Dividend Champions Smackdown XX (Part ii)

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 |  Includes: APD, BDX, EMR, LOW, VAL, VFC, WMT
by: David Fish

In previous installments of the Smackdown series, I have screened the Dividend Champions using factors such as payout ratio, dividend growth rate, and, most recently, the “sweet spot” of dividend yields between 3% and 5%.

Beginning this month, I'm separating the Champions, Contenders and Challengers into different articles to fit more closely into a reader-friendly format. (Champions are 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.) I'll use the same Roman numeral for all three articles.

This month, I decided to return to the very first Smackdown, published on June 7, 2010, starting with the most recent dividend increase (by percentage) by each company. Back then, many boards of directors seemed to be taking a very conservative approach – some might say they were being stingy – whereas 2011 has been marked by more generous increases. Note that I'm using my “working copy” for November, which already has a handful of dividend changes, but retains the October 31, prices and other data. 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 most recent Increase (column L), high to low. As I did in June of 2010, I eliminated companies with increases of less than 10%. That cut the Champions list to 18 initial candidates in Smackdown I, but this time, there were 27.

Step 2: Sort the companies by yield. Eliminating any with yields below 2% cut the field to 13 companies.

Step 3: Sort the companies by their 5- and 10-year dividend growth rates (columns AN and AO), in order to eliminate any “historical stinginess” for dividend increases. I eliminated any company with a DGR of less than 5% in either of these columns. Meeting these thresholds were 12 companies.

Step 4: Sort the companies by payout ratio, low to high, dropping any that were over 50%, which eliminated only one company.

Step 5: 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 9% in either column. This left seven candidates, which appear below.

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

No.

10/31

%

Payout

NY%

Est 5-yr

DGR

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

%Ratio

Growth

Growth

5-yr

10-yr

Air Products & Chem.

(NYSE:APD)

29

86.14

2.69

18.37

41.21

9.1

12.5

9.0

10.0

Becton Dickinson

(NYSE:BDX)

38

78.23

2.10

10.81

27.56

9.6

9.9

15.5

14.9

Emerson Electric

(NYSE:EMR)

55

48.12

3.33

15.94

49.38

12.4

14.1

9.8

6.4

Lowe's Companies

(NYSE:LOW)

49

21.02

2.66

27.27

38.36

10.1

12.5

32.0

27.6

Valspar Corp.

(NYSE:VAL)

30

34.87

2.06

12.50

33.96

11.9

11.2

9.9

9.4

VF Corp.

(NYSE:VFC)

39

138.22

2.08

14.29

46.45

16.4

14.4

17.2

10.6

Wal-Mart Stores Inc.

(NYSE:WMT)

37

56.72

2.57

20.66

31.06

9.1

9.2

15.3

17.8

Click to enlarge

As an extra step, I'm including one of Chuck Carnevale's F.A.S.T. Graphs for the company that appears to be the most undervalued, as indicated by the price line being in the green-shaded earnings area, just below. Wal-Mart seems to be the most undervalued, followed by Becton-Dickinson. Except for VF Corp., which seems overvalued, the other companies appear slightly undervalued on a visual basis.

Click to enlarge
Click to enlarge

Conclusion

The only company to repeat from Smackdown I was Wal-Mart, which only had an increase of 11% in its dividend, but a very similar payout ratio. To be fair, Emerson only made the list because I “cheated” by including the November 2 dividend increase that was in my working copy of the spreadsheet. It's the only finalist with a yield above 3%. 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 BDX, EMR.