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Dividend Contenders Smackdown XXXVIII

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 high Estimated 5-year Earnings-Per-Share Growth and 5-year Dividend Growth Rate and, last month, by low Debt/Equity and high Return On Equity (or ROE).

(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 focus on Dividend Growth and the prospect that such growth would continue. Note that I'm using my working copy of the May spreadsheet, so some recent increases are included, but price and other metrics are as of April 30. 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 Most Recent Percentage Dividend Increase (column L), high to low. Eliminating companies that had increases below 6% (roughly twice the inflation rate) cut the list to 121 companies. Applying the same minimum to the 1-, 3-, and 5-year Dividend Growth Rates (columns AL through AN) progressively trimmed the list of candidates to 112, 105, and again, 105 firms.

Step 2: Sort the companies by their Estimated 5-year Earnings per Share Growth (column AF), high to low, and eliminate any company with a percentage below 6%. Since earnings are the source of dividends, the former must generally grow in order for the latter to do the same. This step cut the list to 83 companies.

Step 3: 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 36 companies

Step 4: Sort the companies by the Standard Deviation of their Dividend Increases from 2000 to 2012 (column BT), low to high, and eliminate any company with a figure above 6%. Note that the lower the Standard Deviation, the less variable were the percentage increases, similar to the "smoothness" (versus "bumpiness") that fellow SA Contributor Robert Alan Schwartz has highlighted in various articles. That cut the list to 10 companies, which appear below.

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

Company

Ticker

No.

4/30

Div.

MR%

DGR

DGR

DGR

Std

Name

Symbol

Yrs

Price

Yield

Inc.

1-yr

3-yr

5-yr

Dev

Aqua America Inc.

(NYSE:WTR)

21

31.73

2.21

6.06

6.3

6.8

6.9

1.5

BancFirst Corp. OK

(NASDAQ:BANF)

19

41.84

2.77

7.41

7.8

7.3

8.3

6.0

Dominion Resources

(NYSE:D)

10

61.68

3.65

6.64

7.1

6.4

7.6

3.6

General Dynamics

(NYSE:GD)

22

73.96

3.03

9.80

9.3

10.3

12.7

5.2

General Mills

(NYSE:GIS)

10

50.42

3.01

15.15

8.5

12.2

10.8

5.3

J.M. Smucker Co.

(NYSE:SJM)

15

103.23

2.01

8.33

8.7

13.4

11.1

5.9

John Wiley & Sons Inc.

(NYSE:JW.A)

19

38.17

2.52

20.00

22.2

17.7

15.9

4.1

Owens & Minor Inc.

(NYSE:OMI)

16

32.57

2.95

9.09

10.0

12.8

14.2

4.3

South Jersey Industries

(NYSE:SJI)

14

61.70

2.87

9.94

10.2

11.5

11.0

4.1

United Technologies

(NYSE:UTX)

19

91.29

2.34

11.46

8.8

9.6

12.0

5.3

Conclusion

The result of this screening process was a diverse group of high-quality companies that have established a consistent dividend "culture" that should continue in the foreseeable future. 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.

(click to enlarge)

Disclosure: I am long WTR, UTX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Dividend Contenders Smackdown XXXVIII