Defensive investors regularly seek high quality dividend stocks to achieve sustainable returns, even in bear markets. In that regard, the S&P 500 Dividend Aristocrats Index, which tracks 42 blue-chip S&P 500 companies that have increased their dividends for at least 25 consecutive years, is a popular reference for many dividend investors.
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. As “Dividend Champions”, Dave Fish compiles a complete list of all U.S. stocks that have increased their dividend payout 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 believe the European debt crisis will lead to more money printing in both Europe and the United States. We think the S&P 500 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.
Below, we provided a list of 30 stocks from the Dave Fish’s S&P 500 Dividend Challengers and showed how they have performed this year:
| Divi\dend Yield | Dividend Payout Ratio 2010 | YTD Return | |
Lockheed Martin | 5.47% | 55% | 6.78% | |
Darden Restaurants Inc. | 3.97% | 50% | -4.78% | |
Dominion Resources | 3.94% | 59% | 19.59% | |
Centerpoint Energy Inc. | 3.92% | 81% | 29.59% | |
Northorp Grumman Corp. | 3.82% | 30% | -9.76% | |
Intel Corp. | 3.81% | 41% | 6.64% | |
Heinz H.J. Co | 3.81% | 62% | 3.26% | |
Hasbro Inc. | 3.58% | 46% | -27.48% | |
Campbell Soup Co. | 3.55% | 47% | -3.89% | |
Edison International | 3.42% | 37% | -3.59% | |
Kellogg Co. | 3.22% | 52% | 6.05% | |
General Mills Inc. | 3.20% | 49% | 10.03% | |
Harris Corp. | 3.11% | 23% | -21.53% | |
Microsoft Corp. | 3.04% | 30% | -5.48% | |
Analog Devices Inc. | 2.95% | 42% | -9.45% | |
L-3 Communications | 2.78% | 22% | -7.81% | |
Best Buy Co Inc. | 2.64% | 19% | -31.36% | |
Deere & Co. | 2.46% | 35% | -19.25% | |
CSX Corp. | 2.38% | 36% | -7.58% | |
ITT Corp. | 2.27% | 23% | -17.08% | |
Ameriprise Financial Inc. | 2.26% | 21% | -31.38% | |
International Flavors & Fragrances | 2.11% | 37% | 6.33% | |
Kroger Co. | 2.02% | 26% | 0.41% | |
Assurant Inc. | 1.98% | 14% | -5.13% | |
Airgas Inc. | 1.93% | 38% | 6.04% | |
Cummins Inc. | 1.78% | 31% | -18.89% | |
CVS Caremark Corp. | 1.48% | 19% | -3.31% | |
NIKE Inc. | 1.39% | 28% | 3.91% | |
AmerisourceBergen Corp. | 1.27% | 21% | 7.54% | |
Costco Wholesale Corp. | 1.21% | 33% | 12.13% | |
| AVERAGE | 2.83% | 37% | -3.65% |
| SPY |
|
| -7.69% |
Since the beginning of this year, the average YTD return of these 30 stocks was -3.45% vs. -7.69% for the SPY. All these stocks except two – CNP and HNZ – have a dividend payout ratio of less than 60%. The average dividend pay-out ratio of those stocks is 37% and the average dividend yield is 2.83%.
Here are the 10 highest dividend yielding Dividend Challengers stocks in our list:
Lockheed Martin (LMT): Lockheed Martin is a U.S. corporation operating in aerospace, defense, security and advanced technology industries worldwide. LMT has a 5.47% dividend yield and gained 6.78% since the beginning of this year. The stock has a market cap of $24.33B and a P/E ratio of 9.61. Both Jean-Marie Eveillard's First Eagle and John Shapiro's Chieftain Capital had more than $200 Million in LMT at the end of June 2011.
Darden Restaurants Inc. (DRI): Darden Restaurants Inc. is a U.S. company operating full-service restaurants in the United States and Canada. DRI has a 3.97% dividend yield but lost -4.78% since the beginning of this year. The stock has a market cap of $5.70B and a P/E ratio of 12.73. Patrick McCormack is the most prominent DRI investor.
Dominion Resources Inc. (D): Dominion Resources Inc. is a U.S. utility company supplying electricity and natural gas to North Carolina and Virginia. D has a 3.94% dividend yield and returned 19.59% since the beginning of this year. The stock has a market cap of $28.51B and a P/E ratio of 17.07. Phill Gross’ Adage Capital holds the largest D position among the 300-plus funds we are tracking.
Centerpoint Energy Inc. (CNP): Centerpoint Energy Inc. is a utility company distributing electricity and natural gas in the United States. CNP has a 3.92% dividend yield and returned 29.59% since the beginning of this year. The stock has a market cap of $8.39B and a P/E ratio of 16.29. James Dinan’s York Capital Management had more than $125 Million in CNP at the end of June.
Northrop Grumman Corp.: Northrop Grumman Corp. is a global company operating in aerospace, defense technology and electronics industries worldwide. NOC has a 3.82% dividend yield but lost -9.76% since the beginning of this year. The stock has a market cap of $14.39B and a P/E ratio of 8.10. Jean-Marie Eveillard holds more than $200 million of NOC.
Intel Corp. (INTC): Intel Corp. is a global technology company that manufactures and supplies microprocessor products worldwide. INTC has a 3.81% dividend yield and gained 6.64% since the beginning of this year. The stock has a market cap of $114.73B and a P/E ratio of 9.89. Ken Fisher is among the more prominent INTC investors.
Heinz, H.J. Co. (HNZ): Heinz, H.J. Co is an American company providing food products worldwide. HNZ has a 3.81% dividend yield and returned 3.26% since the beginning of this year. The stock has a market cap of $15.95B and a P/E ratio of 16.51. Nelson Peltz’s Trian Partners holds nearly $100 Million of HNZ.
Hasbro Inc. (HAS): Hasbro Inc. is a large toy and game company operating worldwide. HAS has a 3.58% dividend yield but lost -27.48% since the beginning of this year. The stock has a market cap of $4.34B and a P/E ratio of 12.32. John Brennan and Tom Russo are the most prominent HAS investors.
Campbell Soup Co. (CPB): Campbell Soup Co. is a U.S. company that produces and sells canned soups and related products worldwide. CPB has a 3.55% dividend yield but lost -3.89% since the beginning of this year. The stock has a market cap of $10.51B and a P/E ratio of 13.62. Mason Hawkins’ Southeastern Asset Management had more than $600M in CPB.
Edison International (EIX): Edison International is a U.S. utility company that generates and distributes electricity mainly in California. EIX has a 3.42% dividend yield but lost -3.59% since the beginning of this year. The stock has a market cap of $11.82B and a P/E ratio of 11.19. Steven Cohen holds nearly $60M of EIX.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
