Dividend Champions Smackdown XXIII

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Includes: ABT, ADP, AFL, APD, CL, CLX, EMR, MCD, MO, PEP, PG, WBA
by: David Fish

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 average (15.7%) cut the list to 54 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' average of 7.0%. That cut the list to 31 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' average of 7.6%. Meeting this threshold were 18 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' average of 7.09% cut the list to 12 companies, which appear below.

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

Champions

Stock

No.

1/31

Div.

%

Est 5-yr

DGR

Est5yr

Company

Symbol

Yrs

Price

Yield

Inc.

EPS Gwth

5-yr

Pay%

Abbott Laboratories

(NYSE:ABT)

39

54.15

3.55

9.09

8.6

10.3

22.0

AFLAC Inc.

(NYSE:AFL)

29

48.23

2.74

10.00

11.0

17.5

16.3

Air Products & Chem.

(NYSE:APD)

29

88.03

2.64

18.37

10.4

10.7

17.0

Altria Group Inc.

(NYSE:MO)

43

28.40

5.77

7.89

8.0

15.0

34.5

Automatic Data Proc.

(NASDAQ:ADP)

37

54.78

2.88

9.72

10.2

14.2

17.7

Clorox Company

(NYSE:CLX)

34

68.66

3.50

9.09

7.9

14.7

21.3

Colgate-Palmolive Co.

(NYSE:CL)

48

90.72

2.56

9.43

8.9

12.7

16.4

Emerson Electric

(NYSE:EMR)

55

51.38

3.11

15.94

12.3

9.1

18.8

McDonald's Corp.

(NYSE:MCD)

35

99.05

2.83

14.75

10.0

20.4

17.1

PepsiCo Inc.

(NYSE:PEP)

39

65.67

3.14

7.29

7.9

12.2

18.4

Procter & Gamble Co.

(NYSE:PG)

55

63.04

3.33

8.97

8.6

11.2

21.0

Walgreen Company

(WAG)

36

33.36

2.70

28.57

8.9

22.9

15.8

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

Conclusion

I guess it should come as no surprise that many of the final companies above are familiar names, which confirms their status as high-quality dividend growth investments. As hoped, the yield levels again support the notion that you can get an excellent combination of yield and expected earnings and dividend growth. 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.

Disclosure: I am long ABT, AFL, MO, CL, EMR, PEP, PG.