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This is an update to the first Periodic Table of Dividend Champions, published last December. For our periodic stock table, the two key characteristics that determine the presentation are yield and dividend growth rate (DGR).
Once again, I give my thanks to David Fish for his blessing in allowing me to stand on his shoulders and present various snapshots of his terrific Dividend Champions work. This presentation is based on David’s document dated March 31, 2011. For the uninitiated, Dividend Champions are stocks that have increased their dividend payout for 25 consecutive years or more. At the moment there are 100 such stocks.
I am making what I believe is an improvement in the presentation of this table. Last time, I used the five-year dividend growth rate (DGR) as the determinative growth rate for location in the table. This time, in the interest of being conservative, I am stealing an idea from Dividends4Life and displaying the lowest of the 1-, 3-, 5-, and 10-year DGRs. Thus, MDT-1 means that the DGR used was the one-year rate, and that it was the lowest of the four choices. As we shall see, that makes a significant difference in the table.
As in the earlier table, I have shaded those stocks with yields of 2% or less and stocks with a DGR of under 5% per year. For many dividend growth investors, these (or similar) thresholds are hurdle requirements.
click to enlarge images
Periodic Table of Dividend Champions
Using the lowest of the 1-, 3-, 5-, and 10-year DGRs made an enormous difference in how these stocks appear. Whereas in the earlier table, the use of the five-year DGR “elminated” about half of the stocks from consideration, here it nailed 82% of them. Only 18 stocks ended up in the white area of the table. And as you can see, it is often the most recent (one-year) dividend increase that was the lowest of the four choices: 73 of the 100 stocks were classified on the basis of their one-year DGR.
Of course, a stock with a high yield (say more than 5%) may satisfy someone even if it has a low rate of growth if they believe that the dividend is sustainable. That’s up for each individual to decide.
Because of the use of the lowest of four DGRs, this table has added a factor not available last time: Which DGR among four choices was the lowest. Since it reflects data through March, some of the one-year DGRs represent 2011 increases, while others represent 2010’s. So the picture will change somewhat as we roll through the year, as 2011 increases are often coming in higher than the last year or two.
Of course, complete due diligence would take many more factors into account. Considerations such as Dividends in Danger or scary valuation metrics need to be considered. Many dividend investors look hard at the payout ratio and will reject a stock whose ratio is too high. In developing a full dividend-growth portfolio, diversification across sectors or industries becomes a consideration.
Develop your own strategy and requirements and stick to them. Don’t invest in anything without performing your own due diligence.
Disclosure: I am long MMM, EMR, PEP, JNJ, PG, MCD, ABT, T.