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Dividend Champions Smackdown VIII

In previous installments of the Smackdown series, I screened the Dividend Champions list of companies that have paid higher dividends for at least 25 straight years (which can be found here) using fundamental factors that are important to dividend-oriented investors, such as yield, Payout ratio, and price. This time, I decided to focus on the Dividend Growth Rates (or DGRs), including the newly added 1- and 3-year columns. So I screened as follows:

Step1: The first step had multiple parts. First, I sorted the companies by 10-year DGR, highest to lowest. This sort revealed 33 initial candidates that had rates of at least 10%. Next, I sorted these by 5-year DGR, eliminating two companies with 5-year DGRs of less than 10%. I next sorted on the new 3-year DGR column, eliminating three companies with DGRs below 9%. Finally, sorting on the new 1-year DGR column, I eliminated eight more companies that had DGRs of less than 5%, leaving 20 candidates for step 2. (I used a lower threshold because boards of directors had been more conservative following the recession.)

Step 2: Sort those companies by yield. I didn't want to select companies that had excessively low payouts, but younger investors may have time to start fairly low and enjoy many years of dividend increases, so eliminating only yields below 2% cut the list to 12 companies.

Step 3: Sort the remaining companies by price/earnings (P/E) ratios. Since it is earnings that drive stock price (and dividend) growth, I reasoned that this screen would narrow the selection process to companies whose earnings were not being adequately reflected in their stock prices. However, the P/Es ranged from 9.52 to 21.59, with only two above 20, so none were cut.

Step 4: Compare the remaining companies by the percentage increase of Next Year's EPS estimate over This Year's EPS estimate. (Now column AB in the spreadsheet.) I wanted to make sure that earnings growth was expected to be healthy enough to support future dividend increases. I eliminated one company (RLI Corp.) whose earnings are expected to decrease next year and one (Weyco Group) that had no estimates. The list of remaining candidates follows:

(Note that I've sorted all tables back into alphabetical order)

No.

12/31/10

TTM

NY/TY%

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

1-yr

3-yr

5-yr

10-yr

Altria Group Inc.

MO

42

24.62

6.17

13.83

6.32

9.2

18.3

14.8

11.7

Colgate-Palmolive Co.

CL

47

80.37

2.64

18.78

4.98

18.0

13.2

12.8

12.4

Eaton Vance Corp.

EV

30

30.23

2.38

21.59

17.93

5.6

9.0

14.2

20.6

Johnson & Johnson

JNJ

48

61.85

3.49

12.70

5.05

9.3

9.2

10.6

13.0

McCormick & Co.

MKC

25

46.53

2.41

17.69

7.66

8.3

9.1

10.2

10.6

McDonald's Corp.

MCD

34

76.76

3.18

16.94

9.13

10.2

14.6

27.5

26.5

Medtronic Inc.

MDT

33

37.09

2.43

12.83

7.94

9.6

22.3

19.0

16.9

PepsiCo Inc.

PEP

38

65.33

2.94

16.46

11.89

6.3

11.3

13.7

13.0

Procter & Gamble Co.

PG

54

64.33

3.00

15.84

9.80

9.6

11.5

11.6

10.9

Wal-Mart Stores Inc.

WMT

36

53.93

2.24

13.35

9.88

11.8

12.6

15.3

17.8

Conclusion

All of these companies have attractive properties and are familiar from previous Smackdowns. (This time, the DGRs were calculated using 2010 dividend totals, as opposed to the 2009 totals.) That's probably a testament to their strong dividend (and earnings) growth, but the results offer a widely diverse group of industry leaders that are worthy of further study for possible purchase.

Bonus Smackdown: The Contenders and the Challengers

I performed the same steps on the Dividend Contenders (increases of 10-24 years) and the Challengers (5-9 years) and the “winners” were:

Contenders:

No.

12/31/10

TTM

NY/TY%

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

1-yr

3-yr

5-yr

10-yr

Atlantic Tele Network Inc.

ATNI

13

38.37

2.29

14.70

7.31

10.8

12.2

12.8

11.7

Cardinal Health Inc.

CAH

21

38.31

2.04

14.14

12.30

14.3

19.7

32.0

25.7

ConocoPhillips

COP

10

68.10

3.23

9.24

8.97

12.6

9.4

12.7

12.2

General Dynamics

GD

19

70.96

2.37

10.97

4.88

10.1

14.2

16.0

12.4

HCC Insurance Holdings

HCC

14

28.94

2.00

10.01

4.21

7.8

10.3

15.9

14.7

Owens & Minor Inc.

OMI

13

29.43

2.41

15.33

6.25

15.2

16.0

15.3

15.7

United Technologies

UTX

16

78.72

2.16

17.19

12.71

10.4

13.9

14.1

15.2

Challengers:

No.

12/31/10

TTM

NY/TY%

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

1-yr

3-yr

5-yr

10-yr

Alliance Resource Partners LP

ARLP

8

65.76

5.05

9.12

8.10

8.6

13.4

15.3

12.4

Darden Restaurants

DRI

6

46.44

2.76

15.58

13.47

26.7

24.6

36.6

35.8

Empresa Nacional de Electricidad SA

EOC

7

56.21

3.59

15.36

12.14

45.6

26.3

48.2

52.2

Flowers Foods

FLO

9

26.91

2.97

18.18

8.44

14.8

23.0

24.8

22.1

Greif Inc. A

GEF

7

61.90

2.71

13.97

11.79

5.3

20.3

32.0

19.9

Hanover Insurance Group (The)

THG

6

46.72

2.14

14.38

46.79

33.3

35.7

32.0

14.9

Hasbro Inc.

HAS

7

47.18

2.12

16.44

19.33

18.8

16.6

23.5

14.7

ONEOK Inc.

OKE

8

55.47

3.46

17.28

6.64

11.0

9.1

10.8

11.4

Raytheon Company

RTN

6

46.34

3.24

9.55

7.00

18.6

12.6

10.8

111.5

Shaw Communications Inc.

SJR

8

21.38

4.10

17.67

9.93

15.8

16.3

47.2

42.3

Strayer Education Inc.

STRA

7

152.22

2.63

16.37

14.00

44.4

35.3

39.1

29.5

There are plenty of great candidates to consider. Remember that growth estimates are subject to change and other numbers could be misleading. For example, EOC, like most ADRs, has a variable dividend policy and its payout must be translated into U.S. Dollars and may have tax withheld. A lot will depend on what industries the reader is interested in adding to his or her portfolio. As always, please consider this no more than a starting point for more in-depth research.

Source: Dividend Champions Smackdown VIII