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In this article I continue to explore the intersection of stocks focused on shareholder value and those that have consistently grown their dividends. For my purposes here, shareholder value emphasizes directing cash in ways that directly benefit a company's shareholders: dividends, buybacks, and paying down debt.

In a previous article I used two sources for identifying companies that fit these criteria. The first, which I will use here again, is the David Fish Champions, Contenders and Challengers (CCC) list that describes companies that have raised their dividends for at least 25 years, 10 to 14 years, and 5 to 9 years, respectively. David updates the list monthly (download here) and it is widely considered one of the great resources available when researching stocks. For the second, I chose the S&P 500 Buyback Index, which lists the 100 stocks with the highest buyback ratio in the S&P 500. I called that portfolio of 23 stocks the Dividend-Growth Buyback Intersection Portfolio (DGBI). In this article, I take a similar tack, but this time I look at the overlapping between companies in the CCC list and those held by the Cambria Shareholder Yield ETF (NYSEARCA:SYLD), which uses a proprietary quantitative algorithm to "select U.S. listed companies that show strong characteristics in returning free cash flow to their shareholders." The ETF invests in 100 stocks with market caps greater than $200 million based on paying cash dividends, engaging in net share repurchases, paying down. The ETF is a recent addition to the ETF universe with an inception date of May 14, 2013.

The Portfolio

Among SYLD's 100 current holdings there are 30 companies that are included in the CCC list.

The fact that 30% of SYLD's holdings have increased their dividend payouts to shareholders for a minimum of 5 years is a reflection of the quality of its portfolio. These 30 companies are in 7 sectors as shown in the chart below.

Company

Symbol

Market Cap

AmerisourceBergen Corp.

ABC

$13B

American Financial Group Inc.

AFG

$4.59B

Ameriprise Financial Inc.

AMP

$17B

Astrazeneca plc

AZN

$62B

Becton Dickinson & Co.

BDX

$19B

Coca-Cola Enterprises Inc.

CCE

$10B

CVS Caremark

CVS

$72B

Flowserve Corp.

FLS

$7.88B

General Dynamics

GD

$29B

Gap Inc.

GPS

$20B

Kimberly-Clark Corp.

KMB

$36B

Kroger Company

KR

$20B

L-3 Communications Holdings Inc.

LLL

$8.20B

Lowe's Companies

LOW

$47B

Meredith Corp.

MDP

$2.00B

Northrop Grumman

NOC

$22B

Nippon Telegraph & Telephone

NTT

$59B

Nu Skin Enterprises Inc.

NUS

$4.98B

PPG Industries Inc.

PPG

$22B

PartnerRe Limited

PRE

$4.75B

Reynolds American Inc.

RAI

$26B

RenaissanceRe Holdings

RNR

$3.80B

Raytheon Company

RTN

$25B

J.M. Smucker Co.

SJM

$12B

Safeway Inc.

SWY

$6.46B

AT&T Inc.

T

$179B

Target Corp.

TGT

$44B

Texas Instruments

TXN

$42B

Unum Group

UNM

$7.76B

Wal-Mart Stores Inc.

WMT

$241B

(click to enlarge)Performance

Total return for the past 52 weeks for these 23 stocks has been outstanding with an average increase of 33.72%, a very impressive 82.4% increase over the 18.49% gain for the S&P500 (NYSEARCA:SPY). All but one were winners over the past year, and all but 8 (KMB, NTT, RAI, RNR, T, TGT, WMT) topped the SPY. It's worth noting here that this portfolio handily beat the 21.28% total return of SDY, the ETF that invests in the so-called dividend aristocrats of the S&P 500, i.e. those that have increased their dividends for a minimum of 25 years. For the year, the DG-SV portfolio's return exceeded that of SDY by 58.84%. What makes this performance especially impressive is the fact that the beta for DG-SV is only 0.89. This is serious alpha by any measure. (Total return performance data from Morningstar.)

(click to enlarge)

Keeping in mind that SYLD is only three months old, I thought it might be informative to see how this subset of the ETF's holdings has done compared to the ETF as a whole for the past three month. Interestingly, the average here is 3.3%, essentially identical to the full SYLD portfolio which has had a total return of 3.2% over the time. Very strong results on either count considering that SPY, the S&P500 index fund, has had a slight loss (-0.8%).

Dividends and Dividend Growth

Much as the case for the DGBI portfolio, the companies here have solid, but not spectacular, dividend yields. The average dividend is 2.47%. Dividend growth rates are, on the other hand, generally quite impressive. There are average dividend growth rates here of 16.7, 15.2 and 14.7% for 1, 3, and 5 years, respectively (data from CCC list). Dividend values are summarized in the following chart.

(click to enlarge)

(click to enlarge)

Valuations

The table below provides a summary overview of valuations for the portfolio. Averages for trailing PE ratio is 15.6; for forward PE it's 14.9 and for EV:EBITD it's 8.7.

SYMBOL

TOTAL EV

TRAIL P/E

FRWD P/E

P:SALES

P:BOOK

EV:EBITDA

EV:SALES

PEG Ratio

ABC

13B

24.7

18.3

0.2

5.4

9.9

0.2

1.4

AFG

5.54B

9.4

12.8

0.9

1.0

8.7

1.1

1.6

AMP

20B

15.5

13.1

1.6

2.1

11.3

1.9

0.7

AZN

64B

12.8

9.7

2.4

2.7

7.1

2.4

-

BDX

21B

13.0

16.9

2.4

4.0

9.8

2.6

1.8

CCE

13B

17.8

15.1

1.3

4.8

11.6

1.7

1.5

CVS

80B

17.4

14.8

0.6

1.9

8.3

0.7

1.1

FLS

8.90B

18.1

16.6

1.6

4.6

11.3

1.8

1.1

GD

30B

-

12.1

0.9

2.5

8.7

0.9

2.0

GPS

20B

16.8

15.5

1.3

6.3

7.7

1.2

1.2

KMB

42B

20.2

16.7

1.7

8.3

11.4

2.0

2.2

KR

20B

13.1

13.7

0.2

4.3

4.5

0.2

1.5

LLL

11B

10.9

11.2

0.6

1.5

7.1

0.9

5.9

LOW

55B

25.1

21.1

0.9

3.5

10.5

1.1

1.2

MDP

2.32B

16.3

16.0

1.4

2.4

11.0

1.6

1.1

NOC

23B

11.7

12.1

0.9

2.3

6.3

0.9

8.5

NTT

93B

10.9

9.8

0.5

0.7

2.9

0.8

2.3

NUS

4.76B

22.0

16.9

2.1

7.2

11.9

2.0

0.8

PPG

24B

7.1

19.6

1.5

4.5

10.8

1.6

2.2

PRE

5.57B

9.3

10.1

0.9

0.8

7.4

1.1

1.1

RAI

30B

17.5

15.0

3.2

5.2

10.3

3.7

2.0

RNR

3.80B

9.0

8.5

2.9

1.2

6.3

2.9

1.0

RTN

26B

13.0

13.6

1.0

2.9

7.5

1.1

1.9

SJM

13B

22.1

19.2

2.0

2.3

11.0

2.3

2.6

SWY

10B

12.2

24.3

0.2

2.0

5.1

0.2

1.9

T

250B

25.1

13.7

1.4

2.1

8.3

2.0

2.1

TGT

56B

16.1

15.9

0.6

2.7

7.9

0.8

1.5

TXN

44B

21.4

20.5

3.4

3.8

11.4

3.6

2.2

UNM

11B

9.0

9.1

0.7

0.9

7.5

1.0

1.1

WMT

287B

14.4

14.2

0.5

3.4

7.8

0.6

1.6

average

15.6

14.9

1.3

3.2

8.7

1.5

2.0

Analyst Opinions

I've looked at the StarMine Equity Summary Score as a surrogate for analysts' opinions. It's far from a perfect metric, but it does provide a reasonable summary. The score is based on a minimum of four analysts (typically more than four for well covered stocks such as these) and is weighted to reflect each analyst's history based on such things as the kinds of recommendations the analyst tends to give and their track record in the sector and industry. It uses a ten-point scale graded from very bearish (<1.0) to very bullish (>9.0). The average score for this DG-SV portfolio is 7.4 (bullish). Six (KR, CVS, RTN, NOC, UNM, NUS) are in the very bullish range and 10 more (AFG, GD, LLL, FLS, GPS, NTT, SJM, AMP, CCE, SWY) in the bullish range. The remaining 14 are rated neutral.

(click to enlarge)

Summary

I have been looking for buying opportunities with an eye to stocks that rank high for shareholder values. Not being inclined to reinvent the wheel, I have begun by looking at what resources are available. My first cut used the S&P 500 index as a starting point. This index comprises the 100 stocks with the highest buyback ratios in the S&P 500. As commenters pointed out, not all buybacks are equivalent, some provide much more shareholder value than others.

For this second cut, I've expanded the criteria for shareholder value by borrowing the list of holdings from SYLD, a newly established ETF that specifically invests in 100 companies identified by their proprietary algorithm for providing high shareholder value. The metrics they use include using cash for dividends, buybacks and paying down debt. To narrow the list and to emphasize dividend growth, I looked at the set of stocks that are included in the SYLD holds and in the Fish CCC list. I was surprised to find that this produced 30 stocks, fully 30% of the SYLD portfolio. The DG-SV portfolio has shown impressive performance, although much caution is called for in basing evaluations on the performance of a list of stocks that was selected as recently as last May. It will be interesting to follow this portfolio, updating and rebalancing quarterly to include additions and subtractions from the two sources. I plan to do this the future, and I hope to report back with quarterly updates.

This is, of course, a summary overview. But, I submit that there are interesting ideas here. Some of the stocks turned up in this process are clear favorites of the dividend growth investor. Others may be less popular but well worth a thorough look. While some appear to be overvalued at present, there may be opportunities looming as the apparent market correction proceeds. Obviously, any investor should thoroughly research the appropriateness of any stock with regard to how it may fill one's individual goals. Finally, as always, I'd appreciate any comments, concerns or corrections Seeking Alpha readers have with regard to either the approach or the list.

Source: Dividend Growth Or Shareholder Value? Why Not Both?