Dividend Champions Smackdown XIX

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Includes: ABT, ADP, APD, AVP, CEO, DLR, DRI, ENB, EV, GIS, HAS, KMB, LLTC, MCD, MDP, OKE, PEP, PG, R, RTN, SJR, SWY, SYY, THG, WM
by: David Fish

In previous installments of the Smackdown series, I have screened the Dividend Champions (which can be found here) using factors such as payout ratio, dividend growth rate, and, more recently, the newly added columns for percentage below moving averages and the Tweed Factor (see the Notes tab). Note that all references to Champions mean companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years. “CCC” refers to the universe of Champions, Contenders, and Challengers. This month, I decided to return to the basic Yield column, but with a twist. Rather than focusing on a minimum yield percentage, I decided to narrow the field of candidates to the “sweet spot” that includes yields that are “not too low” and “not too high.” Although opinions may vary, I'm calling the “sweet spot” as being 3-5% for the purposes of this article. So I screened as follows:

Step 1: After eliminating companies that had not increased their dividend in more than a year and those that had agreed to be acquired, I sorted by Yield (column I) and deleted any that were below 3% or above 5%. That cut the Champions list to 39 initial candidates.

Step 2: Sort the companies by their most recent dividend increase (column L). I wanted to avoid companies that had been too stingy, so eliminating any with increases below 4% cut the field to 22 companies.

Step 3: Sort the companies by their 3-, 5-, and 10-year Dividend Growth Rates (columns AM to AO), in order to eliminate any “historical stinginess” for dividend increases. I eliminated any company with a DGR of less than 5% in any of these columns, and also dropped any that had failed to declare an increase in any year between 1999 and 2010 (indicated by a red number in columns AQ to BB). Meeting these thresholds were 11 companies. (Note that I made an exception to the “red number” rule for Challengers in the Bonus Smackdown below, eliminating only failures that occurred after their streak had begun.)

Step 4: Sort the companies by their Next Year and 5-year estimated earnings per share growth rates. (Columns AC and AD). I eliminated any that had expected earnings growth of less than 6% in either column. This left nine candidates, which appear below.

(Note that I've sorted all tables back into alphabetical order. Because of space limitations, I'm showing only the 5-year Dividend Growth Rate from Step 3.)



No.

9/30


%

NY%

Est5-yr

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

E Gth

E Gth

5-yr

Abbott Laboratories

(NYSE:ABT)

39

51.14

3.75

9.09

8.0

9.0

9.7

Air Products & Chem.

(NYSE:APD)

29

76.37

3.04

18.37

11.9

13.1

9.0

Automatic Data Proc.

(NASDAQ:ADP)

36

47.15

3.05

5.88

10.5

10.9

17.0

Eaton Vance Corp.

(NYSE:EV)

30

22.27

3.23

12.50

6.1

8.7

14.2

Kimberly-Clark Corp.

(NYSE:KMB)

39

71.01

3.94

6.06

8.4

7.3

8.1

McDonald's Corp.

(NYSE:MCD)

35

87.82

3.19

14.75

10.0

9.9

27.5

PepsiCo Inc.

(NYSE:PEP)

39

61.90

3.33

7.29

8.6

8.4

13.7

Procter & Gamble

(NYSE:PG)

55

63.18

3.32

8.97

9.2

8.8

11.6

Sysco Corp.

(NYSE:SYY)

41

25.90

4.02

4.00

7.8

6.2

10.8

Click to enlarge

Bonus Smackdown: The Contenders and the Challengers

I performed the same steps on the Dividend Contenders and Challengers and the “winners” were:

Contenders:



No.

9/30


%

NY%

Est5-yr

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

E Gth

E Gth

5-yr

Avon Products Inc.

(NYSE:AVP)

22

19.60

4.69

4.55

11.3

10.3

5.9

Enbridge Inc.

(NYSE:ENB)

16

31.93

3.07

15.29

17.2

8.4

11.8

Linear Technology

(NASDAQ:LLTC)

19

27.65

3.47

4.35

13.9

9.4

18.1

Meredith Corp.

(NYSE:MDP)

18

22.64

4.51

10.87

16.2

6.9

10.4

StanCorp Financial

(NYSE:SFG)

13

27.57

3.12

7.50

36.7

7.7

6.6

Click to enlarge

Challengers:



No.

9/30


%

NY%

Est5-yr

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

E Gth

E Gth

5-yr

CNOOC Ltd.

(NYSE:CEO)

6

160.30

4.00

21.60

9.7

7.3

25.9

Darden Restaurants

(NYSE:DRI)

7

42.75

4.02

34.38

13.5

12.6

36.6

Digital Realty Trust

(NYSE:DLR)

7

55.16

4.93

28.30

9.1

11.8

16.9

General Mills

(NYSE:GIS)

8

38.49

3.17

8.93

8.4

7.5

10.4

Hanover Insurance

(NYSE:THG)

7

35.50

3.10

10.00

150.6

10.9

32.0

Hasbro Inc.

(NASDAQ:HAS)

8

32.61

3.68

20.00

15.6

14.8

23.5

ONEOK Inc.

(NYSE:OKE)

9

66.04

3.39

7.69

12.9

10.0

10.8

Raytheon Company

(NYSE:RTN)

7

40.87

4.21

14.67

9.4

8.9

10.8

Ryder System

(NYSE:R)

7

37.51

3.09

7.41

19.9

12.3

9.8

Safeway Inc.

(NYSE:SWY)

7

16.63

3.49

20.83

9.4

9.6

34.5

Shaw Communications

(NYSE:SJR)

9

20.20

4.55

5.01

9.4

10.0

47.2

Waste Management

(NYSE:WM)

8

32.56

4.18

7.94

14.0

10.1

9.5

Click to enlarge

Conclusion

Note that foreign firms, such as Enbridge, Shaw, and CNOOC, may trigger a withholding tax that can't be claimed as a tax credit if the shares are held in a retirement account. This Smackdown showed that even companies that are in the “sweet spot” of 3-5% yields still offer potential investors the possibility of future earnings and dividend growth. Growth estimates are subject to change and 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 ABT, KMB, PEP, PG, SYY, AVP, OKE, RTN.