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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 factors such as yield, payout ratio and, most recently, the PEG ratio. This time, I decided to start with the Price/Sales ratio, which compares a stock's price to its sales on a per-share basis. This ratio is a basic measure of how the stock market is valuing a company's revenues, which have to maintain a certain strength and momentum in order for the company to continue to be profitable (and to pay dividends). The lower the ratio is, the better. So I screened as follows:

Step 1: Sort the companies by Price/Sales ratio (column X), from low to high. There were 22 Champions with a ratio of less than 1, which is about half the average for the 100 Champions (2.05). I thought that the group might be dominated by retailers, which typically need to generate a lot of sales because of their small profit margins, but that really wasn't the case.

Step 2: Eliminate companies with yields and latest increase percentages below 2%. I didn't want to select companies that had excessively low payouts or increases that were negligible. This cut the field down to 11 companies.

Step 3: Compare the remaining companies by the percentage increase of next year's EPS estimate over this year's EPS estimate (column AB). I wanted to make sure that earnings growth was expected to be healthy enough to support future dividend increases. I eliminated companies whose earnings are expected to decrease or increase by less than 4% in 2012. I also eliminated any company that had negative earnings for the last 12 months. Nine candidates remained.

Step 4: Compare the candidates by their 1-, 3-, 5-, and 10-year Dividend Growth Rates (columns AJ to AM). I eliminated any company that had a DGR of less than 2% in any of these periods. The list of remaining candidates follows:

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

No.

3/31

%

Price/

NY%

DGR

DGR

DGR

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

Sales

Growth

1-yr

3-yr

5-yr

10-yr

ABM Industries Inc.

ABM

44

25.39

2.21

3.70

0.37

17.81

3.8

4.0

5.2

5.7

Bemis Company

BMS

28

32.81

2.93

4.35

0.72

11.67

2.2

3.1

5.0

6.7

Genuine Parts Co.

GPC

55

53.64

3.36

9.76

0.75

10.71

2.5

4.4

5.7

4.2

RPM International Inc.

RPM

37

23.73

3.54

2.44

0.92

14.49

2.5

4.9

6.2

5.3

Sonoco Products Co.

SON

27

36.23

3.09

3.70

0.87

9.92

2.8

2.9

3.8

3.5

Sysco Corp.

SYY

41

27.70

3.75

4.00

0.42

7.85

4.2

9.6

10.8

15.3

Target Corp.

TGT

43

50.01

2.00

47.06

0.53

9.86

23.5

17.3

18.5

14.9

Wal-Mart Stores Inc.

WMT

37

52.05

2.80

20.66

0.44

9.91

11.8

12.6

15.3

17.8

WGL Holdings Inc.

WGL

35

39.00

3.97

2.65

0.71

18.36

2.9

3.2

2.6

2.0

Conclusion

This screen produced nine companies with relatively low Price/Sales ratios that may be worthy of further study. The companies have yields ranging from 2.00% to 3.97% and the two companies with the strongest Dividend Growth Rates were retailers, which might help to boost an investor's yield-on-cost to a more attractive level in a reasonable amount of time. All of these stocks have been strong enough to have increased their dividends for at least 27 straight years.

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.

3/31

%

Price/

NY%

DGR

DGR

DGR

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

Sales

Growth

1-yr

3-yr

5-yr

10-yr

Atlantic Tele Network

ATNI

13

37.19

2.37

10.00

0.90

121.67

10.8

12.2

12.8

11.7

ConocoPhillips

COP

11

79.86

3.31

20.00

0.66

10.28

12.6

9.4

12.7

12.2

Erie Indemnity Co.

ERIE

21

71.11

2.90

7.29

0.81

4.12

6.7

6.3

8.1

13.5

General Dynamics

GD

20

76.56

2.46

11.90

0.87

6.98

10.1

14.2

16.0

12.4

Harleysville Group

HGIC

24

33.13

4.35

10.77

0.90

4.56

9.6

15.9

14.7

9.6

New Jersey Res.

NJR

16

42.95

3.35

5.88

0.65

7.34

9.7

10.3

8.4

5.9

Owens & Minor Inc.

OMI

14

32.48

2.46

12.99

0.25

8.78

15.2

16.0

15.3

15.7

PartnerRe Limited

PRE

17

79.24

2.78

10.00

0.89

98.38

9.0

6.0

6.2

7.0

UGI Corp.

UGI

23

32.90

3.04

25.00

0.63

8.94

14.6

7.6

6.7

5.9

Challengers:

No.

3/31

%

Price/

NY%

DGR

DGR

DGR

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

Sales

Growth

1-yr

3-yr

5-yr

10-yr

Avista Corp.

AVA

9

23.13

4.76

10.00

0.85

6.32

23.5

18.9

12.9

7.6

Bob Evans Farms

BOBE

5

32.60

2.45

11.11

0.58

10.65

15.2

10.7

9.6

7.8

Chesapeake Utilities

CPK

7

41.62

3.17

4.76

0.92

4.73

4.0

3.3

2.7

2.0

Darden Restaurants

DRI

6

49.13

2.61

28.00

0.92

11.73

26.7

24.6

36.6

35.8

Ecology & Environment

EEI

5

19.20

2.29

4.76

0.50

7.69

4.9

7.0

5.8

3.5

Flowers Foods

FLO

9

27.23

2.94

14.29

0.97

8.23

14.8

23.0

24.8

22.1

Greif Inc. A

GEF

7

65.41

2.57

10.53

0.83

13.80

5.3

20.3

32.0

19.9

L-3 Communications

LLL

8

78.31

2.30

12.50

0.54

4.39

14.3

17.0

26.2

n/a

Lockheed Martin

LMT

8

80.40

3.73

19.05

0.61

22.92

12.8

21.6

20.2

19.6

Northrop Grumman

NOC

7

62.71

3.00

9.30

0.52

5.83

8.9

7.5

12.7

8.7

ONEOK Inc.

OKE

9

66.88

3.11

8.33

0.54

11.11

11.0

9.1

10.8

11.4

Raytheon Company

RTN

7

50.87

3.38

14.67

0.72

11.85

18.6

12.6

10.8

111.5

Ryder System

R

6

50.60

2.13

8.00

0.50

20.96

6.3

6.7

9.8

5.4

Safeway Inc.

SWY

6

23.54

2.04

20.00

0.21

14.04

20.5

20.1

34.5

n/a

Southwest Gas Corp.

SWX

5

38.97

2.72

6.00

0.97

15.32

5.3

5.1

3.8

1.9

Watsco Inc.

WSO

9

69.71

2.98

8.33

0.79

23.78

7.9

15.9

26.9

35.2

(Note that Challengers don't always have a 10-year dividend history; I eliminated those with negative 10-year DGRs – which indicate a dividend reduction – but kept those with “n/a.”)

There is a wide range of yields among the Contenders and Challengers, which offer a number of “younger” dividend increasers to augment the Champions. Keep in mind that growth estimates are subject to change, as are other numbers. Whatever industries the reader is interested in adding to his or her portfolio, there seem to be some good candidates. As always, please consider this no more than a starting point for more in-depth research.

Source: Dividend Champions Smackdown XII: Price/Sales Edition