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In previous installments of the Smackdown series, I screened the Dividend Champions (which can be found here) using factors such as payout ratio, dividend growth rate, and the most recent dividend increase. Beginning last month, I separated the Champions, Contenders, and Challengers into different articles. (Champions are companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers (today's article) have streaks of 5-9 years.) I use the same Roman numeral for all three articles.

This month, I'm returning to the second Smackdown, published on July 3, 2010, starting with the yield, followed by the same factors I used back in Smackdown II. The biggest difference is that there were no listings for Contenders and Challengers back then, so the screening process below has no Smackdown II equivalent. 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, focusing on those of at least 3%. That included 85 companies.

Step 2: Sort the companies by Most Recent Increase (column L), high to low. I eliminated companies with increases of less than 4%. That cut the Challenger list to 49 candidates.

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% (or “n/a”) in either of these columns. Meeting these thresholds were 16 companies.

Step 4: Sort the companies by the A/D (Acceleration/Deceleration) ratio, which divides the 5-year DGR by the 10-year DGR. Dropping those with an A/D ratio below 0.80 (or “n/a”) cut the list to 13 companies.

Step 5: Sort the companies by trailing 12 months price/earnings ratio (column U). I eliminated any that had P/E ratios above 18. This left 10 candidates, which appear below.

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

No.

11/30

%

TTM

5/10

DGR

DGR

Company

Symbol

Yrs

Price

Yield

Inc.

P/E

A/D*

5-yr

10-yr

Astrazeneca plc

(AZN)

8

45.98

5.87

5.88

6.34

1.558

18.6

12.0

Avista Corp.

(AVA)

9

25.00

4.40

10.00

14.29

1.695

12.9

7.6

Darden Restaurants

(DRI)

7

47.71

3.61

34.38

14.12

1.020

36.6

35.8

Empresa Nacional

(EOC)

8

45.23

4.58

34.57

14.09

0.923

48.2

52.2

General Mills

(GIS)

8

39.95

3.05

8.93

15.31

1.558

10.4

6.7

Hasbro Inc.

(HAS)

8

35.81

3.35

20.00

12.88

1.597

23.5

14.7

Lockheed Martin

(LMT)

9

78.15

5.12

33.33

9.14

1.032

20.2

19.6

Northrop Grumman

(NOC)

8

57.07

3.50

6.38

8.49

1.467

12.7

8.7

Oil-Dri Corp. of Amer.

(ODC)

9

20.86

3.26

6.25

16.56

1.441

11.5

8.0

Rogers Commun.

(RCI)

6

37.03

3.83

17.94

13.47

1.880

88.9

47.3

Conclusion

Note that Empresa Nacional is a Chilean company and subject to withholding taxes on its dividends. Many of the companies above are familiar names, which suggests that their quality is proven by many different metrics. As always, please consider this no more than a starting point for more in-depth research.

Source: Dividend Challengers Smackdown XXI