20 Dividend Challengers Upping Their Payouts For 5-Plus Years

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Includes: CNP, CPB, D, DRI, EIX, GIS, INTC, KHC, LMT, NOC, PCG, PEG, PPL, RAI, RTN, SRE, VZ, WEC, WM, XEL
by: Insider Monkey

Defensive investors regularly seek high-quality dividend stocks to achieve sustainable returns even in bear markets. The S&P 500 Dividend Aristocrats Index, which tracks 42 blue-chip S&P 500 companies that have increased their dividends at least 25 consecutive years, is one alternative for many dividend investors.

On the other hand, David Fish’s U.S. Dividend Champions list has also become very appealing to some dividend investors that look for a starting point in their research. Dave Fish compiles a complete list of all US stocks that have increased their dividend payouts for at least 25 consecutive years. In addition, the author presents two separate sub-lists as nominees for future Dividend Champions: “Dividend Contenders” that have increased their payouts for 10-24 years and “Dividend Challengers” that have increased their payouts for 5-9 years. The whole list can be found here.

We are concerned about Fed’s monetary policy, and we believe investors should seek inflation protection and play defensively in the near future. Following the recent downturn in stock markets, many Dividend Challengers have become much more appealing to defensive investors. For such investors, we compiled a list of the top 20 S&P 500 Dividend Challengers by annualized dividend yields. (The market data are sourced from Fidelity.) The average annualized dividend yield of these 20 stocks is 4.28%, while their dividend payout ratio is 54% on average. Since the beginning of 2011, these stocks returned -0.55% vs. -9.59% for the SPY. We think these 20 Dividend Challengers that are able to increase dividends are attractive options for defensive investors that demand sustainability, better risk-return combination and some inflation protection.

Reynolds American Inc. (NYSE:RAI) is a large American tobacco company operating worldwide. RAI has a 5.93% dividend yield and gained 12.88% since the beginning of this year. The company has a dividend payout ratio of 85%. The stock has a market cap of $20.84B and a P/E ratio of 15.55. Jim Simons, David Winters and Cliff Asness are prominent RAI investors.

Verizon Communications (NYSE:VZ) is a large telecommunications company operating worldwide. VZ has a 5.62% dividend yield and returned 0.84% since the beginning of this year. The stock has an 87% dividend payout ratio. VZ has a market cap of $98.25B and a P/E ratio of 15.50. Phil Gross' Adage Capital holds nearly $150 Million of VZ (check out Phill Gross’ other top holdings).

PPL Corporation (NYSE:PPL) is an energy company that delivers electricity and natural gas in the United States and the United Kingdom. PPL has a 5.13% dividend yield and returned 6.47% since the beginning of this year. The dividend payout ratio of PPL is 45%. The stock has a market cap of $15.77B and a P/E ratio of 11.01. Richard Schimel's Diamondback Capital has the largest PPL position among 300-plus funds we are tracking. Phill Gross and Steven Cohen are also among PPL investors.

Waste Management Inc. (NYSE:WM) is a US company providing waste management and comprehensive waste removal services. WM has a 4.63% dividend yield but lost -18.83% since the beginning of this year. The dividend payout ratio of the stock is 65%. WM has a market cap of $29.40B and a P/E ratio of 14.77. Boykin Curry's Eagle Capital had more than $200 Million in WM at the end of March 2011.

Xcel Energy Inc. (NYSE:XEL) is a public utility company that provides electricity and natural gas delivery services in the United States. XEL has a 4.46% dividend yield and returned 1.13% since the beginning of this year. The dividend payout ratio of the company is 64%. XEL has a market cap of $11.30B and a P/E ratio of 13.63. Lois Bacon’s Moore Global Investments holds the largest XEL position among 300-plus funds we are tracking.

PG&E Corporation (NYSE:PCG) is a US utilities company providing electricity and natural gas mainly in California. PCG has a 4.42% dividend yield but lost -12.04% since the beginning of this year. The dividend payout ratio of the company is 53%. PCG has a market cap of $16.57B and a P/E ratio of 15.26. Phill Gross has the largest PPL position among 300-plus funds we are tracking. Jim Simons is also a prominent PCG investor.

Intel Corp. (NASDAQ:INTC) is a global technology company that manufactures and supplies microprocessor products worldwide. INTC has a 4.38% dividend yield but lost -6.34% since the beginning of this year. The dividend payout ratio of INTC is 41%. The stock has a market cap of $100.77B and a P/E ratio of 8.68. Ken Fisher and Harris Associates have the largest INTC positions among 300+ funds we are tracking.

Public Service Enterprise Group (NYSE:PEG) is another US utilities company providing electricity and natural gas primarily in the Northeastern and mid-Atlantic United States. PEG has a 4.33% dividend yield and returned 1.57% since the beginning of this year. The dividend payout ratio of PEG is 44%. The stock has a market cap of $16.00B and a P/E ratio of 9.91. Israel Englander and Phill Gross are among PEG investors.

Lockheed Martin (NYSE:LMT) is an American corporation operating in aerospace, defense, security and advanced technology industries worldwide. LMT has a 4.32% dividend yield and returned 1.17% since the beginning of this year. The dividend payout ratio of LMT is 41%. The stock has a market cap of $23.29B and a P/E ratio of 9.20. Both Jean-Marie Eveillard's First Eagle and John Shapiro's Chieftain Capital had more than $200 Million in LMT at the end of March 2011.

Raytheon Co. (NYSE:RTN) is a US defence contractor and military equipment manufacturer operating worldwide. RTN has a 4.31% dividend yield but lost -11.77% since the beginning of this year. The dividend payout ratio of RTN is 36%. The stock has a market cap of $14.10B and a P/E ratio of 7.42. Alex Roepers' Atlantic Investment has the largest RTN position, holding more than $100M of the stock. Ric Dillon, Steven Richman and Cliff Asness are also among RTN investors.

Centerpoint Energy Inc. (NYSE:CNP) is a utilities company distributing electricity and natural gas in the United States. CNP has a 4.22% dividend yield and gained 23.14% since the beginning of this year. The stock has a dividend payout ratio of 81%. CNP has a market cap of $7.98B and a P/E ratio of 15.48. Jim Simons’ Renaissance Technologies has the largest CNP holding among 300-plus funds we are tracking.

Dominion Resources Inc. (NYSE:D) is a US utilities company supplying electricity and natural gas to North Carolina and Virginia. D has a 4.11% dividend yield and gained 14.75% since the beginning of this year. The company has a dividend payout ratio of 59%. D has a market cap of $27.63B and a P/E ratio of 16.55. Steven Cohen and Clint Carlson are prominent D investors.

Northrop Grumman Corp. (NYSE:NOC) is a global company operating in aerospace, defense technology and electronics industries worldwide. NOC has a 4.06% dividend yield but lost -14.94% since the beginning of this year. The company has a 30% dividend payout ratio. NOC has a market cap of $13.70B and a P/E ratio of 7.71. Jean-Marie Eveillard holds more than $60 million of NOC (see Jean-Marie Eveillard’s top stock picks).

Sempra Energy (NYSE:SRE) is a US energy holding company that provides energy-related products and services worldwide. SRE has a 3.94% dividend yield but lost -5.38% since the beginning of this year. SRE has a 53% dividend payout ratio. The stock has a market cap of $11.76B and a P/E ratio of 14.35. Phill Gross holds more than $80 Million of SRE.

Campbell Soup Co. (NYSE:CPB) is a US company that produces and sells canned soups and related products worldwide. CPB has a 3.86% dividend yield but lost -12.09% since the beginning of this year. The dividend payout ratio of the stock is 47%. CPB has a market cap of $9.64B and a P/E ratio of 12.36. Mason Hawkins’ Southeastern Asset Management holds more than $600M of CPB.

Darden Restaurants Inc. (NYSE:DRI) is a US company operating full-service restaurants in the United States and Canada. DRI has a 3.83% dividend yield but lost -1.08% since the beginning of this year. The dividend payout ratio of the stock is 50%. DRI has a market cap of $6.05B and a P/E ratio of 13.14. Patrick McCormack and Ken Griffin are prominent DRI investors.

Heinz, H.J. Co (HNZ) is a US company providing food products worldwide. HNZ has a 3.70% dividend yield and gained 6.75% since the beginning of this year. The dividend payout ratio of HNZ is 62%. The stock has a market cap of $16.68B and a P/E ratio of 16.94. Nelson Peltz’s Trian Partners holds nearly $100 Million of HNZ.

Edison International (NYSE:EIX) is a US utilities company that generates and distributes electricity mainly in California. EIX has a 3.57% dividend yield but lost -5.48% since the beginning of this year. The dividend payout ratio of the company is 37%. EIX has a market cap of $11.68B and a P/E ratio of 11.07. Steven Cohen holds nearly $60M of EIX.

Wisconsin Energy Corp. (NYSE:WEC) is a US utilities company supplying electricity and natural gas to Wisconsin and Michigan. WEC has a 3.45% dividend yield and returned 5.20% since the beginning of this year. The dividend payout ratio of WEC is 54%. The stock has a market cap of $7.05B and a P/E ratio of 14.13. Jim Simons, Israel Englander and Phill Gross are among WEC investors.

General Mills Inc. (NYSE:GIS) is a US company that manufactures and sells branded food products worldwide. GIS has a 3.41% dividend yield and returned 3.02% since the beginning of this year. The dividend payout ratio of GIS is 49%. The stock has a market cap of $23.15B and a P/E ratio of 13.31. Ric Dillon holds more than $140 Million of GIS.

Disclosure: I am long PEG.