Dividend Aristocrats Ranking: Part 3, The Middleweights

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 |  Includes: ADM, ADP, CB, CL, CVX, EMR, ITW, JNJ, PEP, WBA
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 11 Dividend Aristocrat stocks that make up the Middleweight 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.

The updates in the metric/weighting system were explained in detail in Part 1 of this series that focused on the top nine scoring Aristocrat stocks that make up the Heavyweight class.

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.

This article, Part 3, will focus on the next highest scoring set of stocks, the Middleweights, which include:

  • Johnson & Johnson (NYSE:JNJ) - Total score of 154.1
  • Walgreen (WAG) - Total score of 153
  • Archer Daniels Midland (NYSE:ADM) - Total score of 152.6
  • Brown-Forman (BF-B) - Total score of 151.5
  • PepsiCo (NYSE:PEP) - Total score of 150.2
  • Emerson (NYSE:EMR) - Total score of 148.1
  • Automatic Data Processing (NASDAQ:ADP) - Total score of 147.9
  • Colgate-Palmolive (NYSE:CL) - Total score of 147.7
  • Illinois Tool Works (NYSE:ITW) - Total score of 145.8
  • Chevron (NYSE:CVX) - Total score of 142
  • Chubb Corporation (NYSE:CB) - Total score of 140.3

Johnson & Johnson

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 52 11 9.9
Current Dividend Yield 2.66% 7 10.5
Dividend Growth 145.60% 5 7.5
PE Ratio (trailing) 20.11x 11 11
PE Ratio (forward) 17.90x 12 13.2
Return on Assets 11.79% 12 12
Return on Equity 21.10% 13 13
10-Year Price Returns 90.12% 4 4
Revenue Growth 60.71% 7 9.8
Earnings Growth 78.43% 8 12.8
Return on Invested Capital 17.18% 11 13.2
Payout Ratio 49.45% 8 8
EPS Estimates for Current and Next 4 Quarters 6.35% 4 5.2
Price-to-Free Cash Flow 19.66x 12 12
Debt-to-Equity Ratio 0.25x 12

12

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Johnson & Johnson has a fairly strong balance sheet and strong returns on assets, equity, and invested capital. The two areas in which Johnson & Johnson score lowest are its 10 year price returns and future EPS estimates. Those two combined suggest that Johnson & Johnson's upside potential may be very limited in the near term.

Walgreen

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 38 4 3.6
Current Dividend Yield 1.68% 3 4.5
Dividend Growth 500% 15 22.5
PE Ratio (trailing) 26.42x 6 6
PE Ratio (forward) 21.72x 10 11
Return on Assets 7.56% 9 9
Return on Equity 13.90% 9 9
10-Year Price Returns 107.30% 5 5
Revenue Growth 97.79% 9 12.6
Earnings Growth 118.40% 10 16
Return on Invested Capital 10.82% 6 7.2
Payout Ratio 40.92% 9 9
EPS Estimates for Current and Next 4 Quarters 15.07% 12 15.6
Price-to-Free Cash Flow 28.6x 10 10
Debt-to-Equity Ratio 0.26x 12

12

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Walgreen has performed well across the board with strong returns and substantial growth. It's lowest score comes from its meager dividend yield. However, its dividend growth has been outstanding, which should be of more importance to long term investors.

Archer Daniels Midland

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 39 5 4.5
Current Dividend Yield 2.14% 5 7.5
Dividend Growth 220.00% 8 12
PE Ratio (trailing) 22.16x 9 9
PE Ratio (forward) 14.47x 14 15.4
Return on Assets 3.19% 3 3
Return on Equity 6.86% 3 3
10-Year Price Returns 175.60% 8 8
Revenue Growth 145.60% 12 16.8
Earnings Growth 166.00% 12 19.2
Return on Invested Capital 5.01% 3 3.6
Payout Ratio 39.85% 10 10
EPS Estimates for Current and Next 4 Quarters 15.84% 12 15.6
Price-to-Free Cash Flow 8.13x 14 14
Debt-to-Equity Ratio 0.34x 11

11

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Archer Daniels Midland has seen nice growth in its revenue, earnings, and dividend over the past ten years. Estimates for future earnings look good too. The one area in which ADM hasn't performed that well is in its returns on assets, equity, and invested capital. The company does maintain a stable balance sheet, which should ease most concerns related to the low return related scores.

Brown-Forman

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 30 2 1.8
Current Dividend Yield 1.20% 2 3
Dividend Growth 155.90% 6 9
PE Ratio (trailing) 31.53x 4 4
PE Ratio (forward) 28.80x 5 5.5
Return on Assets 17.06% 15 15
Return on Equity 36.34% 15 15
10-Year Price Returns 278.50% 12 12
Revenue Growth 79.50% 8 11.2
Earnings Growth 126.80% 11 17.6
Return on Invested Capital 23.38% 14 16.8
Payout Ratio 35.41% 10 10
EPS Estimates for Current and Next 4 Quarters 15.56% 12 15.6
Price-to-Free Cash Flow 39.67x 8 8
Debt-to-Equity Ratio 0.50x 7

7

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I wrote an article about Brown-Forman back in May related to it being a solid stock for long term investors to buy, so I'm glad to see it make it into the Middleweight class of the Aristocrats. The company offers a low yield and is priced at a premium, but it has rewarded investors with consistent and significant growth over the years. I see no reason this will not continue well into the future.

PepsiCo

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 42 6 5.4
Current Dividend Yield 2.96% 8 12
Dividend Growth 184.80% 7 10.5
PE Ratio (trailing) 19.96x 12 12
PE Ratio (forward) 19.46x 12 13.2
Return on Assets 8.96% 10 10
Return on Equity 29.93% 15 15
10-Year Price Returns 59.03% 3 3
Revenue Growth 136.50% 11 15.4
Earnings Growth 109.90% 10 16
Return on Invested Capital 12.95% 8 9.6
Payout Ratio 50.73% 7 7
EPS Estimates for Current and Next 4 Quarters 9.03% 7 9.1
Price-to-Free Cash Flow 21.72x 11 11
Debt-to-Equity Ratio 1.21x 1

1

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PepsiCo has a lot of debt, but it doesn't concern me too much considering the company continues to provide significant growth in revenue/earnings as well as solid returns on assets, equity, and invested capital. PepsiCo offers a slightly lower yield than its counterpart Coca-Cola, but it offers trades at a lower premium.

Emerson

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 57 14 12.6
Current Dividend Yield 2.52% 7 10.5
Dividend Growth 115% 4 6
PE Ratio (trailing) 24.38x 7 7
PE Ratio (forward) 18.25x 12 13.2
Return on Assets 8.30% 10 10
Return on Equity 19.05% 12 12
10-Year Price Returns 128.80% 6 6
Revenue Growth 61.79% 7 9.8
Earnings Growth 100.60% 10 16
Return on Invested Capital 12.17% 8 9.6
Payout Ratio 59.76% 6 6
EPS Estimates for Current and Next 4 Quarters 10.24% 8 10.4
Price-to-Free Cash Flow 16.64x 12 12
Debt-to-Equity Ratio 0.53x 7

7

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Emerson is a perfect example of an overall solid company, in my opinion. It does do anything exceptionally well. It's highest score comes from its # of years with increased dividends. But it also doesn't do anything poorly. It's lowest score comes from its dividend growth, which still averages better than 10% annually over the past ten years.

Automatic Data Processing

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 39 5 4.5
Current Dividend Yield 2.42% 6 9
Dividend Growth 242.90% 9 13.5
PE Ratio (trailing) 26.43x 6 6
PE Ratio (forward) 25.30x 6 6.6
Return on Assets 4.11% 4 4
Return on Equity 22.85% 13 13
10-Year Price Returns 103.10% 5 5
Revenue Growth 64.41% 7 9.8
Earnings Growth 90.64% 9 14.4
Return on Invested Capital 21.16% 14 16.8
Payout Ratio 59.33% 6 6
EPS Estimates for Current and Next 4 Quarters 13.56% 11 14.3
Price-to-Free Cash Flow 26.73x 10 10
Debt-to-Equity Ratio 0.002x 15

15

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Automatic Data Processing is a company with virtually no debt, a substantial dividend yield, and solid dividend growth. I think the only downside to the company currently is that it appears somewhat overvalued based on its prior history of average revenue and earnings growth.

Colgate-Palmolive

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 51 11 9.9
Current Dividend Yield 2.11% 5 7.5
Dividend Growth 200% 8 12
PE Ratio (trailing) 29.44x 4 4
PE Ratio (forward) 22.95x 9 9.9
Return on Assets 15.77% 15 15
Return on Equity 120.20% 15 15
10-Year Price Returns 134.70% 6 6
Revenue Growth 71.19% 8 11.2
Earnings Growth 75.89% 8 12.8
Return on Invested Capital 27.91% 15 18
Payout Ratio 64.91% 5 5
EPS Estimates for Current and Next 4 Quarters 10.90% 8 10.4
Price-to-Free Cash Flow 25.57x 10 10
Debt-to-Equity Ratio 2.45x 1

1

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Colgate-Palmolive has excellent returns on assets, equity, and invested capital, but does have a very high debt to equity ratio. It also has the highest payout ratio of any of the Middleweight stocks, which could slow future dividend growth should revenue/earnings growth slide any.

Illinois Tool Works

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 39 5 4.5
Current Dividend Yield 1.88% 4 6
Dividend Growth 250% 10 15
PE Ratio (trailing) 21.93x 10 10
PE Ratio (forward) 19.60x 12 13.2
Return on Assets 9.15% 11 11
Return on Equity 18.26% 12 12
10-Year Price Returns 93.53% 4 4
Revenue Growth 37.16% 5 7
Earnings Growth 110.00% 10 16
Return on Invested Capital 11.46% 7 8.4
Payout Ratio 39.43% 10 10
EPS Estimates for Current and Next 4 Quarters 11.65% 9 11.7
Price-to-Free Cash Flow 18.55x 12 12
Debt-to-Equity Ratio 0.65x 5

5

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Illinois Tool Works is a company with substantial dividend growth. It's revenue growth has been lackluster, but strong management has ensured significant earnings growth. High returns on assets, equity, and invested capital, a stable balance sheet, and a low payout ratio should help to ensure nice shareholder returns going forward.

Chevron

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 27 1 0.9
Current Dividend Yield 3.23% 9 13.5
Dividend Growth 167.50% 6 9
PE Ratio (trailing) 12.89x 14 14
PE Ratio (forward) 12.46x 14 15.4
Return on Assets 7.96% 9 9
Return on Equity 13.58% 9 9
10-Year Price Returns 183.40% 8 8
Revenue Growth 67.98% 8 12
Earnings Growth 104.70% 10 16
Return on Invested Capital 11.91% 7 8.4
Payout Ratio 39.09% 10 10
EPS Estimates for Current and Next 4 Quarters 3.37% 2 2.6
Price-to-Free Cash Flow 510.85x 1 1
Debt-to-Equity Ratio 0.14x 14

14

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Chevron has a strong history of growth across revenue, dividends, and earnings. The company maintains a low payout ratio and low debt levels. It is attractively priced and operates in an industry that should see substantial future growth.

Chubb Corporation

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 32 2 1.8
Current Dividend Yield 2.14% 5 7.5
Dividend Growth 156.40% 6 9
PE Ratio (trailing) 11.19x 14 14
PE Ratio (forward) 12.77x 14 15.4
Return on Assets 4.18% 4 4
Return on Equity 13.45% 9 9
10-Year Price Returns 172.50% 7 7
Revenue Growth 13.08% 2 2.8
Earnings Growth 200.90% 14 22.4
Return on Invested Capital 11.11% 7 8.4
Payout Ratio 21.14% 13 13
EPS Estimates for Current and Next 4 Quarters -2.07% 0 0
Price-to-Free Cash Flow 13.25x 13 13
Debt-to-Equity Ratio 0.21x 13

13

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Chubb has seen very slow revenue growth over the past ten years; however, the company has a strong history of rewarding shareholders through dividend increases and share buybacks. It remains attractively priced and with a low payout ratio and a low debt to equity ratio, I feel shareholders will continue to be rewarded. I think returns may be slower than some other stocks with Chubb, but I also believe Chubb is one of the less risky stocks as well with a more limited downside.

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 the stocks I personally like best are Brown-Forman, PepsiCo, Emerson, and Chevron. As always, I suggest individual investors perform their own research before making any investment decisions.

Part 4 of this article will feature the "Super Lightweight" Dividend Aristocrat stocks (12 stocks that have weighted scores between 139.7 and 130.8).

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.