Super Dividend Challengers: October 2013 Edition

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 |  Includes: ABC, CHE, DRI
by: John Rhodes

So far, I've provided you with the "Best of the Best" dividend stocks in Super Dividend Champions (October 2013) and Super Dividend Contenders: October 2013 Edition by using David Fish's Dividend Champion Spreadsheet. I advise you to read those first to fully understand the process.

In those articles, I focused on Dividend Champions and Dividend Contenders. In this article, I focus on Dividend Challengers. But first, in David's words:

"Champions mean 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 universe of Champions, Contenders, and Challengers."

So, I'm specifically looking at businesses with dividend streaks of 5-9 years. And, as a reminder, you can apply this exact process to Dividend Champions and Dividend Contenders.

Choosing the Data

I'm using these 9 columns of data from David Fish's spreadsheet and the 10th column ("S") is an equal-weighted sum of the data. I'm assuming that no column is more important than any other column.

I'm also providing the shorthand for the column labels. For example, "C" is for Chowder, "T" is for Tweed, and so on. This will make cross referencing easier for you.

  • Chowder ("C")
  • Tweed ("T")
  • Div Yield ("Y")
  • EPS % Payout ("E%")
  • Past 5 Years Div Growth ("G")
  • A/D Ratio ("AD")
  • Payback Years ("PB")
  • Price Above Low ("L")
  • Confidence Factor ("CF")
  • Summarized Data ("S")

Below you'll see the results but please be sure to keep reading. I'm going to provide some additional color on the results and also point out some of the limitations in the data that impact the results.

Let's take a look:

Super Dividend ChallngersClick to enlarge

Limitations and Caveats

Take a look at the "S" column on the far right. That's the rank ordered summarized data. The higher the number the stronger the company based on all the factors outlined above.

If you're a data geek or you want to better understand the process keep reading. Otherwise, skip to the next section right now.

Please remember that all columns are equally weighted. That is, no column is more important or special. Every column contributes 1/9th the "juice" for the summarization in the 10th column. I'm keeping it simple although you could easily create a weighted average.

I also need to point out that the summarized data (i.e., data in the "S" column) is higher than that data you'll see in the Super Dividend Champions (October 2013) article but it's less than what you'll see in the Super Dividend Contenders: October 2013 Edition article. The reason is that there are 105 Dividend Champions and 210 Dividend Contenders but only 154 Dividend Challengers per David Fish's spreadsheet.

And lastly, some data is unavailable or not applicable for a variety of reasons. For example, there are several companies with "N/A" data for the A/D Ratio.

In cases where data isn't available or "N/A" I used "1" for the column data. I admit that this penalizes those businesses but the alternative is exclusion of that entire column of data. I could get fancy pants with this by using some sort of average but that is a level of complexity that I don't want.

Sidebar: A/D Ratio Adjustment

99 of the 154 Dividend Challengers had "N/A" for the A/D Ratio. Two things about that. First, that many N/A's kind of freaked me out. Second, I couldn't even wrap my head around the fact there was any data. That's because the A/D Ratio is the 5-year average increase divided by 10-year average increase.

How's that possible given that Challengers are companies with streaks of 5-9 years? I'll let David Fish explain or maybe it already makes total sense to you.

OK, so here's what the Super Dividend Challengers look like with A/D ratio removed:

Super Dividend Challengers AdjustedClick to enlarge

True Value of This Process

As I mentioned in my previous articles:

  • We're not looking for cigar butts.
  • We're not reaching for yield.
  • We're not trying to time the market.
  • We're not trying to find the "best" company.
  • We're not even trying to find the absolute best deal.

Instead, we're trying to narrow our focus down to the best of the best companies that have paid and grown dividends for 5 to 9 years; Dividend Challengers. We're trying to compare them to each other. We're trying to figure out who deserves attention and who does not.

In short, this is a simple way to rationally sort Dividend Challengers at the start of October 2013.

Next Steps?

Do not be deceived by high rankings alone. Although this process is rational, the output you see above is not the end game. To be blunt about it, these Super Dividend Challengers are undervalued, fairly valued, or overvalued. You've got to look under the covers.

If you're trying to narrow your focus even more, Chuck Carnevale's F.A.S.T. Graphs can help you dig deeper. What do you think about AmerisourceBergen Corp. (NYSE:ABC), Darden Restaurants (NYSE:DRI) and Chemed Corp. (NYSE:CHE)?

ABCClick to enlarge

DardenClick to enlarge

CHEClick to enlarge

Although we're starting from a baseline of reasonable strength you still have to consider price and value. It's just the start of your own due diligence. Nothing can replace that.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.