10 Top-Ranked Dividend Contenders

by: Scott's Investments

I have written extensively on the U.S. Dividend Champion list maintained and updated by DRIP Investing. The list is comprised of stocks which have increased their dividend payout for at least 25 consecutive years. This article focuses on the "Contenders" list, made up of companies that have increased dividend payout for the past 10-24 years and are also tracked and compiled by DRIP Investing.

My recent Dividend Champion articles on Scott's Investments have focused on one or two company metrics, such as payout ratio, yield, or past performance. However, I created a simple quantitative system which combines multiple metrics to give an "overall" rank of the stocks within the U.S. Dividend Contender February list. I ranked January's Dividend Champions in this Seeking Alpha article.

This ranking system combines Dividend Yield, Payout Ratio, and the dividend growth Acceleration/Deceleration (5-year average increase divided by 10-year average increase, referred to as "A/D") in order to create an overall rank of each company on the list. The purpose of using the A/D is to find companies which have increased dividend growth rates in more recent history.

Historical tests have shown that stocks with higher yields and lower payout ratios as well as those with higher yields and higher price momentum have tended to outperform other stocks. History very well may not repeat itself; however, I believe it provides a basic foundation for research and further due diligence. Starting with the 135 stocks on January's Dividend Contender list, the top 10 stocks based on Dividend Yield, Payout Ratio, Acceleration of 5-year dividend growth to 10-year dividend growth are below. Equal weight was given to each factor.

These certainly are not the only company metrics of importance, nor is providing equal weight to each metric the only method for establishing overall ranks. For example, an investor seeking higher yields and willing to accept higher payout ratios could create a system in which yield is given more weight.

One note for this system: Stocks for which data was not available for a metric (such as a 10-year dividend growth rate for a handful of stocks) were ranked last. Also, data is compliments of DRIP Investing, as of January 31.

Company Symbol Yield Payout Ratio 5/10 A/D%
Harleysville Group HGIC 4.08 57.14 1.539
NSTAR NST 3.92 50.9 1.380
New Jersey Resources NJR 3.43 51.06 1.424
Span-America Medical Systems SPAN 2.73 27.78 1.406
Norfolk Southern NSC 2.61 40 4.148
Chevron Corp. CVX 3.03 34.41 1.251
NextEra Energy NEE 3.74 42.19 1.116
Murphy Oil Corp. MUR 1.66 22.49 1.646
W.P. Carey & Co. LLC WPC 6.33 104.62 1.400
UGI Corp. UGI 3.19 40.32 1.144
Click to enlarge

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.