How Bumpy Are Your Dividends?

When you are retired and living on your dividends, it can be difficult to budget for the future when a company’s dividends are variable.

How variable is variable?

The following table examines the amount of the annual dividends for companies A and B:

Year	Company A	Company B
1	$1.00	$1.00
2	$1.25	$1.17
3	$2.25	$1.38
4	$2.29	$1.61
5	$2.64	$1.89
6	$2.91	$2.22
7	$3.26	$2.60
8	$3.30	$3.05
9	$3.72	$3.58
10	$4.20	$4.20

They both start with the same amount. They both increase their dividends every year. They both end with the same amount. Which is “better”?

The following table examines the amount of the increases from the previous year for companies A and B:

Year	Company A	Company B
1
2	$0.25	$0.17
3	$1.00	$0.20
4	$0.04	$0.24
5	$0.35	$0.28
6	$0.27	$0.33
7	$0.35	$0.38
8	$0.04	$0.45
9	$0.42	$0.53
10	$0.48	$0.62

The increases for both companies are different every year. It’s not clear from the amounts of the increases which is “better.”

Quite often in investing, it’s not the amount of a change that is most telling, it is the percentage of the change.

The following table examines the percentages of the increases from the previous year for companies A and B:

Year	Company A	Company B
1
2	25%	17%
3	80%	17%
4	2%	17%
5	15%	17%
6	10%	17%
7	12%	17%
8	1%	17%
9	13%	17%
10	13%	17%

Company A’s percentage increases are different every year, ranging from a low of 1% to a high of 80%. This “ride” is quite bumpy. But for company B, the percentages are the same every year. This ride is as smooth as it gets. Note that even though the percentage increase is the same every year, the amount goes up smoothly and dependably each year. This is how your dividends keep up with and often surpass inflation.

When you are retired and living on your dividends, you might find that the smoother the better, so that you can budget more predictably. Naturally, past smoothness is no guarantee of future smoothness.

How do we determine the “bumpiness” of a company? Mathematically, we use the standard deviation of the compound annual growth rate [see the references at the bottom of this article]. I have devised a “bumpiness metric” which will tell at a glance how smooth or bumpy a company’s dividend history has been. For you math geeks, the bumpiness is the standard deviation multiplied by 100 and rounded to the nearest integer. The result is a whole number that tells you whether a company’s dividend history has been smooth or teeth-rattling.

Bumpiness is always measured across a specific range of years: for example, the bumpiness of Procter & Gamble (PG) from 1986 to 2010 is 17. Company B in the example above would have a bumpiness of 0.

Is a bumpiness of 17 good or bad? Statistically, 66% of all dividend growth companies have a bumpiness less than 100, and 95% of all dividend growth companies have a bumpiness less than 200, so anything more than 200 is unusual.

I computed the bumpiness of most of David Fish’s Dividend Champions. Here they are, ordered numerically from least bumpy to most bumpy:

Company	Symbol	Industry	Yrs	Bumpiness
Conn. Water Service	CTWS	Utility-Water	41	2
MGE Energy Inc.	MGEE	Utility-Electric/Gas	34	4
WGL Holdings Inc.	WGL	Utility-Gas	35	5
National Fuel Gas	NFG	Utility-Gas	40	6
American States Water	AWR	Utility-Water	57	7
SJW Corp.	SJW	Utility-Water	44	8
Energen Corp.	EGN	Utility-Gas	29	9
Piedmont Natural Gas	PNY	Utility-Gas	33	9
Questar Corp.	STR	Utility-Gas	32	9
Helmerich & Payne Inc.	HP	Oil & Gas	38	11
Middlesex Water Co.	MSEX	Utility-Water	38	11
AT&T Inc.	T	Telecommunications	27	13
Black Hills Corp.	BKH	Utility-Electric	41	13
Consolidated Edison	ED	Utility-Electric	37	13
Diebold Inc.	DBD	Business Equipment	58	13
Gorman-Rupp Company	GRC	Machinery	39	13
Johnson & Johnson	JNJ	Drugs/Consumer Prod.	49	14
Tennant Company	TNC	Machinery	39	14
Stanley Black & Decker	SWK	Tools/Security Products	44	15
Family Dollar Stores	FDO	Retail-Discount	35	16
ExxonMobil Corp.	XOM	Oil & Gas	29	17
McGraw-Hill Companies	MHP	Publishing	38	17
Procter & Gamble Co.	PG	Consumer Products	55	17
Carlisle Companies	CSL	Rubber & Plastics	34	18
RPM International Inc.	RPM	Chemical-Specialty	37	18
Stepan Company	SCL	Cleaning Products	43	19
Emerson Electric	EMR	Industrial Equipment	54	20
Cincinnati Financial	CINF	Insurance	50	21
Coca-Cola Company	KO	Beverages-Non-alcoholic	49	21
Dover Corp.	DOV	Machinery	55	21
Abbott Laboratories	ABT	Drugs	39	22
Chubb Corp.	CB	Insurance	46	22
Nordson Corp.	NDSN	Machinery	47	22
PPG Industries Inc.	PPG	Conglomerate	40	22
California Water Service	CWT	Utility-Water	44	23
Air Products & Chem.	APD	Chemical-Specialty	29	24
3M Company	MMM	Conglomerate	53	25
Colgate-Palmolive Co.	CL	Personal Products	48	25
W.W. Grainger Inc.	GWW	Electronics-Wholesale	40	25
Telephone & Data Sys.	TDS	Telecommunications	37	26
Clorox Company	CLX	Cleaning Products	33	27
ABM Industries Inc.	ABM	Business Services	44	28
Commerce Bancshares	CBSH	Banking	43	28
Lancaster Colony Corp.	LANC	Food/Consumer Prod.	48	28
Sherwin-Williams Co.	SHW	Paints	33	29
Parker-Hannifin Corp.	PH	Industrial Equipment	54	30
RLI Corp.	RLI	Insurance	35	30
Target Corp.	TGT	Retail-Discount	43	30
Genuine Parts Co.	GPC	Auto Parts	55	31
H.B. Fuller Company	FUL	Chemical-Specialty	42	31
Pitney Bowes Inc.	PBI	Business Equipment	29	31
Walgreen Company	WAG	Retail-Drugstores	35	32
Automatic Data Proc.	ADP	Business Services	36	33
Wesco Financial Corp.	WSC	Insurance/Bus. Services	39	33
Hormel Foods Corp.	HRL	Food Processing	45	34
PepsiCo Inc.	PEP	Beverages/Snack Food	38	34
Old Republic Int'l	ORI	Insurance	30	35
HCP Inc.	HCP	REIT-Health Care	26	36
Bemis Company	BMS	Packaging	28	38
C.R. Bard Inc.	BCR	Medical Instruments	39	38
AFLAC Inc.	AFL	Insurance	28	39
Raven Industries	RAVN	Business Equipment	25	39
Eaton Vance Corp.	EV	Financial Services	30	42
Illinois Tool Works	ITW	Machinery	47	42
Northwest Natural Gas	NWN	Utility-Gas	55	42
McCormick & Co.	MKC	Food Processing	25	43
Tootsie Roll Industries	TR	Confectioner	46	43
Wal-Mart Stores Inc.	WMT	Retail-Discount	37	43
Pentair Inc.	PNR	Industrial Equipment	35	44
Sonoco Products Co.	SON	Packaging	28	44
Becton Dickinson & Co.	BDX	Medical Instruments	38	45
Brown-Forman Class B	BF.B	Beverages-Alcoholic	27	46
Kimberly-Clark Corp.	KMB	Personal Products	39	47
Valspar Corp.	VAL	Paints	30	49
Sysco Corp.	SYY	Food-Wholesale	41	53
United Bankshares Inc.	UBSI	Banking	37	54
Sigma-Aldrich Corp.	SIAL	Chemical-Specialty	35	58
Medtronic Inc.	MDT	Medical Devices	33	62
Mine Safety Appliances	MSA	Medical/Safety Equip.	39	67
VF Corp.	VFC	Apparel	38	71
Weyco Group Inc.	WEYS	Footwear	29	73
Leggett & Platt Inc.	LEG	Furniture/Bldg. Prod.	39	75
Altria Group Inc.	MO	Tobacco	42	81
McDonald's Corp.	MCD	Restaurants	34	81
Federal Realty Inv. Trust	FRT	REIT-Shopping Centers	43	83
Lowe's Companies	LOW	Retail-Home Improv.	48	83
Brady Corp.	BRC	Business Services	25	98
NACCO Industries	NC	Machinery/Consumer	25	105
Archer Daniels Midland	ADM	Agriculture	36	113
Bowl America Class A	BWL.A	Recreation	39	113
Franklin Resources	BEN	Financial Services	30	139
Nucor Corp.	NUE	Steel & Iron	38	180
Cintas Corp.	CTAS	Business Services	28	237
Washington REIT	WRE	REIT-Office/Industrial	39	342
CenturyLink Inc.	CTL	Telecommunications	37	483

From the table above, some might find it surprising that AT&T has a bumpiness of 13, whereas CTL has a bumpiness of 483, even though both are in the telecommunications industry.

In addition to the information I currently provide on my website:

• annual dividends
• percentage increases
• compound annual growth rate

I have added the bumpiness for all companies covered.

In addition, I have created a table that lets you look up a bumpiness and a number of years and, and in one click, you will find which companies match your search criteria.

I propose that dividend investors consider bumpiness when they choose which dividend-growth companies to buy.

May all your dividend investing be smooth!

References:

Compound annual growth rate, or CAGR

Standard deviation

Disclosure: I am long ABT, AFL, INTC, JNJ, KO, MCD, MDT, MO, PG, WMT.