WHAT ARE WE LOOKING FOR? It's been hard for Canadian investors to buy U.S stocks in recent years as the Canadian dollar's rise has often wiped out any gains in the U.S. investments (assuming you're converting back to Canadian dollars).
That said, if you believe the Canadian dollar is near a peak against the U.S. dollar, then U.S. dividend stocks are going to look more attractive to long-term investors. Let's look for dividend growth stocks in the S&P 500 using Bloomberg's projected dividend growth formula.
MORE ABOUT TODAY'S SCREEN Bloomberg has a formula that it uses to try to predict dividend growth rates for the next three years. Here is how it works.
The formula takes into account such factors as company guidance, industry analysis, historical trends and analyst estimates. It also factors in some esoteric measures, such as option market implied dividends and historical regression analysis of fundamentals compared with dividends.
Finally, Bloomberg calculates something called the Bloomberg Dividend Directional Thermometer (DDT) score.
It's a reading from -100 to +100 using various fundamental, credit rating and company health data.
A negative score indicates a company might cut its dividend, while a positive score notes the potential for an increase. A score must be above +50 to be conclusive about a potential hike.
A high DDT score doesn't always mean a big dividend increase is coming, however.
For instance, a company might have a high DDT score but indicate it is about to execute a large share buyback, which would lower its projected dividend increase rate. That's why Bloomberg takes into account more than just the DDT score when making its projections.
We'll sort stocks in the S&P 500 by the highest three-year projected annual dividend growth rate by Bloomberg. We'll also only accept stocks with a current yield above 1 per cent.
WHAT DID WE FIND OUT? It's hard to find dividend stocks with a decent yield, good projected growth and a good dividend growth track record over the past five years. But Pfizer is one interesting name on this list.
It had a strong track record for dividend increases through the past decade, increasing the annual payment to $1.28 (U.S.) per share in 2008, from 44 cents per share in 2001. But the drug company had to cut the dividend in half last year to pay for its $68-billion purchase of Wyeth.
For dividend fans, the good news is that Pfizer has resumed increasing the payout. It is now 72 cents per share, up from 64 cents last year and analysts are bullish about more increases in years to come.