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You may not be familiar with NACCO Industries (NC), but the company took on a special role in May, when it raised its dividend for the 25th year in a row. It wasn't the size of the dividend increase (just 0.97%, from 51.75¢ to 52.25¢ per share) that made it special. In fact, that small increase could be considered relatively inadequate by the standards of many dividend investors, and the 2.5% yield is not particularly spectacular. What made the event special was that NACCO became our first official “graduate” from the Contenders list (of companies that have paid higher dividends for 15-24 years) to the Champions roster of companies that have paid higher dividends for at least 25 years. And, in the process, it raised the number of Champions back to an even 100 companies.

Since I began compiling the Champions list in late 2007, the number of companies had shrunk from more than 140 to less than 100, primarily as a result of all the dividend cuts that took place in early 2009, especially among financial stocks. Some companies fell by the wayside because they paid the same amount in 2009 as in 2008, and a few were merged or acquired out of existence. The good news is that there are more Contenders headed towards graduation. The bad news is that the Champions list may still dip below 100, at least temporarily. That's because there are 10 companies that would need to be deleted if they fail to increase their payout this year (since their 2010 dividends would be the same as they paid in 2009). Fortunately, they have almost seven months to avoid that fate.

Two companies that are likely to log their 25th straight year of increases before year-end are Brady Corp. (BRC) and McCormick & Company (MKC). Based on historical patterns, Brady should go Ex-Dividend with an increase in October and McCormick should do so in late December. Following on their heels as graduates in the first quarter of 2011 should be Tompkins Financial (TMP) and HCP Inc. (HCP) in February and Donaldson Company (DCI) and Raven Industries (RAVN) in March. The dividend yields on these range from 1.1% for Donaldson to 5.8% for HCP, which is a real estate investment trust (REIT). In all, there are 82 companies on the Contenders list, and several dozen additional companies have increased their dividend for at least 12 years, so the Champions roster promises to be replenished for some time to come.

To download the latest version of the U.S. Dividend Champions spreadsheet or PDF, go here.

The Good, the Bad, and the Ugly

Newly added this month is a tab called DivHistory, which lists the annual total payout by the Dividend Champions over the past 10 years, along with the percentage change (of the 2009 payout) for 5 and 10 years. I chose not to show an average percentage or a compound rate for the sake of simplicity. The raw numbers provide a good snapshot and act as backdrop for the main listing's latest percentage increase. (A good rule of thumb is to employ the “Rule of 72” to ballpark the historical pattern. For example, a company whose dividend has doubled, or increased by 100%, in the previous 5 or 10 years, has logged increases of 14.4% or 7.2%, respectively.) The new tab can help to confirm a stock's recent generosity (or lack thereof) by demonstrating a pattern of consistency, either on the positive or the negative side.

A positive example is Clorox Company (CLX), which just raised its quarterly dividend by 10%, from 50¢ to 55¢ per share. Looking at the DivHistory, we see that Clorox had increased its payout by 77.8% from 2004 to 2009 and by 152.6% from 1999 to 2009, so its 10% boost this year is very consistent with its previous increases, which stretch back 33 years. Similarly, Johnson & Johnson (JNJ) announced a 10.2% increase recently, and we find that its 5- and 10-year increases were for 76.3% and 254.1%, respectively. One could speculate that, since the rate of increase has slowed from the 1999-2004 period, future hikes may be smaller by comparison, but there's no question that the company has been generous in hiking the payout in each of the past 48 years.

On the negative side, I'm sure that I'm not alone in being somewhat suspicious of the miniscule increases that some companies seem to use in order to keep a streak alive. For example, the latest increases by California Water Service (CWT) and Consolidated Edison (ED) were both for just 0.85%, extending their streaks to 43 and 36 years, respectively, Sure enough, we find by checking the DivHistory that CWT paid a 2009 dividend that was just 8.8% higher than in 1999 and that ED's 2009 dividend was just 10.3% more than it paid a decade earlier. So anyone investing in those companies now should definitely not count on much dividend growth! ConEd's 5.6% yield might be enough to attract some folks, but they shouldn't count on much beyond that.

Another “ugly” factor that the DivHistory helps to highlight is the phenomenon that I labeled as the dividend increase “alternator.” These are companies that keep a streak alive by hiking their dividend rate every other year, at least some of the time. They can claim to have paid higher dividends each year because the increase comes mid-year, so the “in-between” years still qualify, in total. (This situation is one reason that I sub-titled the spreadsheet as Consecutive Years of Higher Dividends, rather than Consecutive Annual Increases.) The new tab highlights in red any year in which a company did not declare an increase, making it much easier to spot the “offenders.” Leading the pack is Helmerich & Payne (HP), which literally raises its rate every other year, and only then by a small amount.


Not all Dividend Champions are created equal, but having 100 such companies (plus the Contenders) to choose among is certainly a good starting point for any dividend-oriented investor. Whether you focus on yield, percentage increase, or the consistency of their histories, these companies offer a certain degree of safety and stability. Perhaps most important, they could not continue to increase their payouts unless they were able to grow earnings on a regular basis, and their long histories bode well for future growth.

Disclosure: Of the companies mentioned in this article, Author owns only JNJ. However, he owns several dozen Dividend Champions and Contenders through DRIP (Dividend Reinvestment Plan) accounts.

Source: Nacco: From 'Contender' to 'Champion'