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In previous installments of the Smackdown series, I have 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 dividend growth rate, and then did separate screens on Dividend Contenders (10-24 years of higher dividends) and Challengers (5-9 years). This month, I'm starting the Smackdown by focusing on a new column that was added in the latest update. For an explanation of how I calculate the Estimated 5-year Average EPS Growth, please refer to the latest Dividend Champions update article, which can be found here.

I screened as follows:

Step 1: After eliminating companies that had not increased their dividend in more than a year, I sorted the companies by their Estimated 5-year Annual Earnings-Per-Share Growth (column AD), high to low. After eliminating expected annual EPS growth rates of less than 10%, I was left with 46 candidates.

Step 2: Sort the companies by their Payout Ratio (column S). I wanted to eliminate companies that were either too stingy in distributing profits or distributed so much that relying on forward estimates might run the risk of overextending the company, so I eliminated payout ratios of less than 25% or more than 75%. This cut each field to 30 companies.

Step 3: Sort the companies by their 5-year Dividend Growth Rate (DGR). I wanted to avoid companies that had proven to be stingy in the recent past, so I eliminated any that had DGRs of less than 8%. This cut each field to 18 companies.

Step 4: Sort the companies by their Yield, high to low. I eliminated any that had yields of less than 2.5%. This step the field to eight finalists, which appear below.

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

No.

7/29

Payout

Est 5-yr

DGR

Company

Symbol

Yrs

Price

Yield

%Ratio

Growth

5-yr

AFLAC Inc.

AFL

28

46.06

2.61

27.03

12.1

21.0

Air Products & Chem.

APD

29

88.73

2.61

43.20

12.9

9.0

Automatic Data Proc.

ADP

36

51.49

2.80

58.78

10.9

17.0

Emerson Electric

EMR

54

49.09

2.81

44.37

15.2

9.8

Illinois Tool Works

ITW

47

49.80

2.73

37.67

13.4

16.8

Lowe's Companies

LOW

49

21.58

2.59

39.44

14.4

32.0

McDonald's Corp.

MCD

34

86.48

2.82

49.39

10.2

27.5

Wal-Mart Stores Inc.

WMT

37

52.71

2.77

31.88

10.3

15.3


Bonus Smackdown: The Contenders and the Challengers

I performed the same steps on the Dividend Contenders (increases of 10-24 years) and the Challengers (5-9 years) and the “winners” were:

Contenders:

No.

7/29

Payout

Est 5-yr

DGR

Company

Symbol

Yrs

Price

Yield

%Ratio

Growth

5-yr

BancFirst Corp. OK

BANF

17

38.14

2.62

35.46

10.0

10.1

Enbridge Inc.

ENB

16

32.89

2.98

69.01

10.2

11.8

Maxim Integrated Prod

MXIM

10

22.96

3.83

63.31

14.7

14.0

McGrath Rentcorp

MGRC

19

26.03

3.53

57.14

10.0

11.0

Meredith Corp.

MDP

18

29.85

3.42

35.79

11.3

10.4

Microchip Technology

MCHP

10

33.75

4.10

64.37

10.1

24.9

Owens & Minor Inc.

OMI

14

30.50

2.62

45.45

10.0

15.3

Challengers:

No.

7/29

Payout

Est 5-yr

DGR

Company

Symbol

Yrs

Price

Yield

%Ratio

Growth

5-yr

Alliance Resource Part

ARLP

9

76.81

4.63

50.07

10.2

15.3

Analog Devices Inc.

ADI

9

34.40

2.91

34.60

10.4

19.0

Darden Restaurants

DRI

7

50.80

3.39

50.74

12.7

36.6

Hanover Insurance Gp

THG

7

36.21

3.04

35.37

11.0

32.0

Hasbro Inc.

HAS

8

39.56

3.03

45.45

15.5

23.5

Intel Corp.

INTC

8

22.33

3.76

38.53

11.0

14.5

Republic Services Inc.

RSG

9

29.03

3.03

56.41

15.8

18.2

Waste Management

WM

8

31.49

4.32

68.00

10.0

9.5

Here is another of Chuck Carnevale's marvelous F.A.S.T. Graphs. Click to enlarge:

Potential investors should keep in mind that MLPs (Master Limited Partnerships) make distributions that are treated differently than "qualified" dividends (which generally are taxed at 15%).

Conclusion

There's excellent diversity among the finalists in each group. These Smackdowns often produce more Contenders and Challengers than they do Champions, simply because they have more companies to screen, but that's not the case this time. The final step – requiring a yield of at least 2.5% - seemed to be the main reason for that, but there remain a decent number of candidates for further study. Keep in mind that growth estimates and other numbers are subject to change. As always, please consider this no more than a starting point for more in-depth research.

Disclosure: I am long AFL, EMR, ITW, INTC.

Source: Dividend Champions Smackdown XVI