Dividend Aristocrats Ranking: Part 4, The Super Lightweights

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 |  Includes: BDX, CLX, ECL, KMB, KO, MDT, MKC, PG, PNR, SPGI, SYY, TGT
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 12 Dividend Aristocrat stocks that make up the Super Lightweight 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 4, will focus on the next highest scoring set of stocks, the Super Lightweights, which include:

  • Coca-Cola (NYSE:KO) - Total score of 139.7
  • Procter & Gamble (NYSE:PG) - Total score of 139.3
  • Medtronic (NYSE:MDT) - Total score of 139
  • Becton, Dickinson and Company (NYSE:BDX) - Total score of 138.8
  • Kimberly Clark (NYSE:KMB) - Total score of 138.6
  • Pentair (NYSE:PNR) - Total score of 137.8
  • Ecolab (NYSE:ECL) - Total score of 137.1
  • Clorox (NYSE:CLX) - Total score of 135.3
  • Target (NYSE:TGT) - Total score of 134.9
  • McGraw-Hill (MHFI) - Total score of 133.8
  • McCormick (NYSE:MKC) - Total score of 132.6
  • Sysco (NYSE:SYY) - Total score of 130.8

Coca-Cola

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 52 11 9.9
Current Dividend Yield 2.93% 8 12
Dividend Growth 144% 5 7.5
PE Ratio (trailing) 22.28x 9 9
PE Ratio (forward) 20.04x 11 12.1
Return on Assets 9.42% 11 11
Return on Equity 25.98% 14 14
10-Year Price Returns 62.95% 3 3
Revenue Growth 112.40% 10 14
Earnings Growth 91.89% 9 14.4
Return on Invested Capital 12.18% 8 9.6
Payout Ratio 58.79% 6 6
EPS Estimates for Current and Next 4 Quarters 6.67% 4 5.2
Price-to-Free Cash Flow 21.71x 11 11
Debt-to-Equity Ratio 1.12x 1

1

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Looking at the table above, you can see that Coca-Cola has a solid history of revenue and earnings returns; however, has not seen very significant price returns over the past ten years when compared with the S&P 500. Even though the company remains a solid investment option, future earnings growth appear to be somewhat limited. Coca-Cola remains a very good defensive stock to have in one's portfolio.

Procter & Gamble

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 58 14 12.6
Current Dividend Yield 3.23% 9 13.5
Dividend Growth 157.40% 6 9
PE Ratio (trailing) 21.18x 10 10
PE Ratio (forward) 18.99x 12 13.2
Return on Assets 7.75% 9 9
Return on Equity 16.26% 11 11
10-Year Price Returns 42.41% 2 2
Revenue Growth 64.76% 7 9.8
Earnings Growth 68.17% 8 12.8
Return on Invested Capital 10.60% 6 7.2
Payout Ratio 62.34% 5 5
EPS Estimates for Current and Next 4 Quarters 6.26% 4 5.2
Price-to-Free Cash Flow 24.04x 11 11
Debt-to-Equity Ratio 0.46x 8

8

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Procter & Gamble is very similar to Coca-Cola in terms of historical revenue and earnings growth, along with limited future earnings growth. The company has a higher payout ratio than Coca-Cola, but a lower debt level. Procter & gamble provides a dividend yield over 3%, making it an attractive dividend growth investment.

Medtronic

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 36 4 3.6
Current Dividend Yield 1.90% 4 6
Dividend Growth 264% 10 15
PE Ratio (trailing) 21.33x 10 10
PE Ratio (forward) 15.89x 13 14.3
Return on Assets 8.45% 10 10
Return on Equity 16.18% 11 11
10-Year Price Returns 31.71% 2 2
Revenue Growth 81.51% 9 12.6
Earnings Growth 81.55% 9 14.4
Return on Invested Capital 10.02% 6 7.2
Payout Ratio 36.41% 10 10
EPS Estimates for Current and Next 4 Quarters 4.10% 3 3.9
Price-to-Free Cash Flow 14.26x 13 13
Debt-to-Equity Ratio 0.61x 6

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Medtronic offers a low dividend yield, but solid growth. The company maintains nice returns on assets and equity. Future earnings growth may be somewhat limited, but Medtronic should continue to see significant dividend growth with its low payout ratio.

Becton, Dickinson and Company

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 42 6 5.4
Current Dividend Yield 1.84% 4 6
Dividend Growth 263.30% 10 15
PE Ratio (trailing) 24.66x 7 7
PE Ratio (forward) 18.96x 12 13.2
Return on Assets 7.96% 9 9
Return on Equity 19.20% 12 12
10-Year Price Returns 123.80% 5 5
Revenue Growth 71.89% 8 11.2
Earnings Growth 121.50% 11 17.6
Return on Invested Capital 10.61% 6 7.2
Payout Ratio 42.53% 9 9
EPS Estimates for Current and Next 4 Quarters 6.50% 4 5.2
Price-to-Free Cash Flow 16.25x 12 12
Debt-to-Equity Ratio 0.79x 4

4

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Just as Procter & Gamble is similar to Coca-Cola, Becton, Dickinson & Company is similar to Medtronic in its low dividend yield, solid growth and solid returns on equity and assets. The company has a stable balance sheet and a payout ratio that should not limit its future dividend growth.

Kimberly Clark

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 42 6 5.4
Current Dividend Yield 2.98% 8 12
Dividend Growth 110% 4 6
PE Ratio (trailing) 20.16x 11 11
PE Ratio (forward) 18.38x 12 13.2
Return on Assets 11.13% 12 12
Return on Equity 46.19% 15 15
10-Year Price Returns 73.02% 3 3
Revenue Growth 46.40% 6 8.4
Earnings Growth 57.78% 7 11.2
Return on Invested Capital 19.05% 13 15.6
Payout Ratio 57.84% 6 6
EPS Estimates for Current and Next 4 Quarters 8.63% 6 7.8
Price-to-Free Cash Flow 22.45x 11 11
Debt-to-Equity Ratio 1.19x 1

1

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Kimberly Clark has a high debt level and low stock price appreciation over the past ten years; however, the company offers an attractive dividend yield with solid growth. The stock is trading at a fair value and offers significant returns on assets, equity, and invested capital.

Pentair

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 38 4 3.6
Current Dividend Yield 1.33% 2 3
Dividend Growth 127.30% 5 7.5
PE Ratio (trailing) 25.34x 6 6
PE Ratio (forward) 19.19x 12 13.2
Return on Assets 5.14% 5 5
Return on Equity 10.01% 6 6
10-Year Price Returns 133.50% 6 6
Revenue Growth 469.20% 15 21
Earnings Growth 61.23% 7 11.2
Return on Invested Capital 6.85% 4 4.8
Payout Ratio 32.50% 11 11
EPS Estimates for Current and Next 4 Quarters 23.31% 15 19.5
Price-to-Free Cash Flow 20.39x 11 11
Debt-to-Equity Ratio 0.42x 9

9

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Pentair has seen very impressive revenue growth over the past ten years, but has seen only marginal growth in terms of earnings and stock price. However, the company's future EPS estimates look to be favorable. The company has an attractive balance sheet and payout ratio, that should lead to continued dividend growth.

Ecolab

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 28 1 0.9
Current Dividend Yield 1.01% 2 3
Dividend Growth 243.80% 9 13.5
PE Ratio (trailing) 33.51x 3 3
PE Ratio (forward) 26.00x 6 6.6
Return on Assets 5.22% 5 5
Return on Equity 14.63% 10 10
10-Year Price Returns 259.00% 11 11
Revenue Growth 246.30% 14 19.6
Earnings Growth 185.90% 13 20.8
Return on Invested Capital 7.18% 4 4.8
Payout Ratio 29.97% 12 12
EPS Estimates for Current and Next 4 Quarters 17.73% 13 16.9
Price-to-Free Cash Flow 36.67x 8 8
Debt-to-Equity Ratio 0.94x 2

2

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Ecolab has a dividend yield of just over 1%; however, it does offer significant growth in not only its dividend but also its revenue and earnings. With high estimated future EPS growth and a low payout ratio, Ecolab should continue to reward long term investors well into the future.

Clorox

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 37 4 3.6
Current Dividend Yield 3.23% 9 13.5
Dividend Growth 174.10% 6 9
PE Ratio (trailing) 21.30x 10 10
PE Ratio (forward) 21.18x 10 11
Return on Assets 13.04% 14 14
Return on Equity 485.50% 15 15
10-Year Price Returns 71.65% 3 3
Revenue Growth 32.99% 5 7
Earnings Growth 68.10% 8 12.8
Return on Invested Capital 21.87% 14 16.8
Payout Ratio 63.40% 5 5
EPS Estimates for Current and Next 4 Quarters 3.95% 2 2.6
Price-to-Free Cash Flow 21.25x 11 11
Debt-to-Equity Ratio 16.25x 1

1

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Clorox is an overall solid company with an attractive dividend yield and solid growth in revenue, dividend, and earnings. The only issues with Clorox is that it does have a large amount of debt and its future earnings estimates are not that great. However, I do believe that long term investors will see positive returns going forward.

Target

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 46 8 7.2
Current Dividend Yield 3.57% 11 16.5
Dividend Growth 550% 15 22.5
PE Ratio (trailing) 19.69x 12 12
PE Ratio (forward) 15.65x 13 14.3
Return on Assets 4.23% 4 4
Return on Equity 11.61% 7 7
10-Year Price Returns 29.23% 2 2
Revenue Growth 64.88% 7 9.8
Earnings Growth 1.08% 1 1.6
Return on Invested Capital 6.19% 4 4.8
Payout Ratio 55.34% 6 6
EPS Estimates for Current and Next 4 Quarters 18.84% 14 18.2
Price-to-Free Cash Flow 53.5x 6 6
Debt-to-Equity Ratio 0.85x 3

3

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Target has one of the better dividend yields in this group of stocks as well as one of the best dividend growth over the past ten years. Target has had some recent problems related to data breaches, etc.; however, future earnings are estimated to be high and the stock appears to be currently fairly valued.

McGraw-Hill

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 41 6 5.4
Current Dividend Yield 1.45% 2 3
Dividend Growth 100% 4 6
PE Ratio (trailing) 25.94x 6 6
PE Ratio (forward) 21.82x 10 11
Return on Assets 14.65% 14 14
Return on Equity 75.42% 15 15
10-Year Price Returns 114.40% 5 5
Revenue Growth -2.44% 0 0
Earnings Growth 79.02% 8 12.8
Return on Invested Capital 43.95% 15 18
Payout Ratio 43.42% 9 9
EPS Estimates for Current and Next 4 Quarters 14.86% 12 15.6
Price-to-Free Cash Flow 43.4x 7 7
Debt-to-Equity Ratio 0.61x 6

6

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McGraw-Hill is one of the few Aristocrats to have negative revenue growth over the past ten years. It also has low dividend growth combined with a low dividend yield. The company has been able to keep earnings growth respectable and future earnings estimates are stable, but revenue growth remains a valid concern.

McCormick

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 28 1 0.9
Current Dividend Yield 2.04% 5 7.5
Dividend Growth 164.30% 6 9
PE Ratio (trailing) 24.60x 7 7
PE Ratio (forward) 22.17x 9 9.9
Return on Assets 9.14% 11 11
Return on Equity 21.60% 13 13
10-Year Price Returns 109.80% 5 5
Revenue Growth 68.60% 8 11.2
Earnings Growth 94.82% 9 14.4
Return on Invested Capital 12.57% 8 9.6
Payout Ratio 46.58% 8 8
EPS Estimates for Current and Next 4 Quarters 9.25% 7 9.1
Price-to-Free Cash Flow 23.88x 11 11
Debt-to-Equity Ratio 0.64x 6

6

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McCormick is overall a solid company. It's greatest strengths or its strong returns on assets, equity, and invested capital. The company's revenue, earnings, and dividend growth have not been overly impressive, but they have been stable and consistent.

Sysco

Value Metric Score Weighted Metric Score
Number Of Consecutive Years With Dividend Increases 44 7 6.3
Current Dividend Yield 3.09% 9 13.5
Dividend Growth 123.10% 4 6
PE Ratio (trailing) 23.11x 8 8
PE Ratio (forward) 20.96x 11 12.1
Return on Assets 7.45% 9 9
Return on Equity 18.41% 12 12
10-Year Price Returns 0.43% 1 1
Revenue Growth 56.23% 7 9.8
Earnings Growth 16.31% 3 4.8
Return on Invested Capital 11.67% 7 8.4
Payout Ratio 69.14% 5 5
EPS Estimates for Current and Next 4 Quarters 17.17% 13 16.9
Price-to-Free Cash Flow 20.68x 11 11
Debt-to-Equity Ratio 0.56x 7

7

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Sysco has underperformed the S&P 500 significantly over the past ten years, but the company does provide an attractive dividend yield with solid growth. Future earnings estimates are positive and with a stable balance sheet and payout ratio, Sysco should continue to reward long term shareholders.

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 Coca-Cola, Procter & Gamble, Ecolab, Target, and McCormick. As always, I suggest individual investors perform their own research before making any investment decisions.

The last article of this series, Part 5, will feature the "Lightweight" Dividend Aristocrat stocks (10 stocks that have weighted scores between 123.3 and 97.9).

Disclosure: The author is long KO. 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.