fair valuation is the biggest challenge facing investors today.

The “magic formula” presented above has been the foundation of my personal investing approach over my entire career spanning almost five decades. However, it is vitally important to realize that there are many nuances and gradations associated with each of the above formulas’ components. Therefore, the above formula is more conceptual than it is exact. Next I will take a deeper look at the finer points of each of these components to illustrate my point.


Like most of the components of my magic formula, quality is a somewhat esoteric metric. Also, quality can be measured in degrees such as extremely high-quality, good quality or investment grade or above quality. In this regard, investment grade credit ratings can be a good indicator of quality, but not the only indicator. To be considered investment grade, a company must possess a credit rating of BBB or higher.

Debt levels are another quality characteristic that I evaluate. Generally, for blue-chip dividend growth stocks I like to see debt no higher than 50%. But most importantly, I try to be comfortable that the company’s cash flow generating capabilities are capable of handling any debt they have. However, when circumstances dictate, I might accept a higher level of debt.

Operating consistency is another quality characteristic that I evaluate. The more consistent – the better, but few companies produce perfect operating histories. With this consideration I’m looking at earnings, cash flows and historical dividend records. Nevertheless, as it is with all the components of the formula, there are different levels of quality.


Fair or attractive valuation is vitally important. No matter how much I like the company, I will not knowingly pay more than I think the business is worth. In today’s market environment, finding quality dividend growth stocks at fair value has proven to be my biggest challenge. This is especially true for the dividend growth segment thanks to today’s low interest rates.

Above-Average Dividend Yield

Above-average dividend yield is a somewhat arbitrary component of my magic formula. This is because my dividend growth strategy focuses more on dividend income and future growth of that income than it does capital gain potential. In other words, this component is more relevant to my personal investment objective. However, a dividend growth stock with a below-average dividend yield but an above-average dividend growth rate could still be attractive to me if it meets all of the other criteria in my formula.