My 15 High-Growth Dividend Stocks for July 2022

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Quality stocks

So much for the late May rally, in June stocks fell across the board, with the SPDR S&P 500 Trust ETF (SPY) losing 8.25% in the month. The popular ETF is down 19.98% in the first six months of the year. My watchlist for June performed better, but not very well, losing only 6.45% in June. It is down 15.43% this year, offering 4.55% alpha versus SPY. Vanguard Dividend Appreciation ETF (VIG) ended June with a loss of 6.23%, topping my watchlist by 22 basis points. However, year-to-date, it is down 15.69% and trails my watchlist by 26 basis points. My watchlist, VIG and SPY are now all below my target rate of return of 12% on an annualized basis after 22 months.

The main objective of this watchlist is to find the best combination of quality companies trading at attractive prices. I believe this is the optimal long-term strategy for building wealth.

The top 15 dividend growth stocks for July offer an average dividend yield of 2.35%, which is much better than last month’s 1.51% yield. Collectively, they have increased dividend payments at a rate of 31.61% over the past 5 years. Based on dividend yield theory, these 15 stocks are currently undervalued by around 42% and I believe they are poised to deliver strong long-term returns. After the poor results we saw in June, all stocks picked for July appear to be potentially undervalued based on dividend yield theory.

I would recommend two approaches to investing in dividends. The first is to calculate the average cost of at least 10-20 or more dividend-paying quality stocks across multiple sectors and industries. By averaging the dollar cost you take the risk out of trying to price a stock and over a long enough period of time you will theoretically buy stocks at the highs, lows and in between, resulting in a average cost base somewhere in the middle. The second method carries a little more risk. Invest in undervalued stocks and average the dollar cost of at least 10-20 unique quality companies across multiple sectors and industries. The additional risk with this approach comes from the possibility that your valuation method turns out to be incorrect. However, by investing in several unique stocks, the chances that you will accurately identify at least a few undervalued stocks increase. The benefit from a few correct picks can more than offset the underperformance of the wrong ones.

Watchlist Criteria

The criteria used to determine which stocks are included in my High Growth Dividend Stock Watchlist remain unchanged for July 2022. It is comprised of the 8 factors listed below that have historically outperformed the broad universe of dividend paying stocks when are analyzed collectively.

  • Market capitalization of at least $10 billion
  • Distribution rate not exceeding 70%
  • 5-year dividend growth rate of at least 5%
  • 5-year revenue growth rate of at least 2%
  • 5-year EPS growth rate of at least 2%
  • S&P earnings and dividends rated B+ or better
  • Wide or Narrow Ditch (Morningstar)
  • Exemplary or standard management team (Morningstar)

The rules identified 118 stocks for the month of July which were all ranked based on the aforementioned metrics excluding market capitalization. I then calculated the current valuation of each stock using dividend yield theory. All stocks have been ranked according to their quality and valuation and sorted according to the best combination of the two. Then I calculated an expected rate of return for the next 5 year period for each of the stocks. This return is based on expected earnings growth, a return to fair value and dividend yield.

The 15 top-ranked stocks with an expected return greater than or equal to 12% were chosen for the July Watch List. The long-term assumption of this watchlist is that it will outperform a broad, quality dividend fund such as Vanguard’s Dividend Appreciation ETF, VIG.

Watchlist for July 2022

Top 15 High Growth Dividend Stocks for July 2022

Created by author

Above are the 15 stocks I plan to evaluate further in the month. They are ranked in descending order according to their rank and the growth rate of the dividend over 5 years.

The “O/U” column represents a potential undervaluation; it is a comparison of the current dividend yield to the historic dividend yield based on the share price. Together, these 15 stocks offer a dividend yield of 2.35%.

The expected yield in the table above was calculated using an updated 5-year EPS forecast, fair value return and current dividend yield. There is also a safety margin built into the expected return. These figures are only assumptions based on available data and there is no guarantee that these returns will be achieved.

The large potential undervaluations of Cigna (CI) and Advance Auto Parts (AAP) are overstated due to the recent very rapid dividend growth of both companies. Dividend yield theory works best for companies with stable and consistent dividend growth.

Past performance

June has been a decent month for the watchlist as it extends its winning streak against SPY to 3 months now. The watchlist hasn’t outperformed VIG, but it remains ahead of the ETF year-to-date and since its inception. The watchlist’s annualized return since inception is 10.46%, compared to 7.32% for VIG and 5.88% for SPY. The Watchlist has so far generated annualized alpha on VIG of 3.14% and 4.58% on SPY.






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Top 5 Past and Present Watchlist Stocks in June 2022:

  • Domino’s Pizza (DPZ) +7.62% (current)
  • UnitedHealth (UNH) +3.77% (past)
  • Tractor Supply (TSCO) +3.46% (current)
  • Humana (HUM) +3.22% (past)
  • Costco (COST) +2.80% (past)

Two of the 5 best performing past and present Watchlist stocks in June were on the June Watchlist, DPZ and TSCO. A total of 63 single dividend stocks have been selected by this watchlist since September 2020.

Top 5 stocks by total return since joining the Watchlist:

  1. Automatic Data Processing (ADP) +57.28% (22 months)
  2. UnitedHealth Group (UNH) +57.19% (17 months)
  3. Northrop Grumman (NOC) +43.33% (22 months)
  4. Supply of tractors (TSCO) 39.57% (17 months) NEW
  5. Progressive (PGR) +36.01% (17 months) NEW

Even after a 5.33% loss in June, ADP retains the top spot in long-term watchlist performance. UNH gained 3.77% in June and is now a very close second, falling only 9 basis points. NTRS and USB, the 3rd and 4th best stocks last month, both fall out of the top 5 list after posting double-digit losses in June. NOC added 2.27% in June and moved up to 3rd place overall. TSCO added 3.46% in June and is on the top 5 list, slipping to 4th best. PGR posted a 2.61% loss in June, but rejoined the top 5 in 5th place after a very poor month for many former watchlist names.

Since not every stock has been on the Watch List for the full 22 months of its existence, comparing a monthly average return can help normalize the results. Here are the top 5 stocks with the highest average monthly return since joining the watchlist.

  1. Cigna (IC) +2.84%
  2. UnitedHealth Group (UNH) +2.70%
  3. Rollin (ROL) +2.64%
  4. Automatic Data Processing (ADP) +2.08%
  5. Tractor Supply (TSCO) +1.98%

CI retains the top spot but sees its average gain drop to 2.84% after 4 months. UNH climbs to second place as its average gain improves to 2.7%. ROL drops to 3rd place after a 1.52% loss in modes in June sees its average gain drop to 2.64%. ADP retains 4th place and NVDA drops out of the top 5 after an 18.6% loss in June. The new addition to the top 5 list in terms of average monthly gain is Tractor Supply which is improving its return to 1.98% per month.

Alpha Pilots

The watchlist slightly underperformed VIG in June. 5 watchlist stocks outperformed the ETF last month.

  • (DPZ) +7.62%
  • (CST) +3.46%
  • (CI) -1.36%
  • (SBUX) -2.69%
  • (BALL) -2.99%

The remaining 10 stocks underperformed VIG.

  • (V) -7.20%
  • (CDW) -7.24%
  • (HD) -8.83%
  • (APH) -8.86%
  • (SSNC) -9.25%
  • (SCW) -9.87%
  • (LOW) -10.56%
  • (MM) -11.85%
  • (CMF) -12.27%
  • (SWKS) -14.91%

Buy and hold portfolios

The best way to use the ideas presented by this watchlist is to take a long-term investing approach. I started tracking how such a portfolio would have performed with one portfolio started in early 2021 and the other in early 2022. Each portfolio assumes you are equally investing in the 15 chosen stocks for the given month and not liquidating never these positions.

The B&H 2021 portfolio performed an average performance in June, losing 6.23% exactly the same percentage as VIG. The cumulative return since January 2021 for the portfolio is 7.17% compared to 4.33% for VIG and 3.03% for SPY. On an annualized basis, the portfolio has a return of 4.73% compared to 2.87% for VIG and 2.01% for SPY. The portfolio holds 51 unique positions, with the largest position being:

  1. (UNH) 5.78% (attribution)
  2. (SCW) 5.66%
  3. (HUM) 5.29%
  4. (LOW) 5.21%
  5. (HD) 5.10%

Here are the top 5 positions:

  1. (NPC) +52.44%
  2. (RPG) +36.99%
  3. (UNH) +32.44%
  4. (LM) +26.84%
  5. (DSF) +17.20%

The B&H 2022 Portfolio performed slightly worse in June, losing 6.94%. The return since the beginning of the year is -19.25%, against -15.69% for VIG and -19.98% for SPY. The portfolio didn’t get off to a great start and saw its loss on VIG spread a bit more in June. There are a total of 32 unique positions in the portfolio due to high watchlist turnover due to all the volatility in the market.

Here are the 5 most important positions:

  1. (TSCO) 5.92% (attribution)
  2. (CDW) 5.72%
  3. (HD) 5.54%
  4. (SBUX) 5.42%
  5. (CI) 5.40%

Here are the top 5 positions:

  1. (ATVI) +17.72%
  2. (RL) +13.90%
  3. (HUM) +7.95%
  4. (CI) +7.04%
  5. (DPZ) +6.43%

I expect this watchlist to produce a long-term annualized rate of return of 12%. I use this watchlist along with my High Yield Watchlist to identify investment opportunities I am acting on in my personal portfolio.

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