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In my previous article I discussed 14 Dividend "Champions of Champions" that were above-average dividend-paying companies according to the "Chowder Rule." In that article the requirement for inclusion on the list was a Dividend Yield + 5 Year Dividend Growth Rate of over 14%.

In this article I will move down the list on David Fish's CCC spreadsheet and this time take a look at the Dividend Contenders. The Dividend Contenders is a list of companies that have increased dividends annually for the last 10-24 years.

Because the companies on the Dividend Contenders have a shorter time period required to be included, I have chosen to up the standards for inclusion in this article. My requirements for inclusion in this scenario is a dividend yield plus growth rate "chowder number" of over 20%. Also, instead of using just the 5-year dividend growth rate for the equation, I will also require the most recent increase and the 3-year growth rate to exceed a combined 20% with the dividend yield as well.

Out of the 199 companies listed on the Contenders, here are the 10 that met the new requirement.

Company NameTicker SymbolIndustry3/27/2013Annual DividendDividend YieldDividend Growth RatesYield + 5 YR Growth
Airgas Inc.(ARG)Chemical-Specialty$ 98.42$ 1.601.6%25.0%29.5%34.9%37%
Church & Dwight(CHD)Consumer Products$ 63.52$ 1.121.8%41.2%61.0%45.0%47%
Cracker Barrel(CBRL)Restaurants$ 80.79$ 2.002.5%25.0%20.5%18.5%21%
CVS Caremark(CVS)Retail-Drugstores$ 54.99$ 0.901.6%38.5%28.8%23.2%25%
Lockheed Martin(LMT)Aerospace/Defense$ 94.47$ 4.604.9%15.0%19.6%22.2%27%
Meredith Corp.(MDP)Publishing$ 38.61$ 1.634.2%50.0%19.3%15.6%20%
Occidental Petroleum(OXY)Oil & Gas$ 78.13$ 2.563.3%18.5%16.7%17.2%20%
Ross Stores Inc.(ROST)Retail-Apparel$ 60.05$ 0.681.1%27.3%36.5%30.1%31%
Stryker Corp.(SYK)Medical Devices$ 64.87$ 1.061.6%24.7%19.3%31.0%33%
TJX Companies(TJX)Retail-Apparel$ 46.89$ 0.461.0%21.1%23.3%20.9%22%

Once again, there is an interesting collection of companies on the list, with a mix of Chemical, Consumer Goods, Restaurants, Oil & Gas, Retail and Medical.

There is also a wide range of dividend yields on the list with Lockheed Martin having the highest yield of 4.9% while TJX has the lowest yield of just 1.0%.

Here is some further information on the fundamentals of the companies with financial information and earnings estimates from Yahoo Finance.

Company NameTicker SymbolEPSPE RatioDiv.PayoutTrailing 5YRForward 5YR
RatioEPS GrowthEPS Growth
Airgas Inc. $ 4.3522.6$ 1.6037%10.0%12.9%
Church & Dwight $ 2.4525.9$ 1.1246%15.4%11.5%
Cracker Barrel $ 4.7217.1$ 2.0042%15.7%14.3%
CVS Caremark $ 3.0318.1$ 0.9030%9.0%13.4%
Lockheed Martin $ 8.3611.3$ 4.6055%2.3%7.9%
Meredith Corp. $ 2.4715.6$ 1.6366%2.3%15.0%
Occidental Petroleum $ 5.6613.8$ 2.5645%4.1%5.8%
Ross Stores Inc. $ 3.5317.0$ 0.6819%31.1%12.7%
Stryker Corp. $ 3.3919.1$ 1.0631%10.2%9.0%
TJX Companies $ 2.5518.4$ 0.4618%24.0%11.6%

Looking at the earnings growth rate and payout ratios it appears there could be a few companies seeing slowing dividend growth rates in the future. Lockheed Martin and Meredith Corp. have two of the higher payout ratios of 55% and 66% and along with Occidental have seen slow EPS growth in the last five years. Also, Lockheed and Occidental are projected to grow earnings at just 7.9% and 5.8% over the next five years, which may not be enough to continue the 15%+ growth rates in the dividend.

Here is a comparison of the 10 companies over the last 10 years to show the total returns.

ARG Total Return Price Chart

ARG Total Return Price data by YCharts

I think this is a good example of being careful to not invest in companies based exclusively on the dividend rate, and that you must also take into consideration the earnings growth as well.

Meredith Corp. and Lockheed Martin currently have the two highest yields of the 10 companies, but have also had the lowest earnings growth rates over the last five years at just 2.3%. They also have the lowest and third lowest total returns over the decade at 26.3% and 152%. Meanwhile Ross Store and TJX Companies have the two lowest dividend yields yet have had the highest earnings growth rates and have total returns of 617% and 476% over the last decade.

Depending on your situation, either group could be worth investing in from here. All 10 of the companies listed have shown a commitment to paying a steadily growing dividend. Looking forward some may able to maintain a higher growth rate on those dividends than others. Those in retirement who rely on rising dividends for income may want to look at Meredith, Occidental and Lockheed Martin while younger investors more concerned with building a larger portfolio may want to look at the faster growers like Ross Stores, TJX Companies or Cracker Barrel.

Being in the accumulation phase of investing, I've chosen to go with a mix of both types and currently hold positions in Church & Dwight, Lockheed Martin, Meredith Corp., Occidental Petroleum and Ross Stores.

I hope this list helps to show readers the differences that exist between prospective dividend growth investments and how, depending on your situation, one type may be a better option than the other for your portfolio.

Source: 10 Over-Achieving Dividend Contenders