Highest Yielding, Highest Momentum Dividend Champions

by: Scott's Investments

I have recently begun using DRIP Investing's US Dividend Champions list to identify potential high yield equities. My site tends to focus on price momentum strategies for picking ETFs and stocks. For those investors who want to combine active stock management and momentum/technical strategies with reliable dividend paying stocks, the US Dividend Champions list is a great place to start since it is a list of stocks with a history of raising dividends for at least 25 years.

Combining the Dividend Champions list with a basic price momentum strategy yields some potential portfolio candidates. I previously detailed a study showing that among the S&P 1500 the high yielding, highest price momentum stocks produce greater returns that lower yielding, lower price momentum stocks. Specifically, the study ranked the highest yielding stocks by 6 month price momentum, divided them into 5 segments, and found that highest yield stocks with the highest 6 month price momentum outperformed a) all other momentum segments (in other words, those high yield stocks with lower price momentum) and b) the annual return of every quadrant mentioned in paragraph one.

I am not aware of any similar studies which focus exclusively on the Dividend Champions list. However, if we apply the same high yield-high momentum strategy to Dividend Champions, we can identify stocks with the potential for capital appreciation which also sustain and grow dividend payments.

Starting with the US Dividend Champions list for December which contains 98 stocks, I screened for stocks on the list yielding at least 3% as of December 9th. There are 40 Dividend Champions yielding at least 3%. I then ranked these 40 stocks based on 6 month returns. The top 10 stocks based on 6 month returns as of December 9th are below. I have also listed payout ratios for each stock which can be an indicator of dividend sustainability; however, short-term earnings gyrations due to such things as one-time write offs may have a short-term impact on this ratio so the payout ratio is always worth additional research.

I performed the same screen last month and this month's list has 3 changes from last month - Vectren (NYSE:VVC), AT&T (NYSE:T), and WGL Holding (NYSE:WGL) have been removed and replaced with Mine Safety Appliances (NYSE:MSA), Cincinnati Financial Corp (NASDAQ:CINF), and Middlesex Water (NASDAQ:MSEX).

Yield, payout, and return data in the chart below obtained from Finviz:

Ticker Company Trend Sector Industry Dividend Yield Payout Ratio Performance (Half Year)
CTL CenturyLink, Inc. Here Technology Telecom Services - Domestic 6.57% 91.58% 33.10%
CTWS Connecticut Water Service Inc. Here Utilities Water Utilities 3.53% 87.70% 26.84%
GPC Genuine Parts Company Here Services Auto Parts Wholesale 3.26% 56.55% 25.76%
MO Altria Group Inc. Here Consumer Goods Cigarettes 6.18% 80.01% 24.44%
MGEE MGE Energy Inc. Here Utilities Diversified Utilities 3.57% 57.84% 19.93%
MSA Mine Safety Appliances Co. Here Healthcare Medical Appliances & Equipment 3.31% 90.99% 18.94%
MSEX Middlesex Water Co. Here Utilities Water Utilities 4.03% 78.97% 17.66%
CINF Cincinnati Financial Corp. Here Financial Property & Casualty Insurance 5.10% 52.02% 15.78%
ED Consolidated Edison Inc. Here Utilities Diversified Utilities 4.89% 69.30% 15.76%
STR Questar Corporation Here Basic Materials Independent Oil & Gas 3.17% 33.36% 15.51%

Disclosure: No positions