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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

Source: How Bumpy Are Your Dividends?