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Dividend Challengers Smackdown XXXIII

In the most recent installments of the Smackdown series, I screened the Dividend Champions (which can be found here: http://dripinvesting.org/Tools/Tools.asp ) by market capitalization/dividend growth and, last month, using a "back to basics" approach.

(Note that I have separated the Champions, Contenders, and Challengers into different articles to fit more closely into the format preferred by Seeking Alpha. Champions are companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years. I use the same Roman numeral for all three articles.)

This month, I decided to take my cue from a recent article by fellow SA author Robert Allan Schwartz, which can be found here: seekingalpha.com/article/1039631-should-... in which Mr. Schwartz examines the question of buying stocks that combine a high Dividend Growth Rate and a low level of what he calls "bumpiness," which might also be described as dividend "volatility." Companies that follow a pattern of raising their dividend by a similar percentage each year can be said to provide a "smoother" ride than those with increases that are less predictable. So I screened as follows:

Step 1: After eliminating companies that had not increased their dividend in more than a year and those that had agreed to be acquired, I sorted by the 5-year Dividend Growth Rate (column AN), high to low. Keep in mind that this figure currently uses the total dividends paid in 2011 as its basis; the formula will soon be updated to use 2012 amounts. Eliminating companies with DGRs below the Challengers' average of 17.9% cut the list of candidates to 31 companies.

Step 2: Sort the companies by Standard Deviation (column BQ), low to high, and eliminate those above 30%. Although not the same as Mr. Schwartz' bumpiness, the Standard Deviation measures the variation in year-by-year increases going back to 1999. I chose 30% simply to cut the list of remaining candidates roughly in half. This step cut the list to 14 companies.

Step 3: Sort the remaining companies by their Most Recent % Increase (column L), high to low. Dropping those below the Challengers' average of 10.22% cut the list to 10 candidates.

Step 4: Sort the companies by their Yield (column I), high to low, and eliminate any company with a yield below 2%. That cut the list to 8 companies, which appear below.

(Note that I've sorted each group back into alphabetical order.)

Company

Ticker

No.

11/30

Div.

MR%

Ann.

DGR

Std.

Name

Symbol

Yrs

Price

Yield

Inc.

Div.

5-yr

Dev.

Accenture plc

(NYSE:ACN)

8

67.92

2.39

20.00

1.62

26.3

15.9

CSX Corp.

(NYSE:CSX)

8

19.76

2.83

16.67

0.56

32.3

22.5

Cummins Inc.

(NYSE:CMI)

7

98.16

2.04

25.00

2.00

32.1

17.0

G&K Services Inc.

(GKSR)

7

33.90

2.30

50.00

0.78

31.4

22.4

Hasbro Inc.

(NASDAQ:HAS)

9

38.46

3.74

20.00

1.44

20.6

23.3

L-3 Communications

(NYSE:LLL)

9

76.85

2.60

11.11

2.00

19.1

15.3

Steris Corp.

(NYSE:STE)

8

34.17

2.22

11.76

0.76

30.4

17.3

Union Pacific

(NYSE:UNP)

7

122.78

2.25

15.00

2.76

26.3

18.3

Conclusion

As usual, there are several familiar names, a continuing testament to their high quality in terms of various measurements of value. Note that Accenture is an Irish company. As always, please consider this no more than a starting point for more in-depth research.

As an extra step, I'm including one of Chuck Carnevale's F.A.S.T. Graphs for the company that appears to be the most undervalued, as indicated by its price line being in the green-shaded earnings area, just below.

(click to enlarge)

Source: Dividend Challengers Smackdown XXXIII