What are we looking for?
Let's take another look at forecasting dividend growth stocks, but look at the best ones that are in the S&P 500 index.
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 dividend 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.
What did we find?
Dividend growth investors are typically looking for solid historical growth, a relatively high yield, as well as future growth prospects. That means only a few names are worth more research on this list, as many of them have cut dividends over the past five years or don't have much in the way of yield to offer. The more interesting names include Vornado Realty Trust, CMS Energy Corp. and Wisconsin Energy Corp.