RomoloTavani/iStock via Getty Images

RomoloTavani/iStock via Getty Images

Dividend growth stocks aren't always the most exciting investments out there. They often times aren't grabbing the headlines; they aren't the stocks running up hundreds of percentages in a year. In fact, they are often some of the least exciting stocks. And that is precisely their strongest selling point. With such a vast world of dividend growth stocks available out there, it is important to screen through to see if there are any worthwhile investments to explore.

They are stocks that provide growing wealth over time to income investors. Dividend growers are often larger (not always), more financially stable companies that can pay out reliable cash flows to investors. Some are slower growers than others. Some are going to be cyclical that require a strong economy. Some are going to be secular, which doesn't generally rely on a more robust economy.

Dividend growth can promote share price appreciation. Of course, that is if these companies are growing their earnings to support such dividend growth in the first place. There are definitely yield-traps out there, trust me - I've owned a few that I'm not particularly proud of.

These dividend growth stocks can be even more critical in the current environment as it combats inflation. With the rising prices, an income investor needs a growing income to compensate for the price erosion. Inflation is now pushing nearly 8% in the U.S. and has only been heading higher over the last few months.

Since our March update, the Fed has begun to raise rates to attempt to gain control of this runaway inflation. They are expecting to have to raise rates aggressively through the remainder of 2022,

I like to think of investing in dividend stocks as a perpetual loan of sorts. Essentially, every dividend is a repayment of your original capital. Eventually, holding long enough, you have the position "paid off." It is all return back into your pocket from that point forward.

All of this being said is important to understand my approach to dividend stocks and why screening of dividend stocks can be important for income investors. These are April's 5 dividend growth stocks that might be worthwhile for a deeper exploration. As is the case with any initial screening, this is just an initial dive - more due diligence would be necessary before pulling the trigger.

I'll be using some handy features that Seeking Alpha provides right here on their website for this screen. In particular, I will be screening utilizing their quant grades in dividend safety, dividend growth and dividend consistency.

Dividend Safety is relatively self-explanatory. These will be stocks that SA quants show reasonable safety compared to the rest of their various sectors. The grade considers many different factors but earnings payout ratios, debt and free cash flow are amongst these. This category will be stocks with A+ to B- ratings.

For the dividend growth category, we have factors such as the CAGR of various periods relative to other stocks in the same sector. Additionally, the quants also look at earnings, revenue and EBITDA growth. As we will see, this doesn't mean that every stock with a higher grade has the growth we are looking for. This just factors in that the dividend has grown or earnings are growing to support dividend growth possibly. For these, the grades will also be A+ through B- grades.

Finally, for dividend consistency, we want stocks that will be paying reliable dividends for us for a very long time. In particular, hopefully, they are raising year after year, though that isn't an explicit requirement. We will also include stocks with a general uptrend in dividend payments, which means that there could have been periods where they paused increases for a year or two.

After looking at those factors alone, we are left with 397 stocks at this time—a decrease from March's 482 listings. I'll link the screen here, though it is a dynamic list that constantly updates regularly. When viewing this article, there could be more or less when going to the link.

From there, I wanted to narrow down the list a lot more obviously. I then sorted the list by forward dividend yield, highest to lowest. Since these will be safer dividend stocks in the first place, screening for those among the higher payers shouldn't hurt.

From there, I will share the top 25 that showed up as of 04/05/2022.

Seeking Alpha Screener (Seeking Alpha)

Seeking Alpha Screener (Seeking Alpha)

As usual, we have a couple of repeats that we have already covered rather recently. That includes Philip Morris International (PM). We covered that name in March's article. Cogent Communications (CCOI) and Gilead Sciences (GILD) were also covered in last month's piece.

Some other names that we've seen included in previous iterations of this screening were Urstadt Biddle Properties (UBA), VICI Properties (VICI) and LyondellBasell Industries (LYB). However, it's been at least a quarter since covering these names, so we will revisit.

We also have two new names that have not shown up since we've begun this regular publication. That is STORE Capital Corp (STOR) and Sturm, Ruger & Company (RGR).

Up first on our list as the highest yielder (after PM, which we covered just last month) is STORE Capital Corporation (STOR). STOR gets a lot of attention on Seeking Alpha. In fact, someone had just recently reached out to me to see if I had any thoughts on the name. Admittedly, I've heard about and run across STOR before but never really gave it the attention it deserves. So today will be the first look into this name.

STOR appears to be a diversified REIT. As a REIT, I have a natural draw, being an income investor. STOR isn't an overly large REIT, dwarfed by more prominent names such as Realty Income Corp (O) and W.P. Carey (WPC) in terms of market cap. O is a REIT more oriented towards retail operations, and WPC is a diversified REIT itself. STOR is quite diversified, too, after looking at some of its most significant industry groups.

Their last report at the end of 2021 identifies 120 industries with 79 different industry groups. They classify them as service, service-oriented retail and manufacturing. The services segment is the largest at 64.8% of their facilities, followed by manufacturing at 20% and then service-oriented at 15.2%. Within these industries are identified. I'll share the service group as it's the largest below. Those curious can take a look at their previous report to see the complete list of industry groups.

STOR Industry Exposure (Investor Presentation)

STOR Industry Exposure (Investor Presentation)

Besides being diversified by industry, this name is also geographically diversified. The most significant exposure they list is in Texas at 11.3%, based on the percentage of base rent and interest.

Another crucial area that I've learned to focus more of my attention on is lease expirations. For STOR, over 75% of their lease contracts mature after 2031. This is quite impressive as they don't have to worry about a lot of renegotiating anytime soon.

STOR Lease Expiration (Investor Presentation)

STOR Lease Expiration (Investor Presentation)

According to Seeking Alpha, STOR appears to be a strong dividend grower over the last seven years.

STOR Dividend History (Seeking Alpha)

STOR Dividend History (Seeking Alpha)

The payout ratio of their dividend based on the $1.54 annual dividend and the $2.21 in FFO expected puts us at around 70%. That being said, it would appear that if they continue their usual trend, they will be raising the dividend before the next 12 months.

So far, everything looks pretty great with STOR. I'd definitely consider giving this REIT more of a look in the future after this initial brief dive.

RGR is the other name that hasn't been covered as a top yielder since we've been doing this style of article. It is a particularly interesting name that is quite different from what we normally see appear on this list. A screen for higher yielders generally brings us to REITs or utility names that have sold off recently. Tobacco companies also make regular appearances, as well as CCOI, which is a utility-like business anyway.

However, in this case, we have a company identified in the "leisure products" industry under the consumer discretionary sector. Of course, with those already familiar with this name, you know this one isn't showing up on any ESG list. This is a firearms manufacturer. I almost didn't include this name, though, as it kind of breaks our "consistency" in dividend growth. The dividend has grown over the years, but the payout is anything but consistent. Every quarter the dividend changes.

RGR Dividend History (Seeking Alpha)

RGR Dividend History (Seeking Alpha)

One thing that has historically happened is when a Democratic president gets elected in the U.S., gun sales and gun stocks tend to rise. The idea is that gun laws will become more restrictive, so people rush out to buy them. This time was no different. In fact, throughout most of 2020, RGR spent its time rallying.

To be clear, the whole market did exceptionally well in 2020, despite the significant sell-off brought on by the COVID pandemic. There was a clear outperformance with RGR relative to the "market." The market is represented here by the SPDR S&P 500 ETF (SPY). The chart below shows performance from January 1st, 2020, to December 31st, 2020.

Since then, the stock hasn't done too much. The chart below shows us the price returns of RGR relative to SPY. We are once again starting on January 1st, 2020. However, this time, we are looking at performance through today (April 5th, 2022.)

RGR is an unusual name and could be suitable for some investors. However, it would seem a lot of the run-up in the stock was done in 2020, and it'll mostly be a market performer over the coming years. If a Republican gets elected, we could even see RGR underperform. Only to once again look for further upside when the White House changes.

UBA is back more to the typical stocks that we see in this screener. It is a REIT. This name showed up in February's article and in January. January 2022 is when we took a look at the name. I had mentioned at the time that UBA would be one that I'd probably personally pass on. It is small and focused primarily in New York. It doesn't provide a lot of geographic diversification or financial strength as something like O, also a retail REIT.

The market cap has dropped to around $721.5 million from the $813 it was valued at previously. However, that is due to the price weakness, which has been under pressure like most stocks in 2022. Below is the performance of UBA compared to Vanguard Real Estate (VNQ) to provide some context.

It would appear I'm not the only one that is a bit cautious around UBA, as the real estate sector has been heading higher as of late, and UBA has remained weak. However, that could be presenting an even better opportunity in terms of valuation for the name if an investor wanted to pick it up anyway. The yield is certainly strong, and they've been growing their dividend aggressively since cutting in 2020.

UBA Dividend History (Seeking Alpha)

UBA Dividend History (Seeking Alpha)

VICI is another regular name that we see showing up a the top of this screening month after month. Unlike UBA, I am quite intrigued by this REIT. Enough interest that we've done some put writing with this name, that turned into a long position. It was subsequently called away, but I would have been completely content in holding long-term.

Since then, we haven't been able to take advantage of this stock in terms of writing puts. It generates only a small amount of interest in the options market, making it harder to get an appropriate potential return.

The last time we took a dive into VICI was in our January article. Since then, the stock has followed a similar trajectory that VNQ had. At this point, it has been essentially flat over the last quarter. Though investors picked up a dividend, and that's certainly worth something.

Earnings are expected later this month for VICI. That'll give us a better picture of where things stand for this name.

LYB is another name that has shown up a couple of times but that we haven't covered since January. Similar to RGR, this is more of an unusual name given the type of product they produce. They are a chemicals and plastic producer in the materials sector. They are Dutch-domiciled, with U.S. headquarters in Texas.

Over the last quarter, since we covered the name, it has bucked the trend and held mostly above positive performance territory. As March saw a recovery across the board, they were able to pop into positive territory in terms of stock price performance.

LYB has been a dividend grower over the years though they froze the payout through 2020. This isn't necessarily bad; it could be seen as fiscally responsible, too, to stay more conservative. They didn't suspend the payout; they just froze it at the same quarterly level. Given their history, the next announcement could see an increase. They have historically increased in Q2 of the calendar year.

LYB Dividend History (Seeking Alpha)

LYB Dividend History (Seeking Alpha)

The payout ratio stands at quite a low level, just 26.46%, based on the $4.52 annualized dividend. That is based on the last quarterly payout. This leaves them plenty of room to grow the dividend going forward. The expected EPS is $15.18 over the next year. However, their business seems to be quite unpredictable in terms of EPS. There can be some wild swings from year to year when the economy experiences a recession.

This would indicate that management is wise to keep the payout ratio low to give them breathing room when things get uncertain.

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Cash Builder Opportunities provides high-quality and reliable dividend growth ideas to build growing income for investors. A special focus on investments that are leaders within their industry to provide stability and long-term wealth creation. Along with this, the service provides ideas for writing options to build investor's income even further.

Nick Ackerman is the lead author for Cash Builder Opportunities. Nick is an avid student of the markets and has been investing in his own accounts for over 10 years. He is a former Financial Advisor and has previously qualified for holding Series 7 and Series 66 licenses. These licenses also specifically qualified him for the role of Registered Investment Adviser (RIA), i.e., he was registered as a fiduciary and could manage assets for a fee and give advice. His specific focus is on closed-end funds, dividend growth stocks and option writing as an attractive way to achieve income as well as general financial planning strategies towards achieving one’s long-term financial goals.

Stanford Chemist is a scientific researcher by training who has taken up a strong and passionate interest in investing. His members appreciate the analytical and agenda-free insight and analysis that he brings to investments. He has developed his own metrics and tools for understanding closed-end funds and exchange-traded funds and how to profit from them and will seek to apply the same logical principles to Cash Builder Opportunities.

Disclosure: I/we have a beneficial long position in the shares of O either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article was originally published to members of Cash Builder Opportunities on April 5th, 2022.