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Dividend Champions Smackdown XXXVII

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 low Debt/Equity and Price/Earnings Ratios and, last month, by high Estimated 5-year Earnings-Per-Share Growth and 5-year Dividend Growth Rate.

(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 start with three of the metrics added at the end of 2012. 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 Debt/Equity (column AJ), low to high. Eliminating companies that had a number above 1.00 (more debt than equity) cut the list to 80 companies.

Step 2: Sort the companies by their Trailing Twelve Months' ROE, or Return On Equity (column AC), high to low, and eliminate any company with an ROE below 10%. That cut the list to 57 companies.

Step 3: Sort the remaining companies by their Chowder Rule number (column BW), high to low, and eliminate any company with a result below 12. That cut the list to 24 companies. (Note that the Chowder Rule calls for the sum of the Yield and the 5-year Dividend Growth Rate to exceed 12 for new purchases, whereas numbers between 8 and 12 are acceptable for Holding existing positions. Named after SA user Chowder, this rule is meant to be used in conjunction with additional research, such as credit ratings and financial strength.)

Step 4: Sort the companies by their Trailing Twelve Months' Price/Earnings ratio (column V), low to high, and eliminate any company with a P/E above 20. That cut the list to 14 companies.

Step 5: Sort the companies by their Yield (column I), high to low, and eliminate any company with a yield of less than 2%. That trimmed the list to 10 companies, which appear below.

(Note that I've sorted the companies back into alphabetical order.)

Company

Ticker

No.

3/28

Div.

TTM

TTM

Debt/

Chowder

Name

Symbol

Yrs

Price

Yield

P/E

ROE

Equity

Rule

AFLAC Inc.

(AFL)

30

52.02

2.69

8.53

19.81

0.27

13.6

Air Products & Chem.

(APD)

31

87.12

3.26

17.78

17.20

0.96

14.3

Becton Dickinson & Co.

(BDX)

41

95.61

2.07

17.26

24.60

0.93

15.6

Chevron Corp.

(CVX)

25

118.82

3.03

8.92

20.30

0.09

12.2

ExxonMobil Corp.

(XOM)

30

90.11

2.53

9.30

28.03

0.07

12.3

Illinois Tool Works

(ITW)

49

60.94

2.49

11.50

24.25

0.48

12.4

McDonald's Corp.

(MCD)

36

99.69

3.09

18.60

36.82

0.89

16.9

Medtronic Inc.

(MDT)

35

46.96

2.21

14.32

19.35

0.64

18.7

Procter & Gamble Co.

(PG)

56

77.06

2.92

19.76

17.34

0.50

13.1

Wal-Mart Stores Inc.

(WMT)

39

74.83

2.51

14.91

23.02

0.71

16.0

Conclusion

As usual, there are some familiar names, but the long histories of superior performance offers a clue as to why these companies produce such positive numbers. 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 a company that appears to be undervalued, as indicated by its price line being in the green-shaded earnings area, just below. Note that the AFL and CVX charts also were attractive, but I have used them more recently.

(click to enlarge)

Source: Dividend Champions Smackdown XXXVII