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Sometimes the best action to take is no action at all.

Introduction

I published a Seeking Alpha article earlier this week entitled These Dividend Growth Stocks Have Historically High Yields. In that article I presented the stocks in David Fish's Challengers, Contenders, and Champions list whose current yields are high in comparison to their recent (3-year to 15-year) historical yields.

The only way for a stock with growing dividends to offer a high current yield, as compared to its recent historical yield, is for its recent price growth to have lagged its recent dividend growth. If there is no fundamental reason underlying this mismatch between price growth and dividend growth, then such a stock may present the opportunity for outsized return going forward.

On the other hand, a stock with growing dividends that offers a low current yield, as compared to its recent historical yield, is one whose recent price growth has outstripped its recent dividend growth. Such stocks are frequently overvalued and may stagnate or decline in price going forward.

This article is meant to be a companion to the article linked above. In this article I present the Challengers, Contenders, and Champions having a historically-low current yield, where historically-low is defined as at least one standard deviation below average in all three trailing 15-year, 10-year, and 5-year windows for Champions, all three trailing 10-year, 7-year, and 4-year windows for Contenders, and all three 7-year, 5-year, and 3-year windows for Challengers.

Unsurprisingly, in today's heated market there are many more dividend growth stocks offering historically low yields than historically high yields.

I would be exceptionally cautious about purchasing any of the stocks mentioned in this article at this point in time.

Dividend growth stocks with historically low yields

Champions with historically low current yield

Stock yield #s.d. below trailing 5-year yield #s.d. below trailing 10-year yield #s.d. below trailing 15-year yield
Atmos Energy Corp. (ATO) 3.08% 2.033 2.701 2.364
Black Hills Corp. (BKH) 2.98% 1.891 1.453 1.43
CR Bard Inc. (BCR) 0.61% 2.459 1.787 1.075
California Water Service Group (CWT) 2.86% 1.768 1.27 1.303
The Chubb Corp. (CB) 1.87% 1.716 1.338 1.114
Community Trust Bancorp Inc. (CTBI) 2.93% 2.829 1.216 1.228
Energen Corp. (EGN) 0.77% 1.952 1.383 1.041
Genuine Parts Company (GPC) 2.66% 1.345 1.193 1.33
Gorman-Rupp Co. (GRC) 1.05% 1.631 1.14 1.262
HB Fuller Co. (FUL) 0.83% 1.65 1.243 1.42
Hormel Foods Corp. (HRL) 1.57% 1.77 1.1 1.099
MGE Energy Inc. (MGEE) 2.91% 1.519 2.25 1.53
National Fuel Gas Company (NFG) 2.14% 1.063 1.36 1.605
Pentair Ltd. (PNR) 1.48% 1.998 1.056 1.189
PPG Industries Inc. (PPG) 1.34% 1.304 1.824 2.19
RPM International Inc. (RPM) 2.49% 1.443 1.556 1.665
The Sherwin-Williams Company (SHW) 1.08% 1.383 1.847 2.132
Tennant Company (TNC) 1.19% 1.102 1.231 1.579
Vectren Corporation (VVC) 4.08% 1.853 1.491 1.504
V.F. Corp. (VFC) 1.90% 1.4 1.476 1.584
W.W. Grainger, Inc. (GWW) 1.39% 1.254 1.147 1.043
WGL Holdings Inc. (WGL) 3.75% 1.35 1.787 1.793

Contenders with historically low current yield

Stock yield #s.d. below trailing 4-year yield #s.d. below trailing 7-year yield #s.d. below trailing 10-year yield
Cass Information Systems, Inc. (CASS) 1.23% 3.192 1.849 1.448
Chesapeake Utilities Corporation (CPK) 2.85% 1.458 1.591 1.828
Community Bank System Inc. (CBU) 3.01% 2.87 2.066 1.22
Ecolab Inc. (ECL) 0.86% 3.292 2.057 1.795
Enbridge Inc. (ENB) 2.8% 1.07 1.318 1.154
Enterprise Products Partners L.P. (EPD) 4.47% 1.126 1.252 1.572
The First of Long Island Corp. (FLIC) 2.6% 2.606 1.371 1.427
Franklin Electric Co., Inc. (FELE) 0.79% 1.325 1.397 1.09
The Laclede Group, Inc. (LG) 3.63% 2.065 1.573 1.895
Lincoln Electric Holdings Inc. (LECO) 1.13% 2.339 1.341 1.513
Magellan Midstream Partners L.P. (MMP) 3.67% 1.541 1.554 1.93
Nike, Inc. (NKE) 1.09% 2.794 1.859 1.352
Nu Skin Enterprises Inc. (NUS) 1.06% 1.881 1.491 1.413
Oil-Dri Corp. of America (ODC) 2.08% 1.93 1.907 1.574
Perrigo Company (PRGO) 0.24% 1.463 1.274 1.479
Polaris Industries, Inc. (PII) 1.32% 1.357 1.222 1.164
RenaissanceRe Holdings Ltd. (RNR) 1.18% 1.9 1.869 1.834
Sunoco Logistics Partners L.P. (SXL) 3.65% 1.293 1.667 2.028
UMB Financial Corp. (UMBF) 1.38% 2.709 1.375 1.304

Challengers with historically low current yield

Stock yield #s.d. below trailing 3-year yield #s.d. below trailing 5-year yield #s.d. below trailing 7-year yield
A. Schulman, Inc. (SHLM) 2.38% 1.754 1.381 1.242
CenterPoint Energy, Inc. (CNP) 3.34% 1.892 1.48 1.355
Energy Transfer Equity, L.P. (ETE) 3.91% 1.803 1.382 1.21
Flowserve Corp. (FLS) 0.8% 1.772 1.481 1.08
Hickory Tech Corp. (HTCO) 4.47% 2.838 1.487 1.579
Hubbell Inc. (HUB.B) 1.69% 1.525 1.149 1.286
ITC Holdings Corp. (ITC) 1.65% 2.32 1.301 1.538
J&J Snack Foods Corp. (JJSF) 0.78% 2.549 1.977 1.642
Sensient Technologies Corp. (SXT) 1.77% 2.57 1.981 2.238
Stewart Enterprises Inc. (STEI) 1.36% 1.571 1.741 1.139
Texas Pacific Land Trust (TPL) 0.27% 2.354 1.587 1.351

Here are some representative graphs from these lists. All graphs follow the following legend.

The black line represents the stock's historical price, while the blue line represents the stock's historical dividend yield. The grey line represents the stock's average historical dividend yield. Green lines represent yield levels that are one and two standard deviations above the historical yield, while orange and red lines represent yield levels that are one and two standard deviations below historical yield levels.


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Thoughts on these stocks

Among the Champions in the tables above, I would love to own Hormel, VFC, and GWW, but their current valuations and low yields prevent them from being prudent purchases at this point in time. Hormel has a forward p/e of 19.30, VFC has a forward p/e of 18.12, and GWW has a forward p/e of 20.00. Note that VFC recently upped its dividend to $1.05 per quarter (up from $0.87), for an increase of 20.7%. This is not yet reflected in the graph above because my data set only contains dividends that have already passed their ex-date. (After all, it is possible, albeit rare, for a declared dividend to be cancelled.) However, even with its new higher yield, VFC's yield is still at least one standard deviation below average.

Among the Contenders, I am most interested in Nike but cannot consider purchasing a position at this point in time. Nike shares are up 66% in price alone in the last 12 months and the stock sports a forward p/e of 21.99. I am also curious about Ecolab, but its shares have rallied about 50% in the last 12 months and its forward p/e is a hefty 25.25.

This screen also turned up a couple of MLP's I've seen in several dividend growth portfolios, namely EPD and MMP. While their yields are still decent, they are nothing like their historical yields. MMP is up nearly 50% this year in price alone and sports a forward p/e of 21.70, whereas EPD is only up about 20% this year in price and has a forward p/e of 20.50. These may still be reasonable investments right now, but before investing one should take into account the full historical yield picture.

None of the Challengers look particularly interesting to me.

Data sources

Price and dividend history were sourced from Yahoo Finance and individual company web pages. Split history was sourced from getsplithistory, Yahoo Finance, and individual company web pages. All computations were performed and all charts were drawn using the computational mathematics package Sage.

Summary and conclusions

I would suggest exceptional caution and due diligence before investing in any of the stocks listed in this article at their current price levels. As we can see from the graphs above, most of these companies offered good entry points (where their stocks offered above-average yield) within the last couple of years. Although I am interested in owning several of these stocks, I am going to wait until I can get a better yield from them and will invest in other opportunities in the mean time.

As always, it is up to you to do your own due diligence.

Source: Beware These Dividend Growth Stocks With Historically Low Yields