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In the most recent installments of the Smackdown series, I screened the Dividend Champions (which can be found here) by low Debt/Equity and high Return On Equity (or ROE) and, last month, by high Dividend Growth and Estimated Five-Year Earnings per Share Growth, using a 6% threshold for both.

(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 five to nine years. "CCC" refers to the combination of all three groups. I use the same Roman numeral for all three articles.)

This month, I added a new column to the CCC spreadsheet for the Past Five Years of Earnings Per Share Growth, which I described in this article and decided to "up the ante" a bit by starting with that new column to help me highlight the prospects for future Dividend Growth. Note that I'm using my working copy of the June spreadsheet, so some recent increases are included, but price and other metrics are as of May 31. 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 Past Five Years of Earnings Per Share Growth (column AF), high to low. Eliminating companies that had increases below 7.2% cut the list to 76 companies. Why 7.2%? The Rule of 72, implies that we can expect a doubling within 10 years at that rate. So, for example, earnings of $1 per share would be $2 in 10 years, $4 in 20 years, $8 in 30 years, etc.

Step 2: Sort the companies by their Five-Year Dividend Growth Rate (column AO), high to low, and eliminate any company with a percentage below 7.2%. 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 50 companies. Applying the same threshold to the Most Recent % Increase (column L) trimmed the list of candidates to 39 companies. I did this to insure that none of the candidates had recently tightened the purse strings.

Step 3: Sort the companies by their Estimated Five-Year Earnings per Share Growth (column AG), high to low, and eliminate any company with a percentage below 7.2%. The implication is that if a company grows earnings by that much, then it should be able to increase the dividend rate to a similar degree. This step cut the list to 33 companies.

Step 4: 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 seven companies, which appear below.

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

Company

Ticker

No.

5/31

Div.

MR%

Past5y

Est 5y

DGR

Name

Symbol

Yrs

Price

Yield

Inc.

Growth

Growth

5-yr

Baxter International

(BAX)

7

70.33

2.79

8.89

9.9

9.1

16.4

Bob Evans Farms

(BOBE)

7

46.16

2.38

10.00

8.1

8.0

13.4

Coca-Cola Enterprises

(CCE)

6

37.16

2.15

25.00

7.8

10.1

21.7

Evercore Partners Inc.

(EVR)

6

39.72

2.22

10.00

37.7

20.0

14.9

Rogers Commun.

(RCI)

8

45.31

3.50

11.37

16.7

9.4

38.2

Unum Group

(UNM)

5

28.48

2.04

11.54

10.9

9.5

9.4

Williams-Sonoma

(WSM)

8

53.96

2.30

40.91

7.7

12.9

14.6

MR=Most Recent; DGR=Dividend Growth Rate (Earnings Per Share Data from FinViz.com)

Conclusion

As usual, there are some familiar names, along with a few surprises. Be sure to consider the tax implications when investing in foreign companies or MLPs (master limited partnerships). 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 images.

Source: Dividend Challengers Smackdown XXXIX