Dividend Growth Investing – Materials Stocks

As we continue to churn our way through each GICS industry in order to objectively select the best stocks for our Quantigence DGI Portfolio, we are next going to look at the materials sector. The first thing we’ll do is pick all materials stocks that have raised dividends for 20 consecutive years or more which gives us the below list:

Materials Stocks

Now we remove any materials stock with a market cap of less than $10 billion which gives us the following stocks along with their corresponding Q-Scores.

Materials Q-Scores

We’re not really blown away by the selection here. The first thing we notice is that the 2 stocks with the highest Q-Scores, PX and APD, are both in the exact same industry of “SIC-2810 Industrial Inorganic Chemicals“. This means that we only want to own one of these two stocks. Because these two companies are so similar, we would put this down to a coin toss but since we’ve been building a position in APD for a while now we’ll add it to our portfolio. Because the Q-Scores for stocks in this sector aren’t really that impressive relative to other sectors, we’ll pick just one more stock.

The next two materials stocks by Q-Score ranking are Sherwin Williams (SHW) and Ecolabs (ECL). These companies are in completely different businesses, SHW in paint and coatings and ECL in cleaning products. Our Q-Score analysis shows that these companies are nearly identical across all 7 of our variables except “Years Increasing Dividends” for which SHW has a 117 basis point advantage over ECL. SHW also recently acquired Valspar, a paint and coatings company that had paid and increased dividends for 38 years before they were acquired.

Ideally we would like 3 stocks per sector but for materials, we’re going to pick just two; APD and SHW. We have been building a position in APD over the last year and a half as seen below:

APD Buys

In order to reach our target position size of $13,300 for both APD and SHW we’ll need to make monthly contributions as seen below:

  • SHW: $550
  • APD: $325

We’ll revisit this sector on occasion to see how the Q-Scores are evolving over time. It’s important to remember that Q-Scores alone do not determine whether or not we buy or sell any particular stock. They are simply a tool that can help us compare stocks and determine the likelihood that our income streams from any given stock will continue to grow over time.

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