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Summary

  • Dividend Champion stocks are similar to Dividend Aristocrats in that they are dividend paying stocks that have increased dividends for at least 25 consecutive years.
  • Using 10 different metrics, I have ranked the Dividend Champions into different classes with 'Heavyweights' being the most attractive and 'Flyweights' being the least attractive.
  • The 8 stocks that fit into the Light Heavyweight class of Dividend Champions include: FDO, AWR, DCI, NDSN, MMM, GPC, LOW, and HRL.

Overview

This is Part 2 of a series of articles ranking the Dividend Champion stocks (currently 105 stocks compiled by Dave Fish). Part 1 of the series, reviewing The Heavyweights, can be found here.

In ranking the dividend champions, I used the following 10 metrics (full scoring system can be seen in Part 1):

  • Number of Consecutive Years With Dividend Increases
  • Current Dividend Yield
  • PE Ratio (trailing twelve months)
  • Return on Assets (trailing twelve months)
  • Return on Equity (trailing twelve months)
  • Asset Utilization (trailing twelve months)
  • 3 Year Price Returns
  • Dividend Growth (past five years)
  • Revenue Growth (past five years)
  • Earnings Growth (past five years)

For each metric, a stock has been assigned a point value based on its current assessment. For example, a stock with a dividend yield of 5.50% would receive a 10 point value for that metric, while a stock with a 3.50% dividend yield would receive a 6 point value and a stock with a dividend yield less than 1.00% would receive a 1 point value. So for each metric, an initial point value of between 1 and 10 can be earned.

The next step I have taken is to apply a weight to certain metrics I feel more or less important than others. Because I consider myself a dividend growth investor, the metrics with the highest weights are earnings growth (2.0x) , dividend growth (1.75x), revenue growth (1.5x), and 3 year price returns (1.25x). The number consecutive years with dividend increases is weighted at 0.75x and asset utilization is weighted at 0.50x, while all remaining metrics are weighted to their original values.

After completing the analysis, the weighted scores assigned to individual stocks ranged from 92 to 23.50.

Note: Because of the high number of stocks being evaluated, I relied on data provided by ycharts rather than calculating my own ratios/values for each metric. Because of this, the stock Computer Services (OTCQX:CSVI) has not been included in the analysis as required data was not available. So, 104 out of the 105 dividend champions will be included in this series of articles.

For Part 2, I will be taking at look at the Light Heavyweight stocks which include:

  • Family Dollar (NYSE:FDO) - Total score of 79.5
  • American States Water (NYSE:AWR) - Total score of 79
  • Donaldson (NYSE:DCI) - Total score of 79
  • Nordson (NASDAQ:NDSN) - Total score of 78.50
  • 3M Company (NYSE:MMM) - Total score of 78.25
  • Genuine Parts (NYSE:GPC) - Total score of 76
  • Lowe's (NYSE:LOW) - Total score of 76
  • Hormel (NYSE:HRL) - Total score of 75.25

Family Dollar

Family Dollar is a chain of discount stores operating throughout a large number of states in the U.S. The company was founded in 1959 and is headquartered in Matthews, North Carolina.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases3864.5
Current Dividend Yield2.21%33
PE Ratio16.43x88
Return on Assets10.19%77
Return on Equity25.49%1010
Asset Utilization2.67x105
3 Year Price Returns8.41%22.5
Dividend Growth129.60%1017.5
Revenue Growth40.41%46
Earnings Growth85.10%8

16

Family Dollar's strengths can be seen in its impressive earnings and dividend growth as well as its significant long term price returns.

Some recent developments concerning Family Dollar include:

  • In its latest quarterly report, Family Dollar stated that same store sales dropped 3.8% compared to the same period last year.
  • Family Dollar announced it will be closing 370 stores and dropping prices on 1,000 items.
  • Family Dollar recently cut approximately 10% of its corporate workforce.

American States Water

American States Water Co. provides water and electric utility services to residential and commercial customers. The company was founded in 1929 and is headquartered in San Dimas, California.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases59107.5
Current Dividend Yield2.61%44
PE Ratio19.41x77
Return on Assets4.79%44
Return on Equity13.28%66
Asset Utilization0.36x42
3 Year Price Returns76.15%78.75
Dividend Growth62.00%915.75
Revenue Growth33.64%46
Earnings Growth97.55%9

18

American States Water has seen very impressive earnings, dividend, and long term price returns.

Some recent developments concerning American States Water include:

  • American States Water has approved a new share repurchase program that will allow the company to buyback 1.25 million shares of common stock (approximately 3.2% of the company's outstanding stock).
  • Last month, American States Water was upgraded to a strong buy by Zacks Equity Research, partly due to its positive earnings beats over the past four quarters.
  • American states Water was upgraded to a buy by Brean Capital after its last quarterly earnings report.

Donaldson

Donaldson Company, Inc., is a worldwide provider of filtration systems and replacement parts. The company was founded in 1915 and is headquartered in Minneapolis, Minnesota.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases2721.5
Current Dividend Yield1.36%22
PE Ratio23.50x66
Return on Assets14.89%99
Return on Equity24.04%99
Asset Utilization1.38x105
3 Year Price Returns33.71%45
Dividend Growth143.50%1017.5
Revenue Growth30.41%46
Earnings Growth97.63%9

18

Donaldson has seen very impressive dividend and earnings growth as well is significant returns on equity and assets.

Some recent developments concerning Donaldson include:

Nordson

Nordson Corporation is a diversified industrials company that designs and manufactures dispensing equipment for consumer and industrial adhesives, sealants and coatings. The company also has an Advanced Technology Systems business segment. Nordson was founded in 1954 and is headquartered in Westlake, Ohio.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases5096.75
Current Dividend Yield1.02%22
PE Ratio21.29x77
Return on Assets11.19%77
Return on Equity26.58%1010
Asset Utilization0.81x94.5
3 Year Price Returns23.84%33.75
Dividend Growth97.26%1017.5
Revenue Growth88.35%812
Earnings Growth38.55%4

8

In addition to 50 consecutive years of dividend increases, Nordson has also seen very impressive returns on equity and dividend/revenue growth.

Some recent developments concerning Nordson include:

  • Nordson introduces new FlexTRACK-CDS Plasma System.
  • Nordson opens new technical center in Shanghai to support continued growth.
  • Nordson ASYMTEK enters agreement with Esman Elektronik for distribution in Turkey.

3M Company

The 3M Company is a multinational company that produces over 55,000 different products throughout various countries. The company was founded in 1902 and is headquartered in Maplewood, Minnesota.

ValueMetric ScoreWeighted Metric Score
Number of Consecutive Years With Dividend Increases56107.5
Current Dividend Yield2.55%44
PE Ratio19.94x77
Return on Assets13.77%88
Return on Equity26.22%1010
Asset Utilization0.91x105
3 Year Price Returns43.75%45
Dividend Growth67.65%915.75
Revenue Growth33.51%46
Earnings Growth49.78%5

10

3M has had 56 consecutive years of dividend increases as well as very high returns on both assets and equity.

Some recent developments concerning 3M include:

  • 3M's Cold Shrink QS4 now widely available for construction and industrial market.
  • 3M annonuced impressive results of customer satisfaction survey related to the 3M Cloud Library.
  • 3M recently completed acquisition of Treo Solutions.
  • 3M launches Android Kernal Patches.

Genuine Parts

Genuine Parts company engages in the distribution of automotive replacement parts, industrial replacement parts, office products and electrical & electronic materials. The company was founded in 1928 and is headquartered in Atlanta, Georgia.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases58107.5
Current Dividend Yield2.72%44
PE Ratio19.17x77
Return on Assets9.15%66
Return on Equity21.91%88
Asset Utilization1.88x105
3 Year Price Returns58.77%56.25
Dividend Growth43.75%712.25
Revenue Growth39.97%46
Earnings Growth76.49%7

14

Genuine Parts has an impressive overall solid financial position in addition to its strong history of 58 years of dividend increases.

Some recent developments concerning Genuine Parts include:

Lowe's

Lowe's Companies, Inc. is a home improvement retailer offering products in several categories including kitchens and appliances; lumber and building materials; tools and hardware; fashion fixtures; rough plumbing and electrical; lawn and garden; seasonal living; paint; home fashions, storage, and cleaning; flooring; millwork; and outdoor power equipment. The company was founded in 1945 and is headquartered in Mooresville, North Carolina.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases5196.75
Current Dividend Yield1.55%22
PE Ratio21.69x77
Return on Assets6.82%55
Return on Equity17.67%77
Asset Utilization1.59x105
3 Year Price Returns72.93%78.75
Dividend Growth111.80%1017.5
Revenue Growth13.12%23
Earnings Growth76.86%7

14

Lowe's has had very impressive earnings and dividend growth along with strong equity and long term price returns.

Some recent developments concerning Lowe's include:

  • Last month, Lowe's was upgraded to Outperform by Oppenheimer as sales look to improve.

Hormel

Hormel Foods Corporation processes, markets, and sells a wide variety of meat and food products. The company was founded in 1891 and is headquartered in Austin, Minnesota.

ValueMetric ScoreWeighted Metric Score
Number Of Consecutive Years With Dividend Increases4886
Current Dividend Yield1.70%22
PE Ratio23.11x66
Return on Assets11.44%77
Return on Equity17.50%77
Asset Utilization1.85x105
3 Year Price Returns70.18%78.75
Dividend Growth110.50%1017.5
Revenue Growth33.95%46
Earnings Growth56.08%5

10

Hormel has seen very impressive earnings, dividend and stock price growth.

Recent developments concerning Hormel include:

  • The acquisition of Skippy peanut butter brand helped lead to increased profit growth according to last quarterly report.

Final Analysis

The eight stocks reviewed above belong to companies with strong financial histories. Based on my metrics, they scored just under the Heavyweights (or best of) class of Dividend Champions. I think each of the stocks mentioned above should be considered as possible buys for long term investors with the exception of one.

Family Dollar is the one stock that I would consider avoiding right now. It has seen several quarters of sales struggles and has performed far worse than the market in general over the past several years. The company is making strides (such as closing stores and cutting jobs) to ensure that earnings are adequate and that rising expenses don't affect the sustainability of its dividend, but I have yet to see any evidence that the company is able to address the large problem with same store sales.

The one bright spot for Family Dollar is that there is always the potential that it is taken over by another company, but that is not a risk I am willing to gamble on. With several other dividend stocks to chose from, I see no reason to put money into Family Dollar until it shows that it can reverse its worsening sales trends.

My personal favorite stocks out of the Light Heavyweight class include: AWR, DCI, and HRL.

American States Water has shown to be committed to providing shareholder value through its dividend growth as well as its recent share repurchase program. As the company continues to invest wisely in its infrastructure, I feel AWR is positioning itself strongly as a company that will continue to provide solid returns well into the future.

Donaldson has had the best dividend growth out of all of the stocks mentioned in this article. In combination with the company's improving cost margins, increased forecasted sales outlook, and its continuing share buyback program, I believe Donaldson will be a great investment for long term investors.

Hormel Foods has seen increased revenue and profit, partly due to its acquisition of the Skippy brand. Hormel continues to expand internationally and keeps adding new products to its portfolio. With a payout ratio well under 50%, the company has plenty of room to continue growing its dividend for years to come.

Conclusion

This ranking system, just like any other investment screen, ranking, or rating system, should be the first step in a long line of analysis to determine whether or not a stock is a right choice for you. Even though Family Dollar had the highest score out of the Light Heavyweight stocks reviewed, it was the one stock I would currently avoid right now.

As always, I suggest individual investors perform their own research before making any investment decisions. Part 3 of this article will feature the 'Supper Middleweight' Dividend Champion stocks (10 stocks that have weighted scores between 70 and 74.99).

Source: Dividend Champions Ranking: Part 2, The Light Heavyweights