Dividend Champions Ranking: Part 9, The Super Flyweights

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Includes: ATO, BKH, BWL.A, CWT, MSEX, NC, PNY, SJW, TR, UVV, VVC
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 eleven stocks that fit into the Super Flyweight class of Dividend Champions include: UVV, BKH, NC, SJW, MSEX, VVC, PNY, TR, BWL.A, ATO, and CWT.

Overview

This is Part 9 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: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 9, I will be taking at look at the Super Flyweight stocks which include:

  • Universal Corporation (NYSE:UVV) - Total score of 48.75
  • Black Hills Corporation (NYSE:BKH) - Total score of 48
  • NACCO Industries (NYSE:NC) - Total score of 48
  • SJW (NYSE:SJW) - Total score of 46
  • Middlesex Water (NASDAQ:MSEX) - Total score of 45.25
  • Vectren (NYSE:VVC) - Total score of 45.25
  • Piedmont Natural Gas (NYSE:PNY) - Total score of 44
  • Tootsie Roll Industries (NYSE:TR) - Total score of 44
  • Bowl America (NYSEMKT:BWL.A) - Total score of 43.25
  • Atmos Energy (NYSE:ATO) - Total score of 43
  • California Water (NYSE:CWT) - Total score of 42

Universal Corporation

Universal Corporation is a worldwide leaf tobacco merchant and processor. The company was founded in 1888 and is headquartered in Richmond, Virginia.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 43 7 5.25
Current Dividend Yield 3.79% 6 6
PE Ratio 10.57x 9 9
Return on Assets 6.25% 5 5
Return on Equity 13.69% 6 6
Asset Utilization 1.05x 10 5
3 Year Price Returns 22.24% 3 3.75
Dividend Growth 10.87% 3 5.25
Revenue Growth -1.21% 1 1.5
Earnings Growth -18.70% 1

2

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The company maintains and attractive dividend yield and PE ratio, but has seen problems with revenue and earnings growth. With a payout ratio of 43%, the company's future dividend growth is in no danger.

Some recent developments concerning Universal Corporation include:

  • Universal recently announced plans to launch a new business to produce innovative food ingredients.

Black Hills

Black Hills Corporation is a a diversified energy company in the United States operating in the following segments: Electric Utilities, Gas Utilities, Power Generation, Coal Mining, and Oil and Gas. The company was founded in 1941 and is headquartered in Rapid City, South Dakota.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 44 7 5.25
Current Dividend Yield 2.71% 4 4
PE Ratio 22.17x 6 6
Return on Assets 3.05% 3 3
Return on Equity 9.02% 4 4
Asset Utilization 0.34x 4 2
3 Year Price Returns 71.36% 9 11.25
Dividend Growth 9.86% 2 3.5
Revenue Growth 0.49% 2 3
Earnings Growth 23.22% 3

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While the company has seen decent earnings growth over the past five years, revenue has been fairly flat. The company does over a nice dividend with a stable payout ratio of 59%.

Some recent developments concerning Black Hills include:

  • Today, Black Hills reported a 24% increase in Q1 earnings and increased full year guidance.
  • Several of Black Hills' subsidiaries have requested rate increases.

NACCO Industries

NACCO Industries engages in the mining, small appliances, and specialty retail businesses throughout various areas of the world. The company was founded in 1913 and is headquartered in Cleveland, Ohio.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 28 2 1.5
Current Dividend Yield 1.89% 2 2
PE Ratio 9.54x 10 10
Return on Assets 5.89% 4 4
Return on Equity 15.84% 6 6
Asset Utilization 1.24x 10 5
3 Year Price Returns 58.27% 5 6.25
Dividend Growth -51.70% 1 1.75
Revenue Growth -59.60% 1 1.5
Earnings Growth 46.13% 5

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NACCO has an attractive PE ratio and a decent history of earnings growth, but has seen revenues fall over the past five years.

  • NACCO recently reported a net loss of $0.19 per share for Q1 2014.

SJW

SJW Corp. is a water utility company that operates in the following two segments: Water Utility Services and Real Estate Services. The company was founded in 1866 and is headquartered in San Jose, California.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 47 8 6
Current Dividend Yield 2.65% 4 4
PE Ratio 25.52x 6 6
Return on Assets 2.01% 3 3
Return on Equity 7.45% 4 4
Asset Utilization 0.25x 3 1.5
3 Year Price Returns 23.88% 3 3.75
Dividend Growth 13.64% 3 5.25
Revenue Growth 28.12% 3 4.5
Earnings Growth 37.80% 4

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SJW is sort of a middle of the road company in that none of its metrics are that great (other than the number of years it has increased its dividend), but none are that bad either. The company's 65% payout ratio should allow its dividend growth to continue into the future.

Some recent developments concerning SJW include:

  • SJW reported Q1 financial results which included a decrease in earnings and an increase in operating revenue.

Middlesex Water

Middlesex Water Company provides water and wastewater utility services through its two operating segments: Regulated and Non-Regulated. The company was founded in 1897 and is headquartered in Iselin, New Jersey.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 41 7 5.25
Current Dividend Yield 3.79% 6 6
PE Ratio 19.38x 7 7
Return on Assets 3.03% 3 3
Return on Equity 8.99% 4 4
Asset Utilization 0.21x 3 1.5
3 Year Price Returns 8.10% 2 2.5
Dividend Growth 7.04% 2 3.5
Revenue Growth 25.87% 3 4.5
Earnings Growth 42.47% 4

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The company has an attractive dividend yield and has seen decent returns in both revenue and earnings. The company's payout ratio is a bit high at 73%, but it has historically been high, so I don't have any concerns about future dividend growth.

Some recent developments concerning Middlesex Water include:

Vectren

Vectren Corporation provides energy delivery services to residential, commercial, and industrial and other contract customers in Indiana and Ohio. The company was founded in 1912 and is headquartered in Evansville, Indiana.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 54 9 6.75
Current Dividend Yield 3.68% 6 6
PE Ratio 23.55x 6 6
Return on Assets 2.70% 3 3
Return on Equity 8.89% 4 4
Asset Utilization 0.49x 5 2.5
3 Year Price Returns 44.61% 4 5
Dividend Growth 7.46% 2 3.5
Revenue Growth 19.26% 3 4.5
Earnings Growth 0.61% 2

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Vectren offers a fairly high yielding dividend with slow growth that should continue into the future.

Some recent developments concerning Vectren include:

  • Last month, Vectren announced some key leadership changes.

Piedmont Natural Gas

Piedmont Natural Gas Company is an energy services company that distributes natural gas throughout various areas of the United States and operates in the following two segments: Regulated Utility and Non-Utility Activities. The company was founded in 1949 and is headquartered in Charlotte, North Carolina.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 36 5 3.75
Current Dividend Yield 3.62% 6 6
PE Ratio 18.55x 8 8
Return on Assets 3.42% 3 3
Return on Equity 12.08% 5 5
Asset Utilization 0.33x 4 2
3 Year Price Returns 16.95% 3 3.75
Dividend Growth 18.52% 4 7
Revenue Growth -22.00% 1 1.5
Earnings Growth 7.14% 2

4

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Piedmont Natural Gas offers a fairly high dividend yield with decent growth and an attractively priced stock; however, the company has seen declining revenues over the past five years.

Some recent developments concerning Piedmont Natural Gas include:

  • The company recently announced an agreement for a major expansion of natural gas facilities at the Marine Corps Base Camp Lejeune.
  • Piedmont Natural Gas, along with Duke Energy, is seeking permission to build a second major pipeline into North Carolina.

Tootsie Roll Industries

Tootsie Roll Industries manufactures and sells confectionery products throughout North America under a large number of various brands. The company was founded in 1896 and is headquartered in Chicago, Illinois.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 48 8 6
Current Dividend Yield 1.10% 2 2
PE Ratio 29.25x 5 5
Return on Assets 7.00% 5 5
Return on Equity 9.24% 4 4
Asset Utilization 0.62x 7 3.5
3 Year Price Returns 10.18% 2 2.5
Dividend Growth 15.93% 4 7
Revenue Growth 8.82% 2 3
Earnings Growth 19.85% 3

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The company offers a small dividend yield but with fairly decent growth that should continue considering the company's payout ratio is under 30%.

Bowl America

Bowl America Incorporated operates bowling centers in the United States. The company was founded in 1958 and is headquartered in Springfield, Virginia.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 41 7 5.25
Current Dividend Yield 4.41% 7 7
PE Ratio 25.70x 6 6
Return on Assets 8.26% 6 6
Return on Equity 9.99% 4 4
Asset Utilization 0.64x 7 3.5
3 Year Price Returns 13.83% 2 2.5
Dividend Growth 6.45% 2 3.5
Revenue Growth -19.70% 1 1.5
Earnings Growth 1.67% 2

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While the company has an impressive dividend yield, the company has struggled with revenue and earnings growth. With a current payout ratio of 85%, I don't expect the dividend to grow at a high pace going forward.

Atmos Energy

Atmos Energy Corporation is engaged in the distribution, transmission, and storage of natural gas in the United States through the following three operating segments: Natural Gas Distribution, Regulated Transmission and Storage, and Nonregulated. The company was founded in 1906 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 3.02% 5 5
PE Ratio 17.98x 8 8
Return on Assets 3.10% 3 3
Return on Equity 9.76% 4 4
Asset Utilization 0.51x 6 3
3 Year Price Returns 44.76% 4 5
Dividend Growth 12.12% 3 5.25
Revenue Growth -21.80% 1 1.5
Earnings Growth 28.85% 3

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The company maintains an attractive dividend and has seen decent earnings growth, but this has been more through cost cutting measures rather than through raising revenues.

Some recent developments concerning Atmos Energy include:

  • Annual rate increase requested by Atmos Energy has been approved.
  • Atmos Energy's market cap has increased, passing Integrys Energy Group.

California Water

California Water Service Group provides water utility and other related services in California, Washington, New Mexico, and Hawaii. The company was founded in 1926 and is headquartered in San Jose, California.

Value Metric Score Weighted Metric Score
# Of Consecutive Years With Dividend Increases 47 8 6
Current Dividend Yield 2.84% 4 4
PE Ratio 23.38x 6 6
Return on Assets 2.32% 3 3
Return on Equity 8.37% 4 4
Asset Utilization 29.00x 3 1.5
3 Year Price Returns 22.68% 3 3.75
Dividend Growth 10.17% 3 5.25
Revenue Growth 29.98% 3 4.5
Earnings Growth 4.62% 2

4

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California Water has performed reasonably well and is the only company in this class that has positive revenue and earnings growth over the past five years, has dividend growth over 10%, and a PE ratio under 25x. With a payout ratio of 63%, the company's dividend has room to continue growing.

Some recent developments concerning California Water include:

  • California Water recently announced Q1 2014 earnings results.

Final Analysis

The three stocks I like the best in this class of Dividend Champions include: Universal, Middlesex Water and California Water. Universal seems to be the lesser known tobacco stock, but it has performed well in the past. While it has seen recent issues with revenue/earnings, the company is growing its business and doing it without tobacco, which helps dilute some of the risk associated with that industry. I think Middlesex and California Water are two solid water companies that will continue to reward income investors with substantial dividends. Last year, California Water was one of two water stocks I recommended in this article, and I still believe it is a solid company. It's latest quarter was far from impressive, but it has made the stock more attractive priced and the company is likely to get approval for a rate increase later in the year, which will help grow revenue.

The two stocks I currently would probably avoid for right now include NACCO and Tootsie Roll Industries. These two stocks have the lowest dividend yields out of the class. NACCO has seen significant drops in revenue over the past five years and its most recent quarter doesn't show any signs of this trend changing as it also saw an earnings loss. Tootsie Roll has performed decently, but I honestly can't think of any reason to buy Tootsie Roll over Hershey, which is a case I outlined in this article. Hershey has seen higher revenue/earnings growth, along with offering a higher dividend yield and a more attractive trailing and forward PE ratio.

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 earlier parts of this article series, 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 10 (the final chapter) of this article will feature the 'Flyweight' Dividend Champion stocks (10 stocks that have weighted scores between 23 and 41.99).

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.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.