Ranked #1: The Clear Winner in My Search to Find an Obscure High-Quality Dividend Stock

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This month, I’m doing something a little different: Taking you on a journey to look for a high-quality dividend-growth stock among lesser-known companies.

The journey starts in a dividend-growth (DG) blog that I’m part of, where many commenters suggest, or say they’ve just bought, particular companies. Often, these are well-known DG companies like Johnson & Johnson (JNJ) or AbbVie (ABBV), immediately recognizable to anyone.

But other times, when they just list the ticker symbol, I don’t even know what it is. I have to look them up to see what they’re talking about.

I decided to write some of these tickers down, do my own research, and see whether any of them are actually good DG candidates. I’m looking for a hidden gem or two that might augment my Dividend Growth Portfolio in a way that I wasn’t expecting.

Here are my ground rules:

Obscurity: The stock has fewer than 20,000 followers on Seeking Alpha. (Many of the well-known DG names have hundreds of thousands of followers.)

Yield: 2.5% or more

Dividend growth rate: 5% or more per year over the previous five years

Out of the scores of ticker symbols I started with, just nine stocks passed those three simple screens.

A good DG investor wants to know more than a stock’s yield and recent dividend growth rate. We want to know more about company quality, dividend sustainability, and topics like that.

My quick way to get insights into those things is to use my Quality Snapshots. The Quality Snapshots employ quality ratings from sources that I trust and respect.

Value Line’s Safety grade
Value Line’s Financial Strength grade
S&P’s Credit rating
Morningstar’s Moat rating
Simply Safe Dividends’ Dividend Safety grade.

I assign 0 to 5 points to each factor according to a scoring table that you can find in DGI Lesson 20: My ‘Quality Snapshot’ Grading System. The system is just common sense: High scores are awarded to better ratings, low points or zero to bad ratings.

To me, the clear winner of this exercise is Atmos Energy (ATO). While it has a modest yield (2.6%), it has a good 8%/year dividend-growth rate. ATO has raised its dividend for 33 straight years, including most recently by 8.7% last November. Its 2021 raise should be announced soon.

Its quality score of 22 is four points better than any of the other stocks examined. All of the categories get green scores of either 4 or 5 points each. ATO’s dividend safety rating is the highest possible at 99. Its total score of 22 points is at the top of the Above-Average range, just one point short of Excellent.

I think it’s fair to call Atmos Energy a hidden gem.

And it is fairly valued right now, selling for just about its fair price, which I calculate as $95 per share. (See DGI Lesson 11: Valuation for the details on how I compute fair prices.)

I had two objectives for this:

Illustrate one way of finding stock ideas and evaluating them once you find them, as well as show a way to deal with the blizzard of unknown ticker symbols that you might run across every day.

Identify a hidden-gem stock to illustrate how a little digging can lead you to stock candidates that you might otherwise have never considered.
I hope that you enjoyed this approach and find it useful in your own investing.

This is not a recommendation to buy, hold, sell, trim, or add to ATO or any other stock mentioned. Any investment requires your own due diligence. Always be sure to match your stock picks to your personal financial goals.

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