Finding attractively valued dividend growth stocks is getting harder and harder to do. The overall market has been on a relentless advance for many years now, and high quality dividend paying growth stocks have been leaders. Consequently, valuations have become extended beyond historical norms and I recommend prudence. Nevertheless, there are attractive dividend growth stocks available if you’re willing to look hard enough.

In part 1 of this two-part series I reviewed the prestigious S&P Dividend Aristocrats looking for attractively valued dividend growth stocks. Although I was able to identify a few potentially attractive research candidates in the Dividend Aristocrats, I lamented that the pickings were slim. I also presented examples of extremely high quality Dividend Aristocrats that have become significantly and uncharacteristically overvalued relative to their fundamentals.I did this for perspective.

In this second installment I have broadened my scope looking for attractive dividend growth stocks wherever I can find them. Later in this article I will present several examples of apparently attractive dividend growth stock research candidates across several sectors and subsectors. One important aspect of this exercise is to illustrate that the best valuations are primarily limited and available in only a few sectors. But most importantly, as should be expected in a strong bull market like we have today, the best valuations are generally found in the individual companies and sectors that are currently out of favor. To paraphrase the legendary Warren Buffett, you can’t buy what’s popular and expect to do well.

When conducting my research and screening for attractive dividend growth stock research candidates, my primary focus was on attractive valuation. However, I was also looking for companies with the most consistent and reliable historical records of earnings and dividend growth but companies with perfectly consistent operating histories are rare. Therefore, I included a few examples without stellar long-term records, but reasonably attractive records over the past five years or so. Nevertheless, I did exclude several companies that were technically attractively valued, but in my judgment I did not like the significant inconsistency or cyclicality in their operating histories. 

Additionally, I limited my screen to companies offering a current yield of 2% out to a maximum of 5% for traditional companies, but I did include a few REITs with higher yields. My purpose for limiting the current yield was to avoid the most aggressive high-yield securities such as mortgage REITs, business development companies, royalty trusts and MLPs, because I consider them in a different risk category and therefore not appropriate for this exercise.

A Long-Term Historical Review

With this article I will be presenting numerous examples across all the major sectors and subsectors in the market.In all cases I will be presenting the longest operating history available to me for each company.Each example will be presented utilizing the earnings and price correlated F.A.S.T. Graphs™ on each. Therefore, in order for the reader to get the most benefit from this exercise, it’s imperative that you understand what each of the earnings and price correlated graphs are revealing.

Therefore, I offer the following short tutorial where I take a complete F.A.S.T. Graphs apart and then add one metric at a time.I will be utilizing the General Dynamics’ graph as my sample .This template will apply to all of the graphics utilized in the article.

The orange line on each graph represents a valuation reference line drawn as a multiple of earnings on each company at a specific P/E ratio.In theory, this line represents a rational view of a company’s fair value.The dark green shaded area below the line represents the company’s total earnings over the time frame graphed.

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