Dividend Challengers Smackdown XL
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 Dividend Growth and Estimated 5-year Earnings per Share Growth (using a 6% threshold for both) and, last month, by the Past 5 Years of Earnings per Share Growth and the 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. "CCC" refers to the combination of all three groups. I use the same Roman numeral for all three articles.)
This month, I decided to try a "HiLoHiLo" approach...in other words, favoring alternating metrics that an investor would normally want to be High or Low numbers. Note that I'm using my working copy of the July spreadsheet, so some recent increases are included, but price and other metrics are as of June 28. 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 the companies by their 5-year Dividend Growth Rate (column AO), high to low, and eliminated any company with a percentage below 7%, which is at least twice the long-term rate of inflation. This step produced 83 candidates. Applying the same threshold to the Most Recent % Increase (column L) trimmed the list of candidates to 59 companies. Like last month, I did this to insure that none of the candidates had recently tightened the purse strings.
Step 2: Sort the companies by their 5-year Beta (column CG), low to high, and eliminate any company with a Beta of 1 or above. This ensures that the remaining candidates are less volatile than the overall market. This step cut the list to 28 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 12 companies.
Step 4: Sort the remaining companies by their Price/Earnings ratio (column V), low to high, and eliminate companies with P/Es above 17. (I wanted to give the companies a little leeway above the "normal" P/E of 15.) This step cut the list to 7 companies, which appear below.
(Note that I've sorted the companies back into alphabetical order.)
Baxter International Inc.
MR=Most Recent; TTM=Trailing Twelve Months; DGR=Dividend Growth Rate (Earnings Per Share Data from FinViz.com)
As usual, there are several familiar names, which is a good indication of the long-term consistency of the "dividend cultures" at these companies. Please consider any tax implications when choosing foreign firms, such as ACN and RCI. As always, please consider this no more than a starting point for more in-depth research.
With this, the 40th Smackdown in a series that started in July 2010, I am going to suspend these stock screens, at least as a "regular" monthly article, for at least two reasons. First, it has become apparent that the process is in danger of becoming repetitive, as there are only so many important metrics that can be screened in various sequences, and I don't want to lead people to believe that the ones I've chosen are the most important, which leads to my second reason: I have always wanted to encourage people to do their own screening and develop their logical thought processes, which include selection of what is most important to them. I might add that a third reason is simply that I have strayed from my expressed desire to "work less, not more!"
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.
Disclosure: I am long RTN. 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.