Dividend Champions Review: Part 5, The Welterweights

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 |  Includes: BDX, CLC, CLX, EV, GRC, ORI, PEP, SCL, SIAL, SWK, WBA
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 ten stocks that fit into the Welterweight Class include: CLC, SCL, EV, GRC, CLX, ORI, SIAL, PEP, SWK, WAG, and BDX.

Overview

This is Part 5 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: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 5, I will be taking at look at the Welterweight stocks which include:

  • Clarcor (NYSE:CLC) - Total score of 64
  • Stepan (NYSE:SCL) - Total score of 64
  • Eaton Vance (NYSE:EV) - Total score of 63.75
  • Gorman-Rupp (NYSEMKT:GRC) - Total score of 63.75
  • Clorox (NYSE:CLX) - Total score of 63.50
  • Old Republic International (NYSE:ORI) - Total score of 63.25
  • Sigma-Aldrich Corporation (NASDAQ:SIAL) - Total score of 63
  • PepsiCo (NYSE:PEP) - Total score of 62.50
  • Stanley Black & Decker (NYSE:SWK) - Total score of 62
  • Walgreen (WAG) - Total score of 61.25
  • Becton, Dickinson and Company (NYSE:BDX) - Total score of 61

Clarcor

CLARCOR Inc. provides filtration products, filtration systems and services, and consumer and industrial packaging products worldwide through its various divisions: Engine/Mobile Filtration segment, Industrial/Environmental Filtration segment, and Packaging segment. The company was founded in 1904 and is headquartered in Franklin, Tennessee.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 30 3 2.25
Current Dividend Yield 1.23% 2 2
PE Ratio 23.31x 6 6
Return on Assets 9.11% 6 6
Return on Equity 12.09% 5 5
Asset Utilization 0.91x 10 5
3 Year Price Returns 24.91% 3 3.75
Dividend Growth 88.89% 10 17.50
Revenue Growth 24.57% 3 4.50
Earnings Growth 67.38% 6

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Clarcor's biggest strengths have been its dividend growth and earnings growth. With a payout ratio under 30%, the company's streak of increased dividend's should remain safe well into the future.

Some recent developments concerning Clarcor include:

  • Last month, Clarcor reported Q1 financial results.

Stepan

Stepan Company produces and sells specialty and intermediate chemicals to manufacturers in various industries worldwide through its three operating segments: Surfactants, Polymers, and Specialty Products. The company was founded in 1932 and is headquartered in Northfield, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 46 8 6
Current Dividend Yield 1.12% 2 2
PE Ratio 19.16x 7 7
Return on Assets 6.70% 5 5
Return on Equity 14.23% 6 6
Asset Utilization 1.73x 10 5
3 Year Price Returns 65.81% 6 7.5
Dividend Growth 54.55% 8 14
Revenue Growth 47.35% 5 7.5
Earnings Growth 2.06% 2

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Stepan Company has seen very impressive long term dividend and revenue growth. With a PE ratio under 20x, the stock remains attractively priced and with a payout ratio right at 20%, the company's consecutive dividend growth is likely to reach the 50 year mark in the coming years.

Some recent developments concerning Stepan Company include:

  • Stepan Company recently launched a new sustainable surfactant that is designed to replace solvents.

Eaton Vance

Eaton Vance Corporation engages in the creation, marketing, and management of investment funds in the United States. The company was founded in 1944 and is headquartered in Boston, Massachusetts.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 33 4 3
Current Dividend Yield 2.45% 3 3
PE Ratio 21.09x 7 7
Return on Assets 10.45% 7 7
Return on Equity 33.10% 10 10
Asset Utilization 0.68x 7 3.5
3 Year Price Returns 8.78% 2 2.5
Dividend Growth 41.94% 7 12.25
Revenue Growth 52.46% 5 7.5
Earnings Growth 44.14% 4

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Eaton Vance has had impressive dividend growth with a steady yield, while maintaining a low payout ratio (currently at 35%).

Some recent developments concerning Eaton Vance include:

  • Earlier this month, Eaton Vance reported recent floating-rate income trust earnings of $0.021 per share.

Gorman-Rupp

The Gorman-Rupp Company designs, manufactures, and markets a wide variety of pumps and pump systems worldwide. The company was founded in 1933 and is headquartered in Mansfield, Ohio.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 41 7 5.25
Current Dividend Yield 1.21% 2 2
PE Ratio 26.03x 5 5
Return on Assets 8.78% 6 6
Return on Equity 12.16% 5 5
Asset Utilization 1.14x 10 5
3 Year Price Returns 23.85% 3 3.75
Dividend Growth 40.63% 7 12.25
Revenue Growth 47.11% 5 7.5
Earnings Growth 64.85% 6

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Gorman-Rupp's dividend growth has been impressive and it has shown an ability to maintain long term revenue and earnings growth. With a payout ratio under 30%, the company's dividend growth should continue well into the future.

Some recent developments concerning Gorman-Rupp include:

  • Gorman-Rupp announced that Kenneth Reynolds has joined the company's Board of Directors.
  • Gorman-Rupp recently announced its 257th consecutive quarterly dividend.

Clorox

The Clorox Company manufactures and markets consumer and professional products worldwide through a variety of brands including: Clorox, Formula 409, Liquid-Plumr, S.O.S., Fresh Step, Kingsford, Hidden Valley, KC Masterpiece, Burts Bees, and Brita. The company was founded in 1913 and is headquartered in Oakland, California.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 36 5 3.75
Current Dividend Yield 3.22% 5 5
PE Ratio 20.68x 7 7
Return on Assets 12.87% 8 8
Return on Equity 479.70% 10 10
Asset Utilization 1.28x 10 5
3 Year Price Returns 27.10% 3 3.75
Dividend Growth 54.35% 8 14
Revenue Growth 3.17% 2 3
Earnings Growth 14.40% 2

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Clorox yields a dividend over 3%, has maintained impressive long term growth in its dividend, and has excellent returns on assets and equity. The company's payout ratio has risen some in the past several years, but remains manageable at 62%.

Some recent developments concerning Clorox include:

  • Clorox was recently recognized as one of the top 50 companies for outstanding corporate responsibility by CR magazine.

Old Republic International

Old Republic International Corporation engages in underwriting insurance products throughout various areas of the United States and Canada. The company was founded in 1887 and is headquartered in Chicago, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 33 4 3
Current Dividend Yield 4.59% 8 8
PE Ratio 10.20x 9 9
Return on Assets 2.73% 3 3
Return on Equity 12.20% 5 5
Asset Utilization 0.33x 4 2
3 Year Price Returns 23.32% 3 3.75
Dividend Growth 7.35% 2 3.5
Revenue Growth 43.09% 4 6
Earnings Growth 1240% 10

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Old Republic's strengths can be seen in its impressive dividend yield, attractive PE ratio, and impressive earnings growth. The company's dividend growth has been slow, but consistent. And with a payout ratio just over 40%, similar growth should continue into the future.

Some recent developments concerning Old Republic International include:

  • Earlier this week, Old Republic International discussed Q1 2014 earnings results.
  • At the beginning of the month, Moody's changed the debt rating outlook for Old Republic International from positive to stable.

Sigma-Aldrich

Sigma-Aldrich Corporation develops, manufactures, and distributes various types of chemicals and equipment throughout the world. The company was founded in 1951 and is based in St. Louis, Missouri.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 38 6 4.5
Current Dividend Yield 1.00% 2 2
PE Ratio 22.73x 6 6
Return on Assets 13.16% 8 8
Return on Equity 18.27% 7 7
Asset Utilization 0.72x 8 4
3 Year Price Returns 43.10% 4 5
Dividend Growth 58.62% 8 14
Revenue Growth 25.88% 3 4.5
Earnings Growth 44.01% 4

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The company's strengths can be seen in its impressive returns on equity and assets as well as its impressive dividend growth. Similar to Old Republic International, Sigma-Aldrich's yield isn't very impressive, but with a payout ratio just over 20%, there is no reason to assume the companies slow growing dividend will not continue growing.

Some recent developments concerning Sigma-Aldrich include:

  • This week, Sigma-Aldrich discussed Q1 2014 earnings.
  • Earlier this month, Sigma-Aldrich launched a new brand line.

PepsiCo

PepsiCo, Inc. is a multinational food and beverage company that offers a wide variety of products through various brands such as: Pepsi, Lays, Ruffles, Doritos, Fritos, Quaker, Rice-A-Roni, Gatorade, and Mountain Dew. The company was founded in 1898 and is headquartered in Purchase, New York.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 42 7 5.25
Current Dividend Yield 2.73% 4 4
PE Ratio 19.22x 7 7
Return on Assets 8.85% 6 6
Return on Equity 29.43% 10 10
Asset Utilization 0.87x 9 4.5
3 Year Price Returns 25.91% 3 3.75
Dividend Growth 26.11% 6 10.5
Revenue Growth 53.62% 5 7.5
Earnings Growth 14.70% 2

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PepsiCo has been able to achieve high returns on both assets and equity while maintaining a reasonable PE ratio and dividend growth. With a payout ratio right at 50%, Pepsi's streak of increased yearly dividends appears safe.

Some recent developments concerning PepsiCo include:

  • Recently, PepsiCo announced it will soon begin bottling the popular Taco Bell drink, Baja Blast.
  • PepsiCo product, Lay's Air Pops is expanding into new markets and is introducing a new salt & vinegar flavor.

Stanley Black & Decker

Stanley Black & Decker, Inc. manufactures and markets power and hand tools, mechanical access solutions, and electronic security and monitoring systems. The company was founded in 1843 and is headquartered in New Britain, Connecticut.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 46 8 6
Current Dividend Yield 1.12% 2 2
PE Ratio 19.16x 7 7
Return on Assets 6.70% 5 5
Return on Equity 14.23% 6 6
Asset Utilization 1.73x 10 5
3 Year Price Returns 65.81% 6 7.5
Dividend Growth 54.55% 8 14
Revenue Growth 47.35% 5 7.5
Earnings Growth 2.06% 2

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Stanley Black & Decker maintains an attractive PE ratio while having seen impressive dividend growth. The company's dividend yield is low, but with a payout ratio of 55%, the distribution should continue growing.

Some recent developments concerning Stanley Black & Decker include:

  • In its recent earnings report, the company beat earnings estimates, improving future outlook of the company.

Walgreen

Walgreen Company operates a large number of drugstores, primarily in the United States. The company was founded in 1901 and is based in Deerfield, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 38 6 4.5
Current Dividend Yield 1.91% 2 2
PE Ratio 23.29x 6 6
Return on Assets 7.56% 5 5
Return on Equity 13.90% 6 6
Asset Utilization 2.06x 10 5
3 Year Price Returns 59.80% 5 6.25
Dividend Growth 180% 10 17.5
Revenue Growth 14.02% 2 3
Earnings Growth 27.59% 3

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One of its main strengths is its very impressive dividend growth. While it's yield is nothing to write home about, Walgreen's dividend has grown at a significantly higher rate than any other company in this class over the past five years. With a payout ratio right around 40%, there is no reason to assume its dividend growth will slow down in the near future.

Some recent developments concerning Walgreen include:

  • Walgreen recently introduced destination-specific travel health services.
  • There have been reports that Walgreen is considering relocating to Europe to take advantage of a lower tax rate.

Becton Dickinson

Becton, Dickinson and Company is a medical technology company that develops, manufactures, and markets medical devices, instruments, and reagents throughout the world. The company was founded in 1897 and is headquartered in Franklin Lakes, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 42 7 5.25
Current Dividend Yield 1.94% 2 2
PE Ratio 23.76x 6 6
Return on Assets 7.95% 5 5
Return on Equity 19.64% 8 8
Asset Utilization 0.69x 7 3.5
3 Year Price Returns 39.57% 4 5
Dividend Growth 65.15% 9 15.75
Revenue Growth 15.28% 3 4.5
Earnings Growth 29.49% 3

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The company has seen impressive returns on equity as well as considerable dividend growth over the past five years. The company's payout ratio is at 42%, so continued dividend growth is likely in the future.

Some recent developments concerning Becton, Dickinson and Company include:

  • Becton, Dickinson and Company launches a new point-of-care system for HIV/AIDS patients.
  • Last month, Becton, Dickinson and Company received CLIA waiver from the FDA for RSV test system.

Final Analysis

I think all of the companies in this class are all solid companies, but there are certain stocks that I currently like better than others. The stocks I really like in this class include: Old Republic International and Walgreen.

Old Republic International maintains a low PE ratio and a higher dividend yield, which I believe limits its downside risk. Over the past 25 years, the company has averaged annual returns of 12% (with dividends reinvested). Earlier this year, the company continued its long streak of dividend increases, by raising its quarterly dividend by 1.4%.

Walgreen has seen very impressive dividend growth. It's quarterly dividend has increased from $0.035 in 2001 to its current rate of $0.315 per share. Another increase of 4 to 5 cents is likely for its next quarterly payout. The company continues offering new products and expanding its market, which should lead to continued growth for some time.

One stock that I would avoid adding right now would be Gorman-Rupp simply because I think it is currently overvalued. I would wait until its PE ratio is closer to 20x or even below 20x before considering a purchase. If you look at the company's PE ratio history you can see that from 1985, its trailing PE has been below 20x for around three fourths of the time. That is when the stock looks most attractive.

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 6 of this article will feature the 'Lightweight' Dividend Champion stocks (13 stocks that have weighted scores between 57 and 60.99).

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.