Dividend Aristocrats Ranking: Part 1, The Heavyweights

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 |  Includes: AFL, BCR, BEN, DOV, GWW, HRL, MMM, TROW, VFC
by: Stan Stafford

Summary

Dividend Aristocrat stocks are stocks that have increased dividends for at least 25 consecutive years.

Using an updated metric and weighting system, I have ranked the Dividend Aristocrats.

This article reviews the top 9 scoring Dividend Aristocrat stocks that make up the Heavyweight class.

Overview

In April/May, I wrote a series of articles that ranked the Dividend Champions, based on a variety of metrics. Part 1 of that article can be found here. Using an updated metrics and weighting system (based on several great comments and questions from readers of that series of articles), this series of articles will focus on ranking the Dividend Aristocrats.

Before I get into the details of the scoring and weighting system, I want to provide a brief summary of the differences between this updated system for the Dividend Aristocrats and the original used when ranking the Dividend Champions.

  • The original scoring system consisted of 10 metrics, while this one consists of 15. One metric (Asset Utilization) has been removed, and six additional metrics have been added: PE ratio (forward), Return on Invested Capital (NYSE:TTM), Payout Ratio, EPS Estimates for Current and Next Four Quarters, Price-to-Free Cash Flow , and Debt-to-Equity Ratio (annual).
  • The original scoring system went from 1-10 for each metric, while the updated version goes from 0-15.
  • Several of the metrics previously had a three- or five-year benchmark (i.e. revenue increase over the past five years, etc.). Many of the updated metrics now cover a ten-year period.
  • The previous scoring "buckets" were previously just created by equally dividing available scores (i.e. 0%-9.99% in one bucket, 10%-19.99% in another bucket, 20%-29.99% in another, and so on). In the updated metric system, I have analyzed the median and mode for each metric to ensure that more relevant "buckets" are produced. (For instance, if dividend yield ranges from 0.01% to 8%, but 90% of the stocks are in the 2% to 4% range, the majority of the "buckets" will fall into that range.)
  • Previously, I believe the weighting system was weighted too heavily. Each metric was weighted in the following manner (.25x, .50x, .75x, 1x, 1.25x, 1.50x, etc.). The updated weighting system will be along the lines of .80x, .90x, 1x, 1.1x, 1.2x, etc.)

Score And Weighting System

In ranking the Dividend Aristocrats, the following 15 metrics were used:

Scores 0-15
# of Years With Consecutive Dividend Increases
Current Dividend Yield
Dividend Growth (past ten years)
PE Ratio (trailing twelve months)
PE Ratio (forward)
Return on Assets (trailing twelve months)
Return on Equity (trailing twelve months)
10-Year Price Returns
Revenue Growth (past ten years)
Earnings Growth (past ten years)
Return on Invested Capital (trailing twelve months)
Payout Ratio (trailing twelve months)
EPS Estimates for Current and Next 4 Quarters
Price-to-Free Cash Flow (trailing twelve months)
Debt-to-Equity Ratio (Annual)
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The next step was 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 (1.6x), Dividend Growth (1.5x), Dividend Yield (1.5x), Revenue Growth (1.4x), EPS Estimates for Current and Next 4 Quarters (1.3x), Return on Invested Capital (1.2x), Forward PE Ratio (1.1x), and # of Years With Consecutive Dividend Increases (0.9x). All remaining metrics are weighted to their original values.

After completing the analysis, the values assigned to individual stocks ranged from 198.40 to 97.90.

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. Also, due to the fairly recent spin-off related to Abbott Laboratories (NYSE:ABT) and AbbVie (NYSE:ABBV), I have decided to not include these stocks in the rankings, since a large portion of the metrics used look at historical data.

Just like with the Dividend Champions rankings, I have decided to use boxing weight classes to separate the attractiveness of these stocks (with "Heavyweights" being the most attractive stocks and "Lightweights" being the least attractive). For Part 1, I will be taking a look at the Heavyweight stocks, which include:

  • W.W. Grainger (NYSE:GWW) - Total score of 198.40
  • T. Rowe Price (NASDAQ:TROW) - Total score of 198.10
  • Franklin Resources (NYSE:BEN) - Total score of 189.10
  • VF Corporation (NYSE:VFC) - Total score of 188.40
  • CR Bard (NYSE:BCR) - Total score of 177.80
  • Hormel (NYSE:HRL) - Total score of 176.40
  • Dover (NYSE:DOV) - Total score of 167.60
  • 3M (NYSE:MMM) - Total score of 164.60
  • Aflac (NYSE:AFL) - Total score of 164.10

W.W. Grainger

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 43 7 6.3
Current Dividend Yield 1.65% 3 4.5
Dividend Growth 440% 13 19.5
PE Ratio (trailing) 23.15x 8 8
PE Ratio (forward) 20.70x 11 12.1
Return on Assets 15.54% 15 15
Return on Equity 24.93% 14 14
10-Year Price Returns 366.90% 15 15
Revenue Growth 97.22% 9 12.6
Earnings Growth 317.50% 15 24
Return on Invested Capital 20.83% 14 16.8
Payout Ratio 32.87% 11 11
EPS Estimates for Current and Next 4 Quarters 14.50% 12 15.6
Price-to-Free Cash Flow 26.90x 10 10
Debt-to-Equity Ratio 0.17x 14

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W.W. Grainger scored the highest out of all Dividend Aristocrat stocks ranked. The company has seen impressive earnings growth and dividend growth, along with high returns on assets and equity. W.W. Grainger has seen great stock price appreciation, and continues to carry low debt.

T. Rowe Price

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 27 1 0.9
Current Dividend Yield 2.10% 5 7.5
Dividend Growth 363.20% 12 18
PE Ratio (trailing) 20.46x 11 11
PE Ratio (forward) 18.23x 12 13.2
Return on Assets 22.17% 15 15
Return on Equity 24.33% 14 14
10-Year Price Returns 243.70% 11 11
Revenue Growth 213.60% 14 19.6
Earnings Growth 263.60% 14 22.4
Return on Invested Capital 21.74% 14 16.8
Payout Ratio 37.28% 10 10
EPS Estimates for Current and Next 4 Quarters 11.55% 9 11.7
Price-to-Free Cash Flow 19.37x 12 12
Debt-to-Equity Ratio 0.02x 15

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T. Rowe Price has seen consistent and impressive dividend, revenue, earnings, and stock price growth. The company has almost no debt and a strong return on invested capital.

Franklin Resources

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 34 3 2.7
Current Dividend Yield 0.83% 1 1.5
Dividend Growth 323.50% 11 16.5
PE Ratio (trailing) 16.51x 13 13
PE Ratio (forward) 15.52x 13 14.3
Return on Assets 14.35% 14 14
Return on Equity 21.98% 13 13
10 Year Price Returns 259.40% 14 22.40
Revenue Growth 151.80% 12 16.80
Earnings Growth 291.40% 14 22.40
Return on Invested Capital 17.01% 11 13.2
Payout Ratio 11.83% 14 14
EPS Estimates for Current and Next 4 Quarters 11.49% 9 11.7
Price-to-Free Cash Flow 19.87x 12 12
Debt-to-Equity Ratio 0.23x 13

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Franklin Resources has a low-yielding dividend, but has good dividend growth. This growth should continue, considering the company's very low payout ratio. With impressive revenue and earnings history and a strong balance sheet, Franklin Resources should continue to perform well.

VF Corporation

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 41 6 5.4
Current Dividend Yield 1.68% 3 4.5
Dividend Growth 303.80% 11 16.5
PE Ratio (trailing) 22.52x 9 9
PE Ratio (forward) 20.21x 11 12.1
Return on Assets 12.42% 13 13
Return on Equity 22.30% 13 13
10-Year Price Returns 419.10% 15 15
Revenue Growth 109.80% 10 14
Earnings Growth 189.70% 13 20.8
Return on Invested Capital 16.87% 11 13.2
Payout Ratio 34.01% 11 11
EPS Estimates for Current and Next 4 Quarters 17.54% 13 16.9
Price-to-Free Cash Flow 23.08x 11 11
Debt-to-Equity Ratio 0.24x 13

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VF Corporation's strengths can be seen in multiple areas. In my previous article, VF Corporation was the highest-ranked stock out of the Dividend Champions, and I'm glad to see it remains one of the highest-ranked stocks using the updated metric/weighting system.

CR Bard

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 42 6 5.4
Current Dividend Yield 0.62% 1 1.5
Dividend Growth 83.33% 3 4.5
PE Ratio (trailing) 14.92x 14 14
PE Ratio (forward) 16.99x 13 14.3
Return on Assets 16.69% 15 15
Return on Equity 41.03% 15 15
10-Year Price Returns 144.20% 6 6
Revenue Growth 100.10% 10 14
Earnings Growth 396.00% 15 24
Return on Invested Capital 22.91% 14 16.8
Payout Ratio 8.88% 15 15
EPS Estimates for Current and Next 4 Quarters 13.11% 11 14.3
Price-to-Free Cash Flow 11.31x 13 13
Debt-to-Equity Ratio 0.67x 5

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CR Bard is the one stock out of this group that dividend investors may want to avoid. It has the lowest yield out of the heavyweight stocks, and its dividend growth is not that impressive either. Even with the less-than-impressive dividend performance, the company's financials, past stock performance, and balance sheet remain solid.

Hormel

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 48 9 8.1
Current Dividend Yield 1.61% 3 4.5
Dividend Growth 255.60% 10 15
PE Ratio (trailing) 23.78x 8 8
PE Ratio (forward) 22.83x 9 9.9
Return on Assets 11.52% 12 12
Return on Equity 17.32% 11 11
10-Year Price Returns 235.10% 10 10
Revenue Growth 94.81% 9 12.6
Earnings Growth 154.70% 12 19.2
Return on Invested Capital 16.06% 11 13.2
Payout Ratio 33.93% 11 11
EPS Estimates for Current and Next 4 Quarters 16.33% 13 16.9
Price-to-Free Cash Flow 26.03x 10 10
Debt-to-Equity Ratio 0.08x 15

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Hormel has seen nice dividend, revenue, earnings, and stock price growth over the past ten years. With low debt and a low payout ratio, Hormel remains a great defensive stock option.

Dover

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 59 15 13.5
Current Dividend Yield 1.65% 3 4.5
Dividend Growth 134.40% 5 7.5
PE Ratio (trailing) 16.42x 13 13
PE Ratio (forward) 18.86x 12 13.2
Return on Assets 9.39% 11 11
Return on Equity 19.73% 12 12
10-Year Price Returns 167.40% 7 7
Revenue Growth 73.97% 8 11.2
Earnings Growth 218.30% 14 22.4
Return on Invested Capital 12.45% 8 9.6
Payout Ratio 26.38% 12 12
EPS Estimates for Current and Next 4 Quarters 11.40% 9 11.7
Price-to-Free Cash Flow 19.13x 12 12
Debt-to-Equity Ratio 0.53x 7

7

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With 59 consecutive years of dividend increases, Dover is as consistent as they come. The company continues to average impressive double-digit yearly dividend growth, along with impressive earnings.

3M

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 56 13 11.7
Current Dividend Yield 2.36% 6 9
Dividend Growth 137.50% 5 7.5
PE Ratio (trailing) 21.04x 10 10
PE Ratio (forward) 19.44x 12 13.2
Return on Assets 14.03% 14 14
Return on Equity 26.70% 14 14
10-Year Price Returns 66.71% 3 3
Revenue Growth 61.10% 7 9.8
Earnings Growth 98.10% 9 14.4
Return on Invested Capital 19.54% 13 15.6
Payout Ratio 39.18% 10 10
EPS Estimates for Current and Next 4 Quarters 10.50% 8 10.4
Price-to-Free Cash Flow 23.29x 11 11
Debt-to-Equity Ratio 0.34x 11

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Even though it operates in a very competitive industry, 3M continues to deliver impressive growth and returns. The company has been able to keep its payout low, while growing its dividend year after year.

Aflac

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 31 2 1.8
Current Dividend Yield 2.35% 6 9
Dividend Growth 289.50% 10 15
PE Ratio (trailing) 9.78x 15 15
PE Ratio (forward) 10.11x 14 15.4
Return on Assets 2.49% 2 2
Return on Equity 20.21% 13 13
10-Year Price Returns 55.60% 3 3
Revenue Growth 90.15% 9 12.6
Earnings Growth 291.60% 14 22.4
Return on Invested Capital 15.27% 10 12
Payout Ratio 21.31% 13 13
EPS Estimates for Current and Next 4 Quarters 4.28% 3 3.9
Price-to-Free Cash Flow 3.52x 15 15
Debt-to-Equity Ratio 0.34x 11

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Aflac is one of the more attractively priced stocks out of the Aristocrats. It has a strong balance sheet and an impressive history of revenue, earnings, and stock price growth.

Conclusion

These articles, 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 the right choice for you. Another step for individual investors might be to use the metrics I have included, but change the weight of them based on important factors to see how that affects overall scores.

I do feel that each of the stocks listed in this article is worth consideration as a long-term buy, but as always, I suggest individual investors perform their own research before making any investment decisions.

I know several investors tend to overlook the lower-yielding Dividend Aristocrats, but I feel like this is a mistake. There's a reason that these stocks rank high (5 out of these 9 Heavyweight stocks also ranked as "Heavyweights" when I reviewed the Dividend Champions). Many of the lower-yielding Aristocrats have been the best historical performers in terms of overall return, so unless investors need the dividend income right now, not considering the lower-yielding stocks is a move that shouldn't be made.

Part 2 of this article will feature the "Light Heavyweight" Dividend Aristocrat stocks (10 stocks that have weighted scores between 162.70 and 155).

I want to give a special thanks to Dave Fish and to the many readers who contributed comments/questions to my first series of articles related to ranking the Dividend Champions. After this series of articles ranking the Aristocrats is complete, I plan on writing another series that will rank the Dividend Contenders next month.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.