I write extensively on the US 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. My initial Dividend Champion articles on Scott's Investments focused on one or two company metrics, such as payout ratio, yield, or past performance. However, more recently I have begun to combine multiple metrics to create an overall quantitative ranking for stocks in the list. This article uses a simple quantitative system which combines multiple metrics to give an "overall" rank of the stocks within the February US Dividend Champion list.
This ranking system combines Dividend Yield, Payout Ratio, Forward Price/Earnings, 6 month price momentum, and 1 month volatility. I required the stock be yielding at least 3% in order to qualify for inclusion. For those interested in creating a system of their own for free using Finviz and Excel, Open Office, or Google Docs please see a recent article providing in-depth step by step instructions.
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 is not a guarantee of future performance; however, I believe it provides a basic foundation for research and further due diligence. Starting with the 99 stocks on February's Dividend Champion list which was reduced further to the 40 stocks yielding at least 3%, the top 10 stocks based on Dividend Yield, Payout Ratio, Forward P/E, price momentum and volatility are below. Equal weight was given to yield (the higher the better), payout ratio (the lower the better), forward P/E (the lower the better), price momentum (the higher the better), and volatility (the lower the better).
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.
The top ranked stocks in order are below. Once again, the stepchild of the cellular world, AT&T (NYSE:T), leads the list based on the metrics used for this analysis. It is important to note that quantitative analysis can capture a signficant amount of data. However, forward P/E ratios and projections of a company's earnings growth is an essential component of an investment decision and one that is not always easily captured in creating a ranking system. For example, should AT&T lose significant market share due to the Verizon (NYSE:VZ) / Apple (NASDAQ:AAPL) partnership, future earnings could be impacted. One hopes that projected forward earnings takes into account this potential scenario, but as we have seen in the past projected earnings often miss the mark.
Given that US equities are, in the very least, in the midst of a short term correction, these Champions could find themselves at a further discount in the near future should the current trend continue. The potential for further short term volatility in the market is one reason why volatility (short-term) was added as a component to this list. It is also an important variable to consider when assessing the potential risk-reward of an investment.
|Ticker||Company||Industry||Forward P/E||Dividend Yield||Payout Ratio||Performance (Half Year)||Volatility (Month)|
|T||AT&T, Inc.||Telecom Services - Domestic||10.86||6.16%||52.33%||6.85%||1.30%|
|MO||Altria Group Inc.||Cigarettes||11.28||6.15%||78.28%||11.56%||1.11%|
|JNJ||Johnson & Johnson||Drug Manufacturers - Major||11.72||3.59%||44.00%||5.79%||0.80%|
|UVV||Universal Corp.||Tobacco Products, Other||8.85||4.72%||31.93%||13.25%||2.07%|
|PBI||Pitney Bowes Inc.||Business Equipment||10.8||5.98%||96.65%||30.42%||1.74%|
|KMB||Kimberly-Clark Corporation||Personal Products||12.09||4.32%||59.00%||2.63%||0.92%|
|ED||Consolidated Edison Inc.||Diversified Utilities||13.31||4.91%||69.00%||5.48%||0.89%|
|VVC||Vectren Corporation||Diversified Utilities||13.51||5.35%||83.08%||8.99%||1.13%|
|CTL||CenturyLink, Inc.||Telecom Services - Domestic||12.8||7.24%||93.03%||17.47%||1.68%|
|SON||Sonoco Products Co.||Paper & Paper Products||12.23||3.18%||55.84%||14.43%||1.34%|