Seeking Alpha
Independent research, long/short equity, dividend investing, ETF investing
Profile| Send Message|
( followers)
Each month DRIP Investing publishes a list of stocks with a history of dividend increases. The "Dividend Champion" list is comprised of stocks which have increased their dividend payout for at least 25 consecutive years. I track a Dividend Champion portfolio on Scott's Investments which focuses on stocks on the list with high yield and low payout.

There are also "Dividend Contenders", stocks which have increased dividend payouts for the past 10-24 years and "Dividend Challengers", stocks with 5-9 years of consequetive dividend increases.

There are 244 Dividend Champions and Dividend Contenders for May. Below are the top ranked Champions and Contenders based on a ranking system I designed which ranked each stock in the following:

  • Dividend Yield - Stocks were ranked in descending order of yield. The highest yield stock received a rank of 1, which was Vector Group (NYSE:VGR).
  • Payout Ratio Rank - Stocks were ranked in ascending order of payout ratio. The stock with the lowest payout ratio received a rank of 1, which was RenaissanceRe Holdings (NYSE:RNR).
  • 5/10 AD Rank - Stocks were ranked in descending order of "AD", the Acceleration/Deceleration ratio (5-year average increase in dividends divided by 10-year average increase in dividends). In other words, this is a metric to show an increase in the dividend growth rate from 10 to 5 years. The stock with the highest "AD" ratio, Norfolk Southern (NYSE:NSC) received a rank of 1.
  • 1 Year Dividend Growth - Stocks were ranked in descending order of their 1 year dividend growth rate. The stock with the highest 1 year dividend growth rate, Canadian Natural Resources (NYSE:CNQ) received a rank of 1.
  • The four ranks were combined to give an "overall" score for the entire list of 244 stocks.

Below are the 10 stocks with the highest overall score. There are 4 stocks on the list with a yield below 2%, which may be a turnoff for investors hungry for yield. A fifth stock, Target (NYSE:TGT), has a yield hovering near 2%.

Novartis AG (NYSE:NVS), Harleysville Group (NASDAQ:HGIC) and ConocoPhilips (NYSE:COP) are the three stocks on the list with yields above 3%. All also show a balance of reasonable payout ratios and dividend growth.

HGIC recently reported earnings and grew quarterly earnings by $.01 versus the first quarter of 2010 and the market reacted tepidly. The company saw an increase in claims due to severe winter weather. It has maintained a low debt/equity ratio of .15.

ConocoPhilips may have the best current combination of high yield/low payout on the list. However, it is in the energy sector so its earnings will be affected by commodity prices. A signficant decrease in earnings could affect the payout ratio (if earnings decrease, just as an increase in earnings at a rate greater than dividend growth will decrease the payout ratio.

One concern with COP is that it recently broke below an upward channel and has had difficulty breaking above the $81-$82 range:

Chart courtesy of Finviz

Company

Symbol

Yield

Yield Rank

Payout Ratio

Payout Rank

5/10 AD

5/10 AD Rank

1 yr Div Growth

1 yr growth Rank

Novartis AG

NVS

3.98

53

56.28

159

2.883

3

15.5

22

International Business Machines

IBM

1.76

171

25.19

48

1.522

18

16.3

21

Target Corp.

TGT

2.04

152

25.00

44

1.242

58

23.5

12

Span-America Medical Systems

SPAN

2.88

107

30.56

69

1.406

28

8.1

82

Harleysville Group

HGIC

4.49

41

59.50

165

1.539

15

9.6

66

General Dynamics

GD

2.58

123

27.61

57

1.293

47

10.1

60

Church &Dwight

CHD

1.65

183

36.27

95

1.639

7

34.8

5

Stryker Corp.

SYK

1.22

217

22.71

34

1.363

33

20.0

14

ConocoPhillips

COP

3.35

76

34.65

86

1.045

104

12.6

37

Walgreen Company

WAG

1.64

185

29.66

66

1.313

43

25.0

10


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

Source: 10 Top Rated Dividend Growth Stocks