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In the most recent installment of the Smackdown series, I screened the Dividend Champions (which can be found here) starting with a new column that I titled Confidence Factor.

(Note that I have separated the Champions, Contenders, and Challengers into different articles to fit more closely into the format preferred by Seeking Alpha. 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 use the same Roman numeral for all three articles.)

This month, I started with another new column, the 5-year Estimated Payback Percentage, located in column BZ and part of the new Dividend Growth Model. As one might expect, the highest numbers in this column often come from high-yield stocks, REITs (Real Estate Investment Trusts), and MLPs (Master Limited Partnerships), simply because they generally offer high-yield "starting points," so any estimate of the next five years' payouts are likely to show that they would have the highest total payback. However, I hope to show that companies can still have decent payback even if they start with a lower yield, but offer superior growth. 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 5-year Estimated Total Payback Percentage, high to low. Eliminating companies that were below the Champions/Contenders average (16.5%) cut the list to 72 companies.

Step 2: Sort the companies by Estimated 5-year Earnings Per Share Growth (column AD), high to low. I eliminated companies with expected earnings growth of less than the Champions/Contenders' average of 7.9%. That cut the list to 25 candidates.

Step 3: Sort the companies by their 5-year Dividend Growth Rate (column AN), in order to ensure that the remaining candidates had consistent histories of dividend increases. I eliminated any company with a DGR of less than the Champions/Contenders' average of 8.5%. Meeting this threshold were 16 companies.

Step 4: Sort the companies by the Most Recent Dividend Increase Percentage (column L), in order to eliminate more recent "stinginess" for dividend increases. Dropping those with increases of less than the Champions/Contenders' average of 8.05% cut the list to eight companies, which appear below. (I made an exception for BancFirst Corp. OK, whose most recent increase was very close, at 8.00%.)

(Note that I've sorted the table back into alphabetical order.)

Contenders

Stock

No.

1/31

Div.

%

Est 5-yr

DGR

Est5yr

Company

Symbol

Yrs

Price

Yield

Inc.

EPS Gwth

5-yr

Pay%

BancFirst Corp. OK

(BANF)

18

40.16

2.69

8.00

10.2

9.1

16.7

Enbridge Inc.

(ENB)

17

37.56

2.64

20.15

8.5

14.1

17.2

Nippon Tele&Tele

(NTT)

10

25.03

3.28

18.85

8.1

23.4

21.2

ONEOK Inc.

(OKE)

10

83.16

2.93

8.93

10.1

12.1

17.4

Owens & Minor Inc.

(OMI)

14

30.41

2.63

12.99

9.3

14.9

16.9

South Jersey Indus.

(SJI)

13

54.88

2.93

10.27

8.8

10.7

17.9

Unilever NV

(UN)

11

33.35

3.72

11.32

8.0

8.7

23.6

Watsco Inc.

(WSO)

11

68.97

3.60

8.77

18.2

18.6

21.7

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 its price line being in the green-shaded earnings area, just below.

Conclusion

Once again, this screen produced a very eclectic bunch that includes three ADRs (American Depository Receipts), which should be given extra consideration because of possible tax implications. To some extent, the yield levels support the notion that you can get an excellent combination of yield and expected earnings and dividend growth. One surprise was the large number of companies eliminated by Step2, which may indicate that among Contenders, the best earnings growth can be found among stocks with even lower yields. For an investor focusing on high dividend payout (and perhaps less dividend growth), focusing on the first factor might provide more immediate yield, and that may be the priority for some. As always, please consider this no more than a starting point for more in-depth research.

Source: Dividend Contenders Smackdown XXIII