I've developed a very simple process for prioritizing the "Best of the Best" dividend stocks using David Fish's Dividend Champion Spreadsheet. (Thank you, David!)
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, for this article, I'm specifically looking at businesses with dividend streaks of 10-24 years (i.e., Dividend Contenders).
Second, for reference, I encourage you to review Super Dividend Contenders: October 2013 Edition. That provides you with a reference point. It will be easier for you to compare last month to this month. I'll also be talking about October vs. November in a short while.
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")
Let's take a look:
Where to Look
First, look at the "S" column on the far right. That's the rank ordered summarized data. The "best" are at the top and the higher the number the stronger the company is, based on all the factors outlined above.
Please understand that this is relative ranking outcome. We're only focused here on Dividend Contenders. It's a universe of 209 stocks.
Second, if you'd like to better understand this ranking process and how to think about the results, I strongly encourage you to read Super Dividend Champions (October 2013). Pay close attention to reader comments. There's plenty of gold to extract.
The 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 those companies that have paid and grown dividends for the last 10 to 24 years; Dividend Contenders.
We're trying to compare them to each other. We're trying to figure out who deserves attention and who does not. This is a simple way to rationally sort Dividend Contenders at the start of November 2013. In short, this is a focusing tool.
October 2013 vs. November 2013
For reference purposes I've compared the Top 20 Super Dividend Contenders in October 2013 to the Top 20 in November 2013.
If you look at the NOVEMBER 2013 data you'll see Company Names that are highlighted in White, Green or Red.
- White = No change in position from Oct 2013 to Nov 2013
- Green = Improvement from Oct 2013 to Nov 2013
- Red = Decline from Oct 2013 to Nov 2013
Please note that this is not an indication of business quality. I cannot stress that enough. Instead, changes from month to month are almost entirely caused by relative price changes and the subsequent dividend yield changes.
Also, many Super Dividend Contenders have increased in price in the last 60 days. So again, you're getting a view of relative strength, not a view of absolute strength.
Do not be deceived by high rankings alone. Although this process is rational, the output you see above, and the month-to-month comparisons, are not the end game. To be blunt about it, these Super Dividend Contenders may be undervalued, fairly valued or overvalued. You've got to look under the covers.
For example, (IBM) is a top Super Dividend Contender. The key reason is that its price continues to stagnate month-over-month while other Contenders are increasing. But, if we look at IBM's long-term value creation it's easier to see their strength. Furthermore, I like IBM's Owner Earnings and I also believe they have a strong moat.
The point here is that Super Dividend rankings alone are not enough. You must perform your own due diligence to understand the business and the value in relation to price, including all the risks.