Compiled and updated monthly by David Fish, the CCC list is an invaluable source for dividend growth investors. The list contains U.S. companies with at least 5 consecutive years of increasing dividends. An accompanying spreadsheet provides key statistics for each CCC stock.
The CCC stocks are dividend into 3 categories based on the number of consecutive years of higher dividends: Champions are stocks with 25 or more years of higher dividends, Contenders have 10-24 consecutive years of higher dividends, and Challengers have a streak of 5-9 years of higher dividends. The latest list (dated 09/30/16) contains 778 stocks, with 107 Champions, 236 Contenders, and 435 Challengers.
Trimming The CCC List
Ranking 778 stocks would be quite demanding, so first I apply some screens to reduce the number of stocks to consider. Using different screens every month introduces some variation. Typically, I consider fewer than 300 stocks.
This month, I decided to focus on stocks I believe to be trading at or below fair value. First, though, I applied these screens:
- 2.0 ≤ Dividend Yield ≤ 8.0
- Debt to Equity Ratio ≤ 1.0
- Market Cap ≥ $1 Billion
- EPS% Payout Ratio ≤ 80%
Only 158 CCC stocks passed these screens.
The Ranking Process
I used a multi-stage DDM (dividend discount model) to estimate fair value. For the DDM, I used a required rate of return of 10% and a terminal growth rate of 3% after 10 years. Here, the goal was to do a preliminary ranking of the 158 stocks, based on fair value estimates derived entirely from data in the CCC spreadsheet.
From the preliminary ranking, I selected the 64 stocks with the best discounts to fair value. I ranked these stocks using data from the CCC list and additional sources like Morningstar, S&P Capital IQ, and F.A.S.T. Graphs.
Here are the top 10 ranked stocks for October 2016:
Stocks I own in my DivGro portfolio are highlighted. Only 2 stocks from last month's top 10 appear in this month's top 10. These stocks are indicated by a subscript that represents last month's ranking. For example, VFC6 means that VFC was ranked sixth last month.
The following table presents the top 10 ranked stocks by sector, along with my star ratings for each stock. According to my star rating system, the 2 top ranked stocks each earned a 7-star rating this month, while the others earned 6 stars each. I consider stocks with a 5-star rating or better worthy of further analysis.
In the following descriptions, yield is calculated based on closing prices on 7 October 2016, payout is the EPS (earnings per share) payout ratio, and debt is the debt to equity ratio. Morningstar's moat and Standard and Poor's credit ratings are also provided. Value Line's safety and financial strength ratings round things out.
Please note: Fair value estimates below are averages of fair value estimates from several sources, including my own. Specifically, I consider fair value estimates from up to 8 sources, but I ignore the highest and lowest estimates and average the remaining estimates to arrive at a final fair value estimate.
• VF Corporation (NYSE:VFC)
streak 43 yrs | 5-yr growth rate 17.0% | yield 2.71%@ $54.56
payout 54% | debt 60% | moat wide | credit rating A | safety 2 | financial strength A+
Dividend Champion VFC is a global leader in the design, manufacture, marketing and distribution of branded lifestyle apparel, footwear and accessories. The company owns powerful brands including The North Face, Vans, Timberland, Wrangler, Lee and Nautica. VFC was founded in 1899 and is headquartered in Greensboro, North Carolina. My fair value estimate for VFC is $61.22, so the stock is trading at a discount of 11%.
• T. Rowe Price Group, Inc (NASDAQ:TROW)
streak 30 yrs | 5-yr growth rate 14.0% | yield 3.24%@ $66.58
payout 52% | debt 0% | moat wide | credit rating N/A | safety 2 | financial strength A+
Founded in 1937 and based in Baltimore, Maryland, Dividend Champion TROW is a financial services holding company that provides global investment management services to individual and institutional investors in the sponsored T. Rowe Price mutual funds and other investment portfolios, as well as through variable annuity life insurance plans. My fair value estimate for TROW is $70.92, so the stock is trading at a discount of 6%.
• Robert Half International Inc (NYSE:RHI)
streak 13 yrs | 5-yr growth rate 9.0% | yield 2.34%@ $37.66
payout 32% | debt 0% | moat narrow | credit rating N/A | safety 2 | financial strength A+
Founded in 1948 and headquartered in Menlo Park, California, RHI provides specialized staffing and risk consulting services in more than 400 locations worldwide. The company's specialized staffing divisions include Accountemps, Robert Half Finance & Accounting, Robert Half Management Resources, Robert Half Technology, and Robert Half Legal. My fair value estimate for RHI is $43.03, so the stock is trading at a discount of 12%.
• Polaris Industries Inc (NYSE:PII)
streak 21 yrs | 5-yr growth rate 21.5% | yield 2.97%@ $74.02
payout 38% | debt 51% | moat wide | credit rating N/A | safety N/A | financial strength N/A
PII designs, engineers, manufactures and markets off-road vehicles, snowmobiles, motorcycles and small vehicles. These products are sold through dealers and distributors located in the United States, Canada and Europe. The company also produces and supplies replacement parts for its product lines. PII was founded in 1987 and is headquartered in Medina, Minnesota. PII is trading at a discount of 18% to my fair value estimate of $90.28.
• Wal-Mart Stores, Inc. (NYSE:WMT)
streak 43 yrs | 5-yr growth rate 10.6% | yield 2.91%@ $68.70
payout 43% | debt 62% | moat wide | credit rating AA | safety 1 | financial strength A++
Dividend Champion WMT is the world's largest retailer. Based in Bentonville, Arkansas and founded in 1962, WMT is a multinational retailer consisting of more than 11,000 stores under 71 banners in 27 countries. The company operates e-commerce websites in 10 countries. WMT is the biggest private employer in the world with over two million employees. WMT trades at about fair value.
• Automatic Data Processing, Inc (NASDAQ:ADP)
streak 41 yrs | 5-yr growth rate 10.5% | yield 2.43%@ $87.37
payout 65% | debt 0% | moat wide | credit rating AA | safety 1 | financial strength A++
Dividend Champion ADP provides arrange of business outsourcing and technology-enabled human capital management solutions. The company also offers small and mid-sized businesses human resources outsourcing solutions through a co-employment model. ADP was founded in 1949 and is headquartered in Roseland, New Jersey. ADP trades at about fair value.
• Cardinal Health Inc. (NYSE:CAH)
streak 20 yrs | 5-yr growth rate 14.5% | yield 2.36%@ $76.40
payout 42% | debt 85% | moat wide | credit rating A- | safety 1 | financial strength A++
Founded in 1979 and headquartered in Dublin, Ohio, CAH is a healthcare services company providing pharmaceutical and medical products and services that help pharmacies, hospitals and other healthcare providers focus on patient care. CAH also provides medical products to patients in the home. The stock trades at a discount of 10% to my fair value estimate of $85.21.
• Archer Daniels Midland Co (NYSE:ADM)
streak 41 yrs | 5-yr growth rate 13.3% | yield 2.81%@ $42.65
payout 49% | debt 42% | moat none | credit rating A | safety 2 | financial strength A+
Founded in 1898 and headquartered in Chicago, Illinois, Dividend Champion ADM is engaged in the processing of oilseeds, corn, wheat, cocoa, and other agricultural commodities. The company manufactures protein meal, vegetable oil, corn sweeteners, flour, and other value-added food and feed ingredients, as well as biodiesel and ethanol. ADM trades close to my fair value estimate of $41.66.
• Cisco Systems, Inc. (NASDAQ:CSCO)
streak 6 yrs | 3-yr growth rate 31.6% | yield 3.30%@ $31.47
payout 49% | debt 45% | moat narrow | credit rating AA- | safety 2 | financial strength A++
CSCO designs, manufactures, and sells internet protocol-based products and services and delivers integrated solutions to develop and connect networks around the world. The company serves businesses of various sizes, public institutions, governments, and communications service providers. The company was founded in 1984 and is headquartered in San Jose, California. My fair value estimate for CSCO is $34.04, so the stock is trading at a discount of 8% to fair value.
• Qualcomm Inc. (NASDAQ:QCOM)
streak 14 yrs | 5-yr growth rate 20.2% | yield 3.11%@ $68.19
payout 62% | debt 38% | moat narrow | credit rating A+ | safety 1 | financial strength A++
Founded in July 1985 and headquartered in San Diego, California, QCOM designs and manufactures innovative digital wireless communications products and services based on the company's CDMA digital technology. The company also licenses many of its 5,700+ patents and intellectual property to wireless equipment manufacturers. QCOM is trading at a discount of 4% to my fair value estimate of $71.08.
Please note that the top 10 ranked stocks are candidates for further analysis, not recommendations.
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Disclosure: I am/we are long TROW, WMT, CSCO, QCOM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.