Dividend Champions Ranking: Part 3, The Supper Middleweights

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 |  Includes: BCR, CL, CTAS, CVX, ITW, MCD, MDT, MO, MSA, XOM
by: Stan Stafford

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 10 stocks that fit into the Super Middleweight class of Dividend Champions include: MO, CVX, MCD, XOM, BCR, MDT, ITW, CTAS, MSA, and CL.

Overview

This is Part 3 of a series of articles ranking the Dividend Champion stocks (currently 105 stocks compiled by Dave Fish). Part 1 (the Heavyweights) and Part 2 (the Light Heavyweights) can be found here and here.

In ranking the Dividend Champions, I have decided to use the following 10 metrics (full scoring system can be seen in Part 1):

  • # 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). # of 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 values 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 3, I will be taking at look at the Super Middleweight stocks which include:

  • Altria Group (NYSE:MO) - Total score of 74.75
  • Chevron (NYSE:CVX) - Total score of 74.25
  • McDonald's (NYSE:MCD) - Total score of 73.75
  • Exxon Mobil (NYSE:XOM) - Total score of 73.50
  • C.R. Bard (NYSE:BCR) - Total score of 72.75
  • Medtronic (NYSE:MDT) - Total score of 72.50
  • Illinois Tool Works (NYSE:ITW) - Total score of 71
  • Cintas (NASDAQ:CTAS) - Total score of 70.75
  • MSA Safety (NYSE:MSA) - Total score of 70.50
  • Colgate-Palmolive (NYSE:CL) - Total score of 70

Altria Group

Altria Group, Inc. is one of the largest tobacco corporations in the world. It produces a variety of tobacco products under a number of different brands including: Marlboro, Black & Mild, Copenhagen, Skoal, and Red Seal. The company was founded in 1919 and is headquartered in Richmond, Virginia.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 44 7 5.25
Current Dividend Yield 5.07% 9 9
PE Ratio 16.70x 8 8
Return on Assets 12.84% 8 8
Return on Equity 123.20% 10 10
Asset Utilization 0.5x 5 2.5
3 Year Price Returns 44.17% 4 5
Dividend Growth 50.00% 8 14
Revenue Growth 4.99% 2 3
Earnings Growth 45.81% 5

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While Altria's revenue and earnings growth isn't as impressive as many of the Heavyweight and Light Heavyweight stocks, Altria does provide one of the highest dividend yields, while providing significant growth. Altria's current payout ratio of 79.65% is a bit higher than I would like, but I don't expect to see a halt to distribution increases anytime soon.

Some recent developments concerning Altria include:

  • Altria recently acquired the e-vapor business, Green Smoke Inc. and its affiliates in a $110 million deal.
  • A group of 28 U.S. attorneys general sent a letter to retailers urging them to drop tobacco products from their stores.

Chevron

Chevron Corporation is a multinational oil & gas company that engages in multiple aspects of the oil, gas, and geothermal energy markets. It is one of the six "supermajor" oil companies in the world. The company was founded in 1879 and is headquartered in San Ramon, California.

Value Metric Score Weighted Metric Score
# of consecutive years with dividend increases 26 1 0.75
Current Dividend Yield 3.42% 5 5
PE Ratio 10.55x 9 9
Return on Assets 8.81% 6 6
Return on Equity 15.01% 6 6
Asset Utilization 0.94x 10 5
3 Year Price Returns 6.72% 2 2.5
Dividend Growth 53.85% 8 14
Revenue Growth 33.33% 4 6
Earnings Growth 112.50% 10

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Chevron has seen very impressive dividend and earnings growth and has maintained a very attractive valuation based on its current PE. The company has also been able to keep its payout ratio low, currently at 35.35%.

Some recent developments concerning Chevron include:

  • Chevron recently announced that it expects a sequential decline in 1st quarter profits due to high currency conversion expenses and asset impairment charges.
  • Chevron also announced a deal with YPF SA to invest $1.6 billion to sustain exploration and advancement of shale oil and gas properties in Argentina's Vaca Muerta formation.

McDonald's

Everyone knows McDonald's and that the corporation is the largest fast food chain in the world. The company was founded in 1940 and is headquartered in Oak Brook, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 38 6 4.5
Current Dividend Yield 3.26% 5 5
PE Ratio 17.86x 8 8
Return on Assets 15.86% 9 9
Return on Equity 36.33% 10 10
Asset Utilization 0.80x 8 4
3 Year Price Returns 30.22% 4 5
Dividend Growth 62.00% 9 15.75
Revenue Growth 23.57% 3 4.5
Earnings Growth 34.05% 4

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Many investors already know that McDonald's has had recent issues with same store sales numbers and overall revenue growth. The company has faced a few mistakes in the past year or so, some of them outlined here, but has continued to provide solid dividend yields (consistently between 2.5% and 3.5%) and dividend growth over the long run while keeping its payout ratio relatively low (currently 55.76%).

Some recent developments concerning McDonald's include:

  • Beef prices have continued rising, hitting their highest level in nearly 30 years.
  • Last month, McDonald's reported that global comparable sales for February fell 0.3%.

Exxon Mobil

Exxon Mobil Corporation is another one of the six 'supermajor' oil companies in the world. Exxon Mobil has several divisions and affiliates that operate in the following three segments: Upstream, Downstream, and Chemicals. The company was founded in 1870 and is headquartered in Irving, Texas.

Value Metric Score Weighted Metric Score
# of Consecutive Years With Dividend Increases 31 4 3
Current Dividend Yield 2.60% 4 4
PE Ratio 13.11x 9 9
Return on Assets 9.53% 6 6
Return on Equity 19.35% 8 8
Asset Utilization 1.28x 10 5
3 Year Price Returns 12.52% 2 2.5
Dividend Growth 50% 8 14
Revenue Growth 41.11% 4 6
Earnings Growth 84.71% 8

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Exxon Mobil has seen very impressive earnings and dividend growth and is currently priced attractively based on its historical PE ratio. Even though the company has been able to grow its dividend by an average of 10% a year over the past five years, its payout ratio has continued to remain under 50% and currently sits at just under 35%.

Some recent developments concerning Exxon Mobil include:

  • Exxon Mobil announced that its Papua New Guinea project will start exporting liquefied natural gas by mid 2014.
  • Exxon Mobil has developed a generation of hydraulic fracturing fluids that do not pose a hazard to the environment. (the fluids have not yet been tested under field conditions)
  • Summer gas prices are expected to fall.

C.R. Bard

C.R. Bard, Inc. is a multinational developer, manufacturer, and marketer of innovative, life-enhancing medical technologies that are used throughout various medical specialties. The company was founded in 1907 and is headquartered in Murray Hill, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 42 7 5.25
Current Dividend Yield 0.61% 1 1
PE Ratio 16.04x 8 8
Return on Assets 15.92% 9 9
Return on Equity 38.41% 10 10
Asset Utilization 0.7x 7 3.5
3 Year Price Returns 38.54% 4 5
Dividend Growth 31.25% 6 10.5
Revenue Growth 20.30% 3 4.5
Earnings Growth 83.26% 8

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C. R. Bard has one of the lowest dividend yields of any of the Dividend Champions and just average dividend growth. Where C. R. Bard shines is in its excellent returns on assets and equity, as well as, its low PE ratio. With its low dividend yield, C. R. Bard's payout ratio is extremely low and currently sits at just under 10%.

Some recent developments concerning C. R. Bard include:

  • At the beginning of the month, BCR reached its 52-week high of $150.13. It has recently dropped below that and closed Wednesday at $139.28.
  • BCR has a long-term estimated EPS growth rate of 12.5%.

Medtronic

Medtronic, Inc. is a medical technology company that engages in research, design, manufacture and sale of products to alleviate pain, restore health and extend life. The company was founded in 1949 and is headquartered in Minneapolis, Minnesota.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 36 5 3.75
Current Dividend Yield 1.89% 2 2
PE Ratio 16.84x 8 8
Return on Assets 10.05% 7 7
Return on Equity 19.25% 8 8
Asset Utilization 0.47x 5 2.5
3 Year Price Returns 47.12% 8 10
Dividend Growth 36.59% 7 12.25
Revenue Growth 13.64% 2 3
Earnings Growth 83.78% 8

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Medtronic has seen impressive returns on assets and equity as well as long term earnings and dividend growth; however, earnings growth have significantly slowed and turned negative recently. The company's payout ratio remains low at just over 30%.

Some recent developments concerning Medtronic include:

  • Recently, a court decision has temporarily blocked Medtronic from selling its heart valve in the U.S.
  • JP Morgan recently downgraded Medtronic from Overweight to Neutral.
  • Recently, Medtronic's CRT devices have been approved to treat patients with AV Block and reduced heart function.

Illinois Tool Works

Illinois Tool Works, Inc. is a multinational manufacturer of a diversified range of industrial products and equipment. The company was founded in 1912 and is headquartered in Glenview, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 39 6 4.5
Current Dividend Yield 2.07% 3 3
PE Ratio 21.70x 7 7
Return on Assets 8.62% 6 6
Return on Equity 16.39% 7 7
Asset Utilization 0.79x 8 4
3 Year Price Returns 49.61% 5 6.25
Dividend Growth 35.48% 7 12.25
Revenue Growth 1.86% 2 3
Earnings Growth 98.94% 9

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Illinois Tool Works has seen fairly impressive dividend and earnings growth, but it has come during a time when revenue growth has been virtually non-existent. This combination makes me nervous about the company's ability to continue to see the same type of dividend and earnings growth in the future. ITW's payout ratio remains low (at 31.45%), which gives me confidence that the dividend is safe, I'm just not sure at what rate it will continue to grow.

Some recent developments concerning Illinois Tool Works include:

  • Illinois Tool Works announced last month that it is selling its Industrial Packaging Segment to The Carlyle Group.
  • Illinois Tool Works has implemented Ariba Discovery product to help enhance its supply base and reduce associated costs and risks.

Cintas

Cintas Corporation designs and manufactures corporate identity uniforms and related business services for businesses throughout North America, Latin America, Europe, and Asia. The company was founded in 1968 and is headquartered in Cincinnati, Ohio.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 31 4 3
Current Dividend Yield 1.37% 2 2
PE Ratio 20.81x 7 7
Return on Assets 7.70% 5 5
Return on Equity 15.26% 6 6
Asset Utilization 1.05x 10 5
3 Year Price Returns 87.21% 8 10
Dividend Growth 60.42% 9 15.75
Revenue Growth 14.35% 2 3
Earnings Growth 70.95% 7

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Cintas Corporation has a low dividend yield of just over 1%, but it has seen impressive dividend and earnings growth. With a payout ratio under 30%, the increased dividend distributions should continue well into the future.

Some recent developments concerning Cintas include:

  • Cintas recently released their 2014 uniform collection, featuring more than 70 new styles and colors.
  • In its latest quarterly report, Cintas just missed on earnings expectations, although earnings were up 15% compared to the same period the year before.

MSA Safety

Mine Safety Appliances Company produces gas monitoring and detection instruments, filter-type respirators, gas masks, breathing apparatus used by firefighters, thermal imaging cameras, firefighter helmets, ballistic body armor, military communications systems, and a broad range of industrial and consumer safety products. The company was founded in 1914 and is headquartered in Cranberry Township, Pennsylvania.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 42 7 5.25
Current Dividend Yield 2.18% 3 3
PE Ratio 23.49x 6 6
Return on Assets 7.62% 5 5
Return on Equity 17.86% 7 7
Asset Utilization 0.96x 10 5
3 Year Price Returns 52.52% 5 6.25
Dividend Growth 25.00% 6 10.5
Revenue Growth 21.40% 3 4.5
Earnings Growth 95.87% 9

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Mine Safety Appliances Company has seen mediocre dividend growth considering its relatively low yield. With a payout ratio just under 50%, the company has the ability to continue growing its dividend and with its impressive earnings growth there is no reason to assume otherwise.

Some recent developments concerning Mine Safety Appliances include:

  • MSA recently introduced a new next-generation breathing apparatus for firefighters.
  • Last month, MSA completed a realignment of its company structure.

Colgate-Palmolive

Colgate-Palmolive Company produces and distributes household, health care and personal products, such as soaps, detergents, and oral hygiene products, as well as a line of pet nutrition products. The company was founded in 1806 and is headquartered in New York, New York.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 51 9 6.75
Current Dividend Yield 2.20% 3 3
PE Ratio 27.35x 5 5
Return on Assets 16.54% 10 10
Return on Equity 117.00% 10 10
Asset Utilization 1.29x 10 5
3 Year Price Returns 60.70% 6 7.5
Dividend Growth 63.64% 9 15.75
Revenue Growth 13.66% 2 3
Earnings Growth 6.40% 2

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Colgate-Palmolive has seen very impressive returns on assets and equity as well as impressive dividend growth. The company's payout ratio has been increasing the past couple of years and is now at 61.67%. If the trend continues, it could limit Colgate-Palmolive's future dividend growth.

Some recent developments concerning Colgate-Palmolive include:

  • Last month, Colgate-Palmolive announced a 6% increase in its dividend.
  • Colgate-Palmolive was one of the companies most negatively affected by the Venezuelan currency devaluation.

Final Analysis

Unlike the Light Heavyweight class, in which I recommended Family Dollar (NYSE:FDO) as a stock to avoid, there are no stocks in this class that I believe should be avoided. There are some stocks I find more attractive than others, however. These stocks include: MO, CVX, XOM, and BCR.

CVX, XOM, and BCR have all had very impressive earnings growth with low PE and payout ratios. All three companies are positioned to see continued increases in both earnings and dividends for years to come.

MO is slightly different in that its earnings growth hasn't been as impressive. Also, there remains some risk associated with tobacco stocks; however, I believe MO's low PE ratio and impressive dividend yield and growth far outweigh those risks. I think all four of these stocks will be great investments for long term investors.

A couple of stocks that I wouldn't avoid, but hesitate before buying are: MCD, ITW, and CL.

McDonald's isn't in any danger of disappearing anytime soon. However, I do remain concerned about the company's inability to see increased same store revenues. I have been less than impressed with some of the company's recent decisions and would like to see some improvement in their strategic plans before making any long term investment in the company.

Illinois Tool Works has seen stagnant revenue recently and I am uncertain of how its sale of Industrial Packaging segment will affect its future earnings.

Colgate-Palmolive is a company I really like. I just think it is currently overvalued based on its low revenue and earnings growth along with its increasing payout ratio.

I don't think any of these three companies are necessarily bad investments, I just think the other seven companies in this class are currently better values for long term investors.

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. Based on some excellent questions and comments I received from Part 1 of this article, I am already in the process of revising my metrics and weighting system for any future series of articles.

As always, I suggest individual investors perform their own research before making any investment decisions. Part 4 of this article will feature the 'Middleweight' Dividend Champion stocks (10 stocks that have weighted scores between 65 and 69.99).

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.