Analysts are constantly using quantitative screens to search the stock universe for what is the best-performing category. In a new report from Merrill Lynch’s Savita Subramanian, the superb strategist at the firm gives readers a quantitative gold mine of data, and there is one sector that has not only outperformed, but could continue to going forward.
The Merrill Lynch team cite high-dividend growth as the firm’s preferred exposure in a rising interest rate scenario. The stocks outperformed in the second quarter, and fell just slightly below the overall index, down 0.3 year to date. The group did outperform the high-dividend yield segment in both periods.
The Merrill Lynch analysts define high-dividend growth as the growth between trailing four-quarter total common dividends and the year-ago trailing four-quarter total. Here are the five companies with the highest percentage of dividend growth over that time
KLA-Tencor Corp. (NASDAQ: KLAC) comes in with the highest growth based on the Merrill Lynch parameters. The company posted an outstanding 932.5% dividend growth percentage number. The company is the world’s self-proclaimed leading provider of process control and yield management solutions, and it partners with customers around the world to develop state-of-the-art inspection and metrology technologies. These technologies serve the semiconductor, LED and other related nanoelectronics industries.
KLA-Tencor investors are paid a solid 3.80% dividend. Merrill Lynch has the stock rated at Buy with a $75 price target. The Thomson/First Call consensus target is lower at $65.30. Shares closed Thursday at $52.58, down almost 4%.
ALSO READ: 5 Big Defensive Dividend Stocks to Buy Trading at Deep Discounts
D.R. Horton Inc. (NYSE: DHI) comes in the second slot on the Merrill Lynch list. This company posted a dividend growth rate of 574.3%. The company has been the largest homebuilder by volume in the United States for 13 consecutive years. Founded in 1978 in Fort Worth, Texas, D.R. Horton has operations in 79 markets in 27 states across the United States and closed 32,504 homes during the 12-month period ended March 31, 2015. The company is engaged in the construction and sale of high-quality homes through its diverse brand portfolio that includes D.R. Horton, Express Homes and Emerald Homes.
D.R. Horton investors are paid a seemingly small 0.90% dividend. The consensus price target is posted at $28.89. The stock closed most recently at $27.54 per share.
Crown Castle International Corp. (NYSE: CCI) offers significant wireless communications coverage to all the top 100 U.S. markets and to substantially all of the Australian population. Crown Castle owns, operates and manages approximately 40,000 and 1,800 wireless communication sites in the U.S. and Australia. This company comes in with dividend growth as measured by Merrill Lynch at 568.6%.
Crown Castle investors are paid an outstanding 4.02% dividend. Merrill Lynch rates the stock a Buy with a $92 target price. The consensus target is at $93.56. Shares closed Thursday at $81.69.
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Iron Mountain Inc. (NYSE: IRM) is a real estate investment trust (REIT) and a leading provider of storage and information management services. Its real estate network of over 67 million square feet across more than 1,000 facilities in 36 countries allows it to serve customers around the world. The company offers business solutions for records, data, document and data center management, along with secured shredding, to help organizations lower storage costs, comply with regulations, recover from disaster and better use current information. The dividend growth by the Merrill Lynch metrics is 430.8%.
Iron Mountain shareholders are paid an outstanding 5.98% distribution. The consensus price target is $36.25. The shares closed Thursday at $31.77 apiece.
Keurig Green Mountain Inc. (NASDAQ: GMCR) finds the fifth slot on the Merrill Lynch list, with dividend growth of 419.4%. The company produces and sells specialty coffee, coffee makers, teas and other beverages in the United States and Canada. It sources, produces, and sells coffee, hot cocoa, teas and other beverages under various brands in K-Cup, Vue, Rivo, K-Carafe and Bolt portion packs brands.
Green Mountain investors are paid a 1.65% dividend. Merrill Lynch rates the stock at Neutral but has a substantial $95 price target. The consensus target is much higher at $110.77. The stock closed Thursday at $70.42.
ALSO READ: 5 Dividend Stocks That Give Investors Regular Raises
It is important to remember these numbers track dividend growth, not high yields. The Merrill Lynch team likes this subsector because those raising dividends in an interest rate rising environment should trade better than some, but not all bond proxies.
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