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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 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 two new columns that were added in the latest update – columns AI and AJ, which show the percentage by which the current price (as of August 31) varies from each stock's 50- and 200-day Moving Averages. I realize that this is more of a Technical screen than a Fundamental one, but purchasing stocks that may be undervalued does require consideration of current prices. So 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 the percentage change from their 50-day Moving Average (column AI). After eliminating companies that were still trading above that average, I was left with 47 candidates. Sorting those by the percentage change from their 200-day Moving Average (column AJ) revealed that all 47 were below that mark, as well.

Step 2: Sort the companies by their Price/Earnings Ratio (column U). I wanted to eliminate companies that might be trading lower due to earnings weakness, so I eliminated those with P/Es over 20 (or negative). This cut each field to 40 companies. To further ensure strong earnings, I sorted columns AC and AD (Next Year and 5-Year estimated EPS growth) and eliminated any with rates of less than 7%, leaving 27 companies.

Step 3: Sort the companies by their current yield. I wanted to avoid companies with low payouts, even at depressed prices. Eliminating any with yields of less than 2.5% cut each field to 15 companies.

Step 4: Sort the companies by their 5- and 10-year Dividend Growth Rates. I eliminated any that had DGRs of less than 8%. This step the field to eight finalists, which appear below.

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

No.

8/31

TTM

NY%

Est5y

50-day

200-dy

DGR

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

Grwth

MMA

MMA

5-yr

10-yr

Air Products &Chem

(APD)

29

81.87

2.83

15.25

12.9

13.5

(4.2)

(9.1)

9.0

10.0

Eaton Vance Corp.

(EV)

30

24.41

2.95

13.87

16.3

9.3

(2.7)

(18.3)

14.2

20.6

Harleysville Group

(HGIC)

25

28.67

5.30

16.20

119.1

8.1

(2.7)

(9.5)

14.7

9.6

Illinois Tool Works

(ITW)

48

46.54

3.09

12.28

16.5

13.6

(4.8)

(13.5)

16.8

13.1

Lowe's Companies

(LOW)

49

19.93

2.81

13.65

14.9

12.6

(5.1)

(17.5)

32.0

27.6

PepsiCo Inc.

(PEP)

39

64.43

3.20

16.39

9.2

8.6

(0.2)

(3.2)

13.7

13.0

Sysco Corp.

(SYY)

41

27.93

3.72

14.25

8.2

7.9

(4.8)

(5.4)

10.8

15.3

Walgreen Company

(WAG)

36

35.21

2.56

13.86

14.8

13.9

(6.8)

(14.7)

21.6

16.5

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), which got a free pass if their 10-year DGR showed “n/a,” and the “winners” were:

Contenders:

No.

8/31

TTM

NY%

Est5y

50-day

200-dy

DGR

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

Grwth

MMA

MMA

5-yr

10-yr

Alterra Capital Hdgs

(ALTE)

11

20.41

2.74

15.23

88.5

9.9

(1.3)

(5.6)

18.5

n/a

BancFirst Corp. OK

(BANF)

17

35.72

2.80

12.90

7.2

10.3

(2.2)

(9.2)

10.1

11.4

Cullen/Frost Bank

(CFR)

18

50.99

3.61

14.44

8.0

8.3

(2.0)

(9.7)

8.8

8.9

McGrath Rentcorp

(MGRC)

19

23.84

3.86

13.47

7.4

9.4

(7.9)

(10.7)

11.0

12.7

Meredith Corp.

(MDP)

18

25.80

3.95

9.28

14.9

9.9

(5.1)

(18.0)

10.4

11.1

Norfolk Southern

(NSC)

10

67.68

2.54

14.28

15.0

15.5

(3.9)

(3.1)

23.9

5.8

Owens & Minor Inc.

(OMI)

14

29.44

2.72

16.82

11.2

9.8

(3.6)

(8.7)

15.3

15.7

United Technologies

(UTX)

17

74.25

2.59

14.39

13.4

11.7

(5.2)

(10.9)

14.1

15.2

Challengers:

No.

8/31

TTM

NY%

Est5y

50-day

200-dy

DGR

DGR

Company

Symbol

Yrs

Price

Yield

P/E

Growth

Grwth

MMA

MMA

5-yr

10-yr

AllianceResourceLP

(ARLP)

9

71.87

5.13

9.80

7.4

9.9

(1.8)

(4.0)

15.3

12.4

BHP Billiton plc

(BBL)

9

68.12

2.97

7.98

23.0

18.0

(1.8)

(10.2)

25.5

n/a

CNOOC Ltd.

(CEO)

6

203.19

3.16

8.57

10.7

8.5

(1.8)

(11.4)

25.9

n/a

Darden Restaurants

(DRI)

7

48.10

3.58

14.19

12.7

12.6

(2.5)

(1.1)

36.6

35.8

Gap Inc.

(GPS)

7

16.52

2.72

9.03

15.6

7.9

(6.5)

(17.9)

19.6

15.6

Lockheed Martin

(LMT)

8

74.19

4.04

9.29

16.8

9.5

(0.2)

(5.2)

20.2

19.6

Safeway Inc.

(SWY)

7

18.33

3.16

12.73

11.0

10.9

(7.2)

(17.9)

34.5

n/a

Conclusion

There's once again excellent diversity among the finalists in each group. This Smackdown showed that even companies with strong earnings and dividends can be dragged down by a negative market environment, offering potential investors the possibility of buying them at bargain prices. Keep in mind that growth estimates and other numbers are subject to change and that attractive prices can disappear quickly. As always, please consider this no more than a starting point for more in-depth research.

Disclosure: I am long ITW, PEP, SYY, UTX, LMT.

Source: Dividend Champions Smackdown XVII