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Dividend Champions Smackdown XIV

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 Premium or Discount to the Graham Number.

This time, I wanted to focus on the idea of isolating the “longest” and “strongest” dividend streaks, but that left me with two somewhat different ideas about a starting point. So I ended up deciding on a dual approach, which I will label as Smackdown A and Smackdown B in the text that follows:

Smackdown A: Strongest of the Longest

The first approach begins, as usual, with the Dividend Champions, companies that have paid higher dividends for at least 25 straight years. My idea of the “strongest” was to focus on companies with the highest rates of dividend growth and yield. (It would be easy to argue that “strongest” involves other factors, such as earnings, payout ratio, etc., but that would be another Smackdown idea.) For this screen, I started with the Dividend Champions and, after eliminating any that had not raised their payouts in the last year, I took the 50 stocks with the longest streaks (at least 39 years), roughly the longest half the listing, and screened as follows:

Step 1: Sort the companies by 10-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 40.

Step 2: Sort the companies by 5-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 30.

Step 3: Sort the companies by 3-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 20. I decided to skip the 1-year DGR, since 2010 included a more conservative set of increases overall, and I was really looking for longer-term strength. I also skipped the most recent increases because it was a mixture of 2010 and 2011 increases, which may not be directly comparable.

Step 4: Sort the companies by Yield, highest to lowest. I eliminated the lowest 10 companies, reducing the field to the following 10 companies:

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

No.

5/31

DGR

DGR

DGR

Company

Symbol

Yrs

Price

Yield

3-yr

5-yr

10-yr

Abbott Laboratories

ABT

39

52.25

3.67

10.6

9.7

8.8

Altria Group Inc.

MO

42

28.06

5.42

18.3

14.8

11.7

Coca-Cola Company

KO

49

66.81

2.81

9.0

9.5

10.0

Colgate-Palmolive Co.

CL

48

87.53

2.65

13.2

12.8

12.4

Emerson Electric

EMR

54

54.55

2.53

7.5

9.8

6.4

Johnson & Johnson

JNJ

49

67.29

3.39

9.2

10.6

13.0

Leggett & Platt Inc.

LEG

39

25.83

4.18

14.5

11.1

10.1

PepsiCo Inc.

PEP

39

71.12

2.90

11.3

13.7

13.0

Procter & Gamble Co.

PG

55

67.00

3.13

11.5

11.6

10.9

Sysco Corp.

SYY

41

32.21

3.23

9.6

10.8

15.3

Conclusion

This screen produced some very familiar companies, with yields ranging from 2.53% to 5.42% and Dividend Growth Rates ranging from 6.4% to 18.3%. Although some people may not like seeing such familiar names yet again, it's obvious why these companies keep coming up: Not only have they been strong enough to have increased their dividends for at least 39 straight years, but they have also proven their ability to reward shareholders with healthy rates of dividend growth that far exceeds the rate of inflation.

Smackdown B: Longest of the Strongest

The second approach was to try to identify the strongest companies in terms of dividend growth and yield, then to focus on those that had maintained that strength the longest. So I began with the entire CCC “universe” of 449 stocks. After eliminating those that had not increased their dividend the past year and others that have agreed to be acquired, the initial field of candidates totaled 417 companies. In order to make this more manageable, I decided to “pre-screen” based on Yield and, once I eliminated those yielding less than 2%, had 256 companies, which I screened as follows:

Step 1: Sort the companies by 10-year Dividend Growth Rate (DGR), highest to lowest. I eliminated rates of less than 5%, but allowed the Challengers with “n/a” to advance. This reduced the field to 187 companies.

Step 2: Sort the companies by 5-year Dividend Growth Rate (DGR), highest to lowest. I eliminated 17 Challengers that also had “n/a” in this column (too short!) and then narrowed the field to the highest 100 5-year DGRs, which were at least 9.7%.

Step 3: Sort the companies by 3-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 50 companies, reducing the field to 50, all of which had 3-year DGRs of at least 12.5%. (As I did in Smackdown A, I decided to skip the 1-year DGR and the most recent increases.)

Step 4: Sort the companies by Yield, highest to lowest. I eliminated the lowest 25 companies, reducing the field to 25 companies yielding at least 2.70%.

Step 5: Sort the remaining companies by length of dividend streak, longest to shortest. At this point, I intended to present about 15 companies, but several had 9-year streaks, so the 18 “longest of the strongest” follow:

No.

5/31

DGR

DGR

DGR

Company

Symbol

Yrs

Price

Yield

3-yr

5-yr

10-yr

Alliance Resource Part.

ARLP

9

72.88

4.88

13.4

15.3

12.4

Altria Group Inc.

MO

42

28.06

5.42

18.3

14.8

11.7

Avista Corp.

AVA

9

24.93

4.41

18.9

12.9

7.6

Enbridge Inc.

ENB

16

67.29

2.91

12.5

11.8

9.8

Flowers Foods

FLO

10

33.33

2.70

23.0

24.8

22.1

Harleysville Group

HGIC

24

32.03

4.50

15.9

14.7

9.6

Healthcare Services Gp

HCSG

9

17.06

3.66

28.7

37.2

n/a

Leggett & Platt Inc.

LEG

39

25.83

4.18

14.5

11.1

10.1

McDonald's Corp.

MCD

34

81.54

2.99

14.6

27.5

26.5

Nippon Tel & Tel

NTT

9

23.49

2.95

23.9

23.4

13.6

Novartis AG

NVS

10

64.52

3.65

22.5

18.2

6.3

NTT DoCoMo Inc.

DCM

9

18.61

3.19

15.8

19.8

n/a

Nucor Corp.

NUE

38

42.34

3.42

31.7

36.9

25.4

Shaw Communications

SJR

9

21.43

4.29

16.3

47.2

42.3

Southside Bancshares

SBSI

17

20.16

3.37

18.7

14.3

19.0

Telefonica S.A.

TEF

9

24.33

8.14

24.2

23.4

n/a

UniSource Energy Corp.

UNS

12

37.89

4.43

20.1

15.5

17.2

Watsco Inc.

WSO

10

66.94

3.41

15.9

26.9

35.2

Conclusion

This screen produced a wider variety of companies, with a few familiar names and yields ranging from 2.70% to 8.14% and Dividend Growth Rates from 6.3% to 47.2%. Only two companies – Altria Group and Leggett & Platt – appear in both Smackdowns, although both Nucor and McDonald's had streaks that were nearly long enough to have appeared in Smackdown A. Three Challengers benefited by getting a Pass in Step 1 and several of the final candidates are foreign companies, so their payouts may be irregular enough to merit some concern about sustainability. 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 XIV