Dividend Champions For January 2012

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Includes: ANDE, AXS, DX, EGAS, GAS, INFY, PB, TCP, TEF
by: David Fish

The Dividend Champions spreadsheet and PDF have been updated through 12/30/11 and are available here. 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.

Patience Rewarded?

Last month, I wrote that I had not yet found the time to add a column for the Confidence Factor, but hoped to do so by year-end, along with the columns for 2011 dividends paid and for 2011 vs. 2010. The latest update now includes those columns and I have reset the formulas for 1-, 3-, 5-, and 10-year Dividend Growth Rate to use the 2011 dividends paid, instead of 2010, as well as expanded the ranges for the Mean and Standard Deviation to include the 2011-vs.-2010 dividend growth. Please note the following:

  • The Confidence Factor (which appears in column BS) is intended as a company-specific “score” based on various fundamentals and dividend data that I hope expresses a level of confidence in the continuation of each company's dividend-growth streak. Again, I would caution that the CF is not a “score” that suggests that one company (with a higher number) is “better than” another (with a lower number). Instead, it's intended to translate current fundamentals and dividend history into a measure of company-specific dividend-growth persistence and its likelihood of continuing. Rather than getting into the specific scoring here, I'll call your attention to a new Appendix A (on the Notes tab) that spells out the scoring involved. (The previous Appendices A and B have been redesignated as B and C, respectively.)

  • Dividends Paid in 2011 now appears as column AP and the formulas for the 1-, 3-, 5-, and 10-year Dividend Growth Rates (in columns AL to AO) use that instead of 2010. Overall, the averages for the CCC companies now stand at 9.6% for the 1-year DGR, 8.5% for the 3-year DGR, 11.4% for the 5-year DGR, and 11.1% for the 10-year DGR, compared with figures of 8.1%, 10.0%, 12.8%, and 10.3%, respectively, using Dividends Paid in 2010. I think that reflects the shift of the more conservative increases in 2010 into the 3-year range in comparison to the increases in 2008, which have now been shifted out of that range.

  • The ranges for the Mean and Standard Deviation now include the 2011-vs.-2010 percentage change (in column BD), so those calculations now cover 12 years instead of 11. This section offers a direct comparison between annual dividend increases over the extended period, compared with the less detailed 3-, 5-, and 10-year growth rates.

Dividend Growth Model Introduced

An additional enhancement that I've been discussing is the creation of a Dividend Growth Model, which uses the 1- and 5-year estimated earnings growth (in columns AC and AD) to project the next 5 years of annual dividend rates, and now appears beginning in column BT. Where there are no estimates (“n/a” appears), I use a default 3% projection, based on inflation, and whenever the estimated earnings growth is negative, I use a minimal 1% projection. Otherwise, the projected dividend growth rate is capped at 10% in order to represent a conservative estimate. I show columns for the estimated dividends in 2012 through 2016, along with the estimated 5-year total and the percentage “payback” that it represents, compared with the current price. Not surprisingly, high-yield companies, such as MLPs (Master Limited Partnerships), Real Estate Investment Trusts (or REITs), and utilities are projected to pay back the most in terms of dollars and percentages, over the next five years. Conversely, of course, lower-yielding stocks are more likely to provide more robust capital appreciation over the next five years.

Quick Summary

Since July, page 2 of the Summary tab has shown a table comparing the composite numbers from the latest update to those from the previous month and the end of the previous year. Below that is a summary of the latest month's activity, in terms of companies added, deleted, or promoted. That activity is reflected below:

Quick Summary:

12/30/11

Champs

Contdrs

Challgrs

Total

No. of Companies

102

146

200

448

Ave. No. of Years

38.7

15.1

7.2

17.0

Average Price

49.98

46.20

42.62

45.46

Average Yield

2.94

3.10

3.36

3.18

Ave. MR Increase

7.24

8.47

10.99

9.39

11/30/11

Champs

Contdrs

Challgrs

Total

No. of Companies

102

145

202

449

Ave. No. of Years

38.6

15.1

7.2

16.9

Average Price

49.74

46.81

42.43

45.51

Average Yield

2.97

3.14

3.37

3.20

Ave. MR Increase

7.24

7.97

10.98

9.22

12/31/10

Champs

Contdrs

Challgrs

Total

No. of Companies

98

129

190

417

Ave. No. of Years

38.7

15.7

6.9

NC

Average Price

51.99

45.84

44.65

NC

Average Yield

2.86

2.90

2.90

NC

Ave. MR Increase

6.04

6.63

10.93

NC

MR = Most Recent; NC = Not Calculated

Additions:

Dynex Capital Inc. (NYSE:DX) to Challengers

Ensign Group Inc. (NASDAQ:ENSG) to Challengers

Deletions:

Gas Natural Inc. (NYSEMKT:EGAS) from Challengers

Infosys Technologies Ltd. (NASDAQ:INFY) from Contenders

Telefonica S.A. (NYSE:TEF) from Challengers

Promotions:

Andersons Inc. (The) (NASDAQ:ANDE) from Challenger to Contender

Axis Capital Holdings Ltd. (NYSE:AXS) from Challenger to Contender

Other:

AGL Resources changed its symbol from AGL to GAS

Prosperity Bancshares changed its symbol from PRSP to PB

TC Pipelines LP changed its symbol from TCLP to TCP

Click to enlarge

What's Behind and What's Ahead

The past year has seen the expansion of the CCC listings from 417 to 448 companies, despite the deletions caused by dividend cuts or freezes. In fact, only 29 listings were deleted in 2011, and only nine of those were due to dividend cuts, whereas 13 were triggered by “freezes” (payout rates in 2011 unchanged from 2010), six companies were acquired, and one split into multiple corporations. Those figures compare favorably with the 66 deletions in 2010, 45 in 2009, and 16 in 2008. (Prior to 2010, only the Champions listing existed.) Of course, any of those deleted companies that “froze” their payouts could qualify as “Frozen Angels” if they declare higher payouts in 2012, something the 35 companies in Appendix C have already done.

The next year should see continued expansion, as indicated by the 32 companies in Appendix B that should declare their fifth straight annual dividend increase, qualifying them as the next Challengers. Even beyond that expansion, I think we'll see a continuation of the trend toward more generous dividend increases, as companies' Boards of Directors pass along more of the profits that those companies have produced since the “Great Recession.” As always, I welcome suggestions in the comment section below.

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