8 Dividend Champions With Solid Cash Flows

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Includes: ABT, CLX, CTL, LEG, MDT, MO, NUE, RLI, RPM, XOM
by: Pragmatic Bear

Dividend Champions represent some of the most stable income producing stocks in the market. These companies have been consistently increasing their dividends for over 25 years. The ability of these companies to pay dividends through a period of slow growth is something that I am looking for.

The more research that I do, the more I've come to believe in the importance of the free cash flow metric when analyzing potential dividend investments. This represents the owner's (shareholders) earnings in the company. I am of the opinion that it is more useful than income statements when evaluating a company. This is due to the fact that it is more difficult for a company's management to manipulate than income statements are.

Some key metrics that I am focusing on:

  • Debt to Equity: The debt-to-equity ratio is a leverage ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. It reveals how a company has financed its assets. A low debt-to-equity ratio indicates lower risk because shareholders have claims on a larger portion of the company's assets. I normally look for a number below 60%. However, if they have large amounts
  • Dividend Yield: The dividend yield is the sum of a company's annual dividends per share divided by the current price per share.
  • FCF Payout Ratio: This ratio is the company’s current dividend per share (ttm) divided by its free cash flow per share. It gives the investor a clearer picture of the company’s ability to cover its dividend than the more traditional payout ratio. This is because free cash flow is much a harder metric for a company to manipulate, as opposed to net income. I look for a ratio in the neighborhood of 70% or lower.
  • Price to Owner's Earnings: This ratio looks at the relationship between the share price of the company and the free cash flow per share. I normally look for a multiple somewhere between 15 -20.
  • Consecutive Years Increasing Dividends: One of the best ways to see how strong a dividend that a company has is to look at how consistently they issue and increase their payouts. All dividend champions have been increasing for 25+ years.
  • 5 Year Average Annual Growth Rate: This is the average speed at which the dividend has grown during the previous 5 years. It helps us get an idea about how important the dividend is in the eyes of the company’s management.

Abbot Labortories (NYSE:ABT): Abbott Laboratories engages in the discovery, development, manufacture, and sale of health care products worldwide.

  • Yield = 3.80%
  • FCF per Share = 4.9166
  • FCF Payout Ratio = 18.4%
  • Years Increasing Dividends = 39 years
  • Price to Owner's Earnings = 10.41
  • 5 Year Average Annual Growth Rate = 9.7%
  • Debt to Equity Ratio = 68.83

CenturyLink (NYSE:CTL): CenturyLink, Inc., together with its subsidiaries, operates as an integrated communications company. The company provides a range of communications services, including voice, Internet, data, and video services in the continental United States.

  • Yield= 8.70%
  • FCF per Share = 4.555
  • FCF Payout Ratio = 63.6%
  • Years Increasing Dividends = 37 years
  • Price to Owner's Earnings = 7.473
  • 5 Year Average Annual Growth Rate = 64.6%
  • Debt to Equity Ratio = 98.63

RPM International (NYSE:RPM):RPM International Inc., together with its subsidiaries, manufactures, markets, and sells various specialty chemical products to industrial and consumer markets worldwide.

  • Yield= 4.80%
  • FCF per Share = 1.045
  • FCF Payout Ratio = 80.3%
  • Years Increasing Dividends = 37 years
  • Price to Owner's Earnings = 18.07
  • 5 Year Average Annual Growth Rate = 6.2%
  • Debt to Equity Ratio = 81.40

ExxonMobil (NYSE:XOM): Exxon Mobil Corporation engages in the exploration and production of crude oil and natural gas, and manufacture of petroleum products, as well as transportation and sale of crude oil, natural gas, and petroleum products.

  • Yield= 2.70%
  • FCF per Share = 3.811
  • FCF Payout Ratio = 49.3%
  • Years Increasing Dividends = 29 years
  • Price to Owner's Earnings = 19.13
  • 5 Year Average Annual Growth Rate = 8.8%
  • Debt to Equity Ratio = 10.19

Leggett & Platt Inc. (NYSE:LEG): Leggett & Platt, Incorporated designs and produces various engineered components and products worldwide.

  • Yield= 5.70%
  • FCF per Share = 1.116
  • FCF Payout Ratio = 100%
  • Years Increasing Dividends = 40 years
  • Price to Owner's Earnings = 18.76
  • 5 Year Average Annual Growth Rate = 11.1%
  • Debt to Equity Ratio = 59.30

Altria (NYSE:MO): Altria Group, Inc., through its subsidiaries, engages in the manufacture and sale of cigarettes, smokeless products, and wine in the United States and internationally.

  • Yield= 6.40%
  • FCF per Share = 2.198
  • FCF Payout Ratio = 74.6%
  • Years Increasing Dividends = 39 years
  • Price to Owner's Earnings = 12.02
  • 5 Year Average Annual Growth Rate = 14.8%
  • Debt to Equity Ratio = 293.23

Clorox (NYSE:CLX): The Clorox Company manufactures and markets consumer and institutional products worldwide.

  • Yield= 3.50%
  • FCF per Share = 5.762
  • FCF Payout Ratio = 41.6%
  • Years Increasing Dividends = 34 years
  • Price to Owner's Earnings = 11.69
  • 5 Year Average Annual Growth Rate = 13.4%
  • Debt to Equity Ratio = N/A

RLI Corp. (NYSE:RLI): RLI Corp., through its subsidiaries, underwrites property and casualty insurance primarily in the United States.

  • Yield= 2.00%
  • FCF per Share = 6.112
  • FCF Payout Ratio = 19.6%
  • Years Increasing Dividends = 36 years
  • Price to Owner's Earnings = 10.24
  • 5 Year Average Annual Growth Rate = 13.7%
  • Debt to Equity Ratio = 11.57

Nucor Corp (NYSE:NUE): Nucor Corporation, together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally.

  • Yield= 4.60%
  • FCF per Share = 2.467
  • FCF Payout Ratio = 58.7%
  • Years Increasing Dividends = 38 years
  • Price to Owner's Earnings = 13.56
  • 5 Year Average Annual Growth Rate = 36.9%
  • Debt to Equity Ratio = 57.04

Medtronic Inc (NYSE:MDT): Medtronic, Inc. manufactures and sells device-based medical therapies worldwide.

  • Yield= 2.90%
  • FCF per Share = 2.934
  • FCF Payout Ratio = 33.1%
  • Years Increasing Dividends = 34 Years
  • Price to Owner's Earnings = 11.75
  • 5 Year Average Annual Growth Rate = 19%
  • Debt to Equity Ratio = 61.52

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