Dividend Champions Review: Part 6, The Lightweights

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 |  Includes: ADP, APD, CB, CSL, EMR, JNJ, MKC, NUE, PG, SRCE, T, TGT, TNC
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 13 stocks that fit into the Lightweight class of Dividend Champions include: NUE, MKC, APD, EMR, TNC, CSL, T, CB, SRCE, PG, TGT, ADP, and JNJ.

Overview

This is Part 6 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
  • P/E 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 6, I will be taking at look at the Lightweight stocks, which include:

  • Nucor Corporation (NYSE:NUE) - Total score of 60.75
  • McCormick & Company (NYSE:MKC) - Total score of 60.25
  • Air Products & Chemicals (NYSE:APD) - Total score of 60
  • Emerson Electric (NYSE:EMR) - Total score of 60
  • Tennant Company (NYSE:TNC) - Total score of 59.25
  • Carlisle Companies (NYSE:CSL) - Total score of 59
  • AT&T (NYSE:T) - Total score of 58.5
  • Chubb Corporation (NYSE:CB) - Total score of 57.75
  • 1st Source Corporation (NASDAQ:SRCE) - Total score of 57.25
  • Procter & Gamble (NYSE:PG) - Total score of 57.25
  • Target (NYSE:TGT) - Total score of 57.25
  • Automatic Data Processing (NASDAQ:ADP) - Total score of 57
  • Johnson & Johnson (NYSE:JNJ) - Total score of 57

Nucor Corporation

Nucor Corporation manufactures and markets steel and steel related products throughout the world. The company operates in the following three segments: Steel Mills, Steel Products, and Raw Materials. The company was founded in 1940 and is headquartered in Charlotte, North Carolina.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 41 7 5.25
Current Dividend Yield 2.92% 4 4
P/E Ratio 33.28x 4 4
Return on Assets 3.38% 3 3
Return on Equity 6.42% 3 3
Asset Utilization 1.32x 10 5
3-Year Price Returns 9.58% 2 2.5
Dividend Growth 5.71% 2 3.5
Revenue Growth 70.26% 7 10.5
Earnings Growth 261.90% 10

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Some of Nucor's greatest strengths can be seen in its long-term revenue growth and very impressive earnings growth. The company's dividend growth has been steady but slow, and with a high payout ratio right around 100%, there is no reason to assume that this growth will speed up anytime soon.

Some recent developments concerning Nucor include:

  • Nucor recently reported Q1 2014 earnings results.

McCormick & Company

McCormick & Company, Incorporated manufactures, markets, and distributes spices, seasoning mixes, condiments, and other products through its two operational segments, Consumer and Industrial. The company was founded in 1889 and is headquartered in Sparks, Maryland.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 28 2 1.5
Current Dividend Yield 2.11% 3 3
P/E Ratio 23.75x 6 6
Return on Assets 9.14% 6 6
Return on Equity 21.60% 8 8
Asset Utilization 0.97x 10 5
3-Year Price Returns 47% 5 6.25
Dividend Growth 54.17% 8 14
Revenue Growth 29.18% 3 4.5
Earnings Growth 28.38% 3

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McCormick has seen very impressive dividend growth with a consistent yield over 2%. With a payout ratio under 50%, there is no reason to assume that McCormick's impressive dividend growth will slow down anytime soon.

Some recent developments concerning McCormick & Company include:

  • Last month, McCormick & Company reported Q1 2014 earnings results.

Air Products & Chemicals

Air Products & Chemicals, Inc. is a major chemicals company that operates in the following four segments: Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy. The company was founded in 1940 and is headquartered in Allentown, Pennsylvania.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 32 4 3
Current Dividend Yield 2.66% 4 4
P/E Ratio 24.48x 6 6
Return on Assets 5.72% 4 4
Return on Equity 15.01% 6 6
Asset Utilization 0.58x 6 3
3-Year Price Returns 25.91% 3 3.75
Dividend Growth 71.11% 9 15.75
Revenue Growth 23.31% 3 4.5
Earnings Growth 57.48% 5

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Some of Air Products & Chemicals' strengths are its impressive dividend and earnings growth over the past several years. The company's payout ratio has increased to 60% but still allows room for increased dividend growth in the future.

Recent developments concerning Air Products & Chemicals include:

  • The company was recently named to the 100 Best Corporate Citizens list by CR magazine.
  • The company recently announced an agreement with JGC Corporation to provide LNG technology for an upcoming Malaysian project.
  • The company was recently downgraded to underweight by Atlantic Equities.

Emerson Electric

Emerson Electric is an industrial electrical equipment company that designs and supplies products, technology, and engineering services and solutions to industrial, commercial, and consumer markets worldwide. The company was founded in 1890 and is headquartered in St. Louis, Missouri.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 57 10 7.5
Current Dividend Yield 2.63% 4 4
P/E Ratio 23.37x 6 6
Return on Assets 8.39% 6 6
Return on Equity 19.18% 8 8
Asset Utilization 1.03x 10 5
3-Year Price Returns 13.25% 2 2.5
Dividend Growth 30.30% 6 10.5
Revenue Growth 22.72% 3 4.5
Earnings Growth 21.40% 3

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Emerson Electric has an impressive dividend history with significant growth and a steady yield usually between 2% and 3%. With a payout ratio of 60%, there is no reason to assume that the company's 57-year history of dividend increases is likely to change.

Some recent developments concerning Emerson Electric include:

  • Emerson Electric recently released a report that suggests a major shift in data center management.
  • Last month, Emerson Electric was upgraded to outperform by Oppenheimer.

Tennant Company

Tennant Company designs, manufactures, and markets cleaning solutions worldwide through its various brands including: Tennant, Nobles, Green Machines, Alfa Uma Empresa Tennant, and Orbio. The company was founded in 1870 and is headquartered in Minneapolis, Minnesota.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 42 7 5.25
Current Dividend Yield 1.16% 2 2
P/E Ratio 29.01x 5 5
Return on Assets 9.35% 6 6
Return on Equity 16.45% 7 7
Asset Utilization 1.75x 10 5
3-Year Price Returns 56.62% 5 6.25
Dividend Growth 38.46% 7 12.25
Revenue Growth 26.20% 3 4.5
Earnings Growth 18.92% 3

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Tennant Company has seen impressive dividend growth as well as nice returns on assets and equity. With a payout ratio under 35%, the company has plenty of room available to continue growing its dividend.

Some recent developments concerning Tennant Company include:

  • Tennant Company recently increased its quarterly dividend by 11%.
  • Tennant Company recently reported on Q1 2014 earnings.

Carlisle Companies

Carlisle Companies Incorporated is an international diversified manufacturing company that operates in the following segments: Construction Materials, Interconnect Technologies, Brake & Friction, and FoodService Products. The company was founded in 1917 and is headquartered in Charlotte, North Carolina.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 37 5 3.75
Current Dividend Yield 1.16% 2 2
P/E Ratio 23.34x 6 6
Return on Assets 6.00% 4 4
Return on Equity 11.19% 5 5
Asset Utilization 0.84x 9 4.5
3-Year Price Returns 69.11% 6 7.5
Dividend Growth 41.94% 7 12.25
Revenue Growth 30.33% 4 6
Earnings Growth 39.41% 4

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Carlisle Companies has seen fairly impressive dividend growth along with significant revenue and earnings growth. With a payout ratio of 29%, the company's substantial dividend growth should continue into the future.

Some recent developments concerning Carlisle Companies include:

  • Carlisle Companies recently reported on Q1 2014 earnings.
  • Carlisle Companies was recently upgraded to Outperform by FBR Capital.

AT&T

AT&T Inc. is one of the largest international telecommunication companies in the world. The company was founded in 1876 and is headquartered in Dallas, Texas.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 30 3 2.25
Current Dividend Yield 5.24% 9 9
P/E Ratio 10.30x 9 9
Return on Assets 6.67% 5 5
Return on Equity 20.60% 8 8
Asset Utilization 0.47x 5 2.5
3-Year Price Returns 14.36% 2 2.5
Dividend Growth 12.20% 3 5.25
Revenue Growth 5.09% 2 3
Earnings Growth 64.56% 6

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AT&T provides a high yield, slow growing dividend. The company's payout ratio remains just above 50%, so future dividend growth should remain safe. With an attractive P/E ratio, high earnings growth, and high returns on equity, the company displays a number of strengths.

Some recent developments concerning AT&T include:

  • AT&T recently announced plans to offer 4G Wi-Fi on planes as early as next year.
  • AT&T's U-verse gets upgraded with new features.

Chubb Corporation

The Chubb Corporation provides property and casualty insurance to businesses and individuals throughout the United States, Canada, Europe, Australia, Latin America, and Asia. The company was founded in 1882 and is headquartered in Warren, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 32 4 3
Current Dividend Yield 2.25% 3 3
P/E Ratio 9.83x 10 10
Return on Assets 4.56% 4 4
Return on Equity 14.83% 6 6
Asset Utilization 0.27x 3 1.5
3-Year Price Returns 42.79% 4 5
Dividend Growth 42.86% 7 12.25
Revenue Growth 7.15% 2 3
Earnings Growth 45.51% 5

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Chubb has seen impressive dividend growth, while maintaining a low P/E ratio and solid earnings growth. With a payout ratio just under 20%, the company has plenty of room to continue growing its dividend.

Some recent developments concerning The Chubb Corporation include:

  • Chubb recently reported on Q1 2014 earnings in which it saw profits fall significantly.

1st Source Corporation

1st Source Corporation is a Midwest regional bank that provides commercial and consumer banking services, trust and investment management services, and insurance to individual and business clients. The company was founded in 1863 and is headquartered in South Bend, Indiana.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 26 1 0.75
Current Dividend Yield 2.23% 3 3
P/E Ratio 13.76x 9 9
Return on Assets 1.19% 2 2
Return on Equity 9.61% 4 4
Asset Utilization 0.05x 1 0.5
3-Year Price Returns 49.78% 5 6.25
Dividend Growth 21.43% 5 8.75
Revenue Growth 9.49% 2 3
Earnings Growth 182.30% 10

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Looking at the table above, you can easily see that 1st Source's main strengths are its impressive earnings growth and attractive current price. The company has a decent dividend yield and should see continued growth as the payout ratio remains right around 30%.

Some recent developments concerning 1st Source Corporation include:

  • 1st Source Corporation's Q1 earnings were up 9.90% and the company increased its dividend 5.88%.

Procter & Gamble

The Procter & Gamble Company manufactures and sells consumer products through a variety of brands within the following business segments: Beauty, Grooming, Health Care, Fabric Care and Home Care, and Baby Care and Family Care. The company was founded in 1837 and is based in Cincinnati, Ohio.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 57 10 7.5
Current Dividend Yield 3.19% 5 5
P/E Ratio 21.61x 7 7
Return on Assets 7.76% 5 5
Return on Equity 16.32% 7 7
Asset Utilization 0.60x 6 3
3-Year Price Returns 29.86% 3 3.75
Dividend Growth 46.27% 8 14
Revenue Growth 9.74% 2 3
Earnings Growth -10% 1

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Procter & Gamble has had a difficult time in terms of earnings, but has been able to consistently provide a decent yielding and growing dividend. The company's payout ratio is over 60%, but still provides room for continued dividend growth.

Some recent developments concerning Procter & Gamble include:

Target

Target Corporation operates a large number of general merchandise stores throughout the United States and Canada. The company was founded in 1902 and is headquartered in Minneapolis, Minnesota.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 46 8 6
Current Dividend Yield 2.92% 4 4
P/E Ratio 19.16x 7 7
Return on Assets 4.33% 4 4
Return on Equity 12.09% 5 5
Asset Utilization 1.60x 10 5
3-Year Price Returns 19.57% 3 3.75
Dividend Growth 168.80% 10 17.5
Revenue Growth 11.08% 2 3
Earnings Growth -6.34% 1

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Target has had very impressive dividend growth with a yield currently just under 3%. With a payout ratio just over 50%, dividend growth should continue into the future.

Some recent developments concerning Target include:

  • Target announced a new tech chief following recent data breach.
  • Target improves online subscription service.

Automatic Data Processing

Automatic Data Processing, Inc. is a technology company that provides outsourcing solutions to employers, vehicle retailers, and manufacturers throughout the world. The company was founded in 1949 and is headquartered in Roseland, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 39 6 4.5
Current Dividend Yield 2.55% 4 4
P/E Ratio 25.8x 6 6
Return on Assets 4.08% 4 4
Return on Equity 22.40% 9 9
Asset Utilization 0.34x 4 2
3-Year Price Returns 43.45% 4 5
Dividend Growth 45.45% 8 14
Revenue Growth 27.97% 3 4.5
Earnings Growth 9.81% 2

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ADP has seen impressive dividend growth and returns on equity. With a payout ratio right at 60%, the company's dividend growth should continue.

Some recent developments concerning Automatic Data Processing include:

  • ADP's earnings rose 7%, but the company missed earnings estimates by 2 cents per share in its latest quarter.
  • ADP recently launched IPS Zero Investment Platform.

Johnson & Johnson

Johnson & Johnson is a developer, manufacturer, and marketer of a wide variety of healthcare related products. The company was founded in 1885 and is headquartered in New Brunswick, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 51 9 6.75
Current Dividend Yield 2.73% 4 4
P/E Ratio 20.12x 7 7
Return on Assets 11.03% 7 7
Return on Equity 20.03% 8 8
Asset Utilization 0.57x 6 3
3-Year Price Returns 61.83% 6 7.5
Dividend Growth 10.56% 3 5.25
Revenue Growth 15.21% 3 4.5
Earnings Growth 10.56% 2

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Johnson & Johnson has seen impressive returns on assets and equity along with long-term price returns and a decent dividend yield. The company's payout ratio remains stable at 53%.

Some recent developments concerning Johnson & Johnson include:

  • Johnson & Johnson suspends the sale of devices used in fibroid surgery.
  • Johnson & Johnson recently raised its dividend by 6.1%.

Final Analysis

Similar to the other classes I've written in past articles, I don't think there are any bad stocks in this group. There are stocks I personally like better and a couple of stocks I would consider avoiding currently.

The two stocks I like the most out of this group are AT&T and 1st Source. One reason I like these stocks is that they are both currently attractively priced based on their P/E ratio. AT&T offers the highest dividend yield, which is always nice. And while I don't expect a huge increase in earnings from AT&T, I do expect to see continuous improvement as the company continues to expand its market and offer new services. In addition to its attractive P/E, 1st Source has seen very impressive increases in earnings over the past several years. I feel this stock, in addition to be a nice dividend grower, has strong potential to offer significant price returns in the future.

The two stocks I would hold off on buying at the moment are Procter & Gamble and Target. These two companies have seen a drop in earnings over the past five years and in my opinion are currently overvalued based on this and other factors (such as Target's recent data breach, etc.). I don't think these are bad companies and I think both have the potential to turnaround their earnings issues, I would just personally look for a better entry price before considering a position in either stock ($55 for Target and $75 for Procter & Gamble).

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 7 of this article will feature the 'Featherweight' Dividend Champion stocks (11 stocks that have weighted scores between 51 and 56.99).

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.