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Long/short equity, growth, dividend growth investing
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If you're an investor who's retired or close to retiring, receiving a stable, and better yet, growing income stream from your investment portfolio is of paramount importance. Although bonds and other fixed income instruments are capable of providing a stable income stream, only dividend paying equities offer the advantage of a potential growing income stream. Logic would dictate that the best place to find companies that could provide you a raise in pay every year through increasing dividends is by searching through lists of companies that have consistently done so.
The list of Dividend Champions contains companies that have raised their dividends every year for at least 25 years. This list is compiled by Seeking Alpha Author David Fish, and can be found here. The following graphic generated from F.A.S.T. Graphs™ lists the top 7 Dividend Champions in order of highest dividend yield for the week of August 17, 2011. This screen of the seven highest yielding companies from David Fish's Dividend Champions list represent an attractive "fishing hole" (pun intended) for investors seeking the maximum possible yield and safety.
The following portfolio review summarizes important basic fundamental metrics on each of the current seven highest-yielding Dividend Champions. However, the numbers alone do not always tell the whole story. On the basis that a picture is worth 1000 words, we offer the below graphic which is a miniature version of our research tool in a live and interactive form. Clicking on the gray button with the stock symbol generates a full working version of each respective company’s graph. Therefore, the reader will be able to instantly evaluate the earnings and price relationship on each of these seven companies. These seven companies do currently offer the highest yield of all the Dividend Champions, but they may not necessarily be the best long-term choice for investors seeking growth and income.
(Click chart to enlarge)
Helpful Hints and Tips
  • We suggest that you run each company's graph over numerous time periods. For example, after reviewing the default 15-year graph, run a 20-year then perhaps a 10-year and a 5-year, etc., doing this will help the user determine whether the company’s business has been growing or shrinking. In other words, this will allow you to see how the company's more recent operating results stack up against their longer-term historical history and vice versa. With each graph drawn the respective growth rates will be recalculated and listed to the right of each graph.
  • When reviewing the performance results associated with each graph that you draw, pay careful attention to the effect that beginning and ending valuation have on performance. A high starting valuation will result in a lower starting dividend yield, which will affect growth yield, also known as yield on cost. High starting valuation will also limit the capital appreciation component and vice versa.
  • Remember, the graphs are dynamic and will automatically recalculate all the important data each time a different length graph is drawn.
  • When reviewing the dividend columns in the performance report associated with each graph there are a couple of tips to look out for. For example, if a company pays a special dividend in addition to their normal dividend in one year, the next year will appear to be a cut, even though the actual regular dividend increased. Also when drawing graphs covering long periods of time due to rounding, it may appear that the dollar amount of the dividend remains the same from one year to the next. In these cases if you look to the cash dividend column you would discover that the actual dollar amount of the dividend increased. When dealing with companies that have spun off businesses, the historical data will reflect the company prior to the spinoffs. Therefore, it may appear that the dividend has been cut; however, the dividend attributed to the remaining entity could have increased for the requisite 25 years in a row. Altria Group Inc. (NYSE:MO) is a case in point.
  • Since using the graphs represents the first step in a more comprehensive research process, a link to each respective company's website will be found at the top of each graph (link in blue ink). This feature is designed to facilitate the user's ability to go deeper into the research process if the graph inspires them to do so.
  • When reviewing REITs or MLPs, we suggest that you take off the Earnings Growth Rate line and the Normal PE Ratio line and measure the valuation of these enterprises through the perspective of dividends (cash payments).
Conclusion
It's important to keep in mind as you review the above list that highest current yield may not always translate into the highest future returns or the highest total future income. Other factors that the above graphs can assist the researcher in looking at include current valuation versus the historical norm and the concensus expected future earnings growth rate of each company reviewed. (A companion article screening for the top seven dividend champions offering the highest total return based on consensus estimates can be found here). The estimated earnings and return calculator allows the researcher to input their own forecasts if desired.

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

Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.

Source: Top 7 Dividend Champions Based on Yield - Week 08/17/2011