The Most Common Stocks For Dividend Growth Investors

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 |  Includes: CB, SYY, TGT, UTX
by: David Van Knapp

Introduction

This article had its genesis in a trio of articles I did a few weeks ago on stocks with yields more than 1.5 times the yield available from 10-year Treasuries. In those articles, I presented statistics on the dividend growth rates (DGRs) of the stocks. I was surprised by the number of stocks that seemed to have declining DGRs. That caused me to wonder whether there was a pattern or predominance of companies lowering their DGRs.

During the Great Recession, lots of DGRs understandably took a dip, not to mention that there were some significant dividend freezes (DGR = 0) and slashes (DGR = negative). But my general impression had been that since 2009, DGRs have been recovering to levels that were more typical prior to the recession. So I decided to explore the question further.

The List

I wanted to examine the stocks most often held by dividend growth investors. That's an amorphous concept, but I thought I had a pretty good idea of what many of those stocks probably are. I decided to enlist readers' help in confirming or correcting my ideas on the most popular dividend growth stocks. So I wrote "The Most Common Stocks Held by Dividend Growth Investors," presenting my list of 35 candidates, and requested reader comments on the list. There was an overwhelming response, as many seemed intrigued by the idea of discovering just what stocks are most widely held by dividend growth investors.

Not all of the input was easy to interpret. Some commenters clearly were suggesting stocks that they thought ought to be on such a list rather than what stocks they thought actually were the most widely held. But through back-and-forth, I feel that I got enough input and insights to greatly improve my original list.

One comment, from Steve Zoller, was particularly helpful, because he had embarked on a similar quest, also using information from SA. Steve had:

…compiled a list for about a year of stocks I believed the many DGI authors were recommending. I tried to distinguish between the many articles where someone wrote about stocks of interest versus the ones they seemed to really believe were worth investing in.

He examined disclosure lists as well as articles, and he ended up with a list of his "top 35," which he generously shared. I gave Steve's list great weight in putting together my final list.

Obviously, the list below is not scientific. Commenters were self-selecting. Many flavors of dividend growth investing exist, leading to different interpretations of what stocks dividend growth investors hold. There was difficulty sorting out suggestions of what ought to be on the list from stocks actually owned and widely held.

The list below contains 39 names. Of my original 35 suggestions, 22 made it to the final list, 13 were dropped, and 17 new ones were added. Of Steve Zoller's 35 names, 25 made it to this list. A couple that did not were MLPs and REITs, which I have excluded from this list, but which of course are in lots of dividend growth portfolios.

Bottom line, I believe that this is a very representative list, given the inherent vagueness of what fits the definition of "most widely held." A few of the names are totally surprising to me. Excelon (EXC) got major support and is included here, even though its last dividend increase was in 2009. Pfizer is on the list, even though it cut its dividend in 2009 and 2010. Many stocks have lower yields than I would accept in my own dividend growth investing. So with no further ado, here is the list.

Stock

Ticker

Yield

%

2007 DGR %

2008 DGR %

2009 DGR %

2010 DGR %

2011 DGR %

2012 Increase % *

3M

(NYSE:MMM)

2.7

4.3

4.2

2.0

2.9

4.8

7.3

Abbott Laboratories

(NYSE:ABT)

3.3

10.4

10.8

19.5

10.3

9.3

6.3

AFLAC

(NYSE:AFL)

2.9

45.5

20.0

16.7

1.8

7.9

Altria

(NYSE:MO)

5.3

11.1

35.2

12.2

9.2

9.2

AT&T

(NYSE:T)

5.6

6.8

12.7

2.5

2.4

2.4

Automatic Data Processing

(NASDAQ:ADP)

2.9

24.3

26.1

13.8

3.0

5.9

9.7

Becton Dickinson

(NYSE:BDX)

2.3

14.0

16.3

15.8

12.1

10.8

Chevron

(NYSE:CVX)

3.0

12.4

11.9

5.1

6.8

8.8

Chubb

(NYSE:CB)

2.4

16.1

14.3

7.8

5.8

5.5

5.1

Cincinnati Financial

(NASDAQ:CINF)

4.7

6.9

8.9

2.6

1.3

1.1

Clorox

(NYSE:CLX)

3.5

31.0

13.2

11.6

9.4

9.5

Coca-Cola

(NYSE:KO)

2.8

9.7

11.8

7.9

7.3

6.8

8.5

Colgate-Palmolive

(NYSE:CL)

2.5

12.0

11.4

10.3

18.0

11.8

6.9

Emerson Electric

(NYSE:EMR)

3.1

16.9

13.1

7.7

1.9

6.3

Excelon

(NYSE:EXC)

3.9

15.1

3.7

0.0

0.0

ExxonMobil

(NYSE:XOM)

2.2

7.0

13.1

7.1

4.8

6.3

Hasbro

(NASDAQ:HAS)

3.9

42.9

26.7

5.3

18.8

21.1

20.0

Intel

(NASDAQ:INTC)

3.0

12.5

21.7

2.3

12.5

24.2

Johnson & Johnson

(NYSE:JNJ)

3.5

11.3

10.8

7.5

9.3

6.6

Kimberly Clark

(NYSE:KMB)

4.0

8.3

9.1

4.8

8.4

8.5

5.7

Leggett & Platt

(NYSE:LEG)

4.9

2.9

42.9

1.0

4.0

3.8

Lockheed Martin

(NYSE:LMT)

4.5

17.6

24.5

27.9

12.8

23.1

McDonald's

(NYSE:MCD)

2.9

50.0

8.3

26.2

10.2

11.9

Medtronic

(NYSE:MDT)

2.5

13.9

33.0

25.6

9.6

8.7

Microsoft

(NASDAQ:MSFT)

2.5

10.8

12.2

13.0

5.8

23.6

Paychex

(NASDAQ:PAYX)

4.1

47.8

19.6

1.6

0.0

0.8

PepsiCo

(NYSE:PEP)

3.2

20.5

18.5

9.4

6.3

7.0

4.4

Pfizer

(NYSE:PFE)

3.9

20.8

10.3

-37.5

-10

11.1

Phillip Morris

(NYSE:PM)

3.4

45.4

8.9

15.6

Procter & Gamble

(NYSE:PG)

3.1

12.4

14.0

11.0

9.6

9.1

Raytheon

(NYSE:RTN)

3.8

6.9

9.0

10.5

18.6

16.0

16.3

Southern

(NYSE:SO)

4.2

3.9

4.2

4.2

4.0

3.9

Sysco

(NYSE:SYY)

3.6

11.8

15.8

9.1

4.2

4.0

3.4

Target

(NYSE:TGT)

2.1

18.2

15.4

13.3

23.5

31.0

United Technologies

(NYSE:UTX)

2.3

15.3

15.0

14.5

10.4

9.7

Verizon

(NYSE:VZ)

5.2

1.5

6.4

6.0

3.1

2.6

Walgreen

(WAG)

2.7

21.1

20.3

20.5

25.0

28.0

Wal-Mart

(NYSE:WMT)

2.6

26.8

12.7

13.1

11.8

18.4

8.9

Waste Management

(NYSE:WM)

4.1

9.1

12.5

7.4

8.6

7.9

4.1

Click to enlarge

[Sources: List of most popular dividend stocks from "The Most Common Stocks Held by Dividend Growth Investors" and comments thereon, an unscientific survey conducted 4/1/2012 through 4/3/2012 by the author. Current yield and 2007-2012 increases from David Fish's Dividend Champions dated 3/31/2012, with the exception of stocks that do not appear on that document: Excelon, Paychex, Pfizer, and Phillip Morris. Figures for those stocks come from Robert Alan Schwartz's Tesselation.com and other sources.]

*2012 increase, where available, is the percentage increase in payout rate over prior payout rate as declared by the company. Because of timing, 2012's total payout increase over 2011's may be different from the declared increase, so the 2012 column is not directly comparable to the columns for 2007-2011, which show the annual total growth in dividends from year to year.

Is There a Pattern of DGR Reductions?

The original goal of this study was to see whether there has been a general recent decline in DGRs. I don't really see that pattern being widespread. Instead what I see is a relatively pattern-free collection of dividend increases, some undoubtedly driven by the general economy, others by factors pertaining to individual companies.

Some stocks do display what I would call a general and continuing decline in DGRs.I would include among them Chubb (CB); Cincinnati Financial (CINF); Johnson & Johnson (JNJ); Sysco (SYY); United Technologies (UTX); and Verizon (VZ). A couple of other stocks might be added to those, depending on how significant you judge a slight decrease in certain DGRs.

The following stocks, to my eye, display a dip-and-rise pattern that seems like it might have been tied to the general economy: 3M (MMM); AFLAC (AFL); Automatic Data Processing (ADP); Chevron (CVX); Emerson Electric (EMR); ExxonMobil (XOM); Hasbro (HAS); Intel (INTC); Lockheed Martin (LMT); Microsoft (MSFT); Target (TGT). Of course, you could also view some of these dip-and-rise patterns as indigenous to particular industries. For example, Chevron's and Exxon's DGRs might more be reactions to the price of oil than to the general economy.

Anyway, I do not find in this data support for a conclusion that we are in the midst of a general weakening in dividend growth rates across the stocks most widely held for dividend growth strategies.

Bonus Topic: Yields vs. Growth Rates

As long as we have these stocks collected in one place, let's look at another common belief: That high-yield stocks usually provide little dividend growth and that low-yield stocks provide high growth. I have rearranged the same table in order of current yields, lowest to highest.

Stock

Ticker

Yield

%

2007 DGR %

2008 DGR %

2009 DGR %

2010 DGR %

2011 DGR %

2012 Increase % *

Target

TGT

2.1

18.2

15.4

13.3

23.5

31.0

ExxonMobil

XOM

2.2

7.0

13.1

7.1

4.8

6.3

Becton Dickinson

BDX

2.3

14.0

16.3

15.8

12.1

10.8

United Technologies

UTX

2.3

15.3

15.0

14.5

10.4

9.7

Chubb

CB

2.4

16.1

14.3

7.8

5.8

5.5

5.1

Colgate-Palmolive

CL

2.5

12.0

11.4

10.3

18.0

11.8

6.9

Medtronic

MDT

2.5

13.9

33.0

25.6

9.6

8.7

Microsoft

MSFT

2.5

10.8

12.2

13.0

5.8

23.6

Wal-Mart

WMT

2.6

26.8

12.7

13.1

11.8

18.4

8.9

3M

MMM

2.7

4.3

4.2

2.0

2.9

4.8

7.3

Walgreen

WAG

2.7

21.1

20.3

20.5

25.0

28.0

Coca-Cola

KO

2.8

9.7

11.8

7.9

7.3

6.8

8.5

AFLAC

AFL

2.9

45.5

20.0

16.7

1.8

7.9

Automatic Data Processing

ADP

2.9

24.3

26.1

13.8

3.0

5.9

9.7

McDonald's

MCD

2.9

50.0

8.3

26.2

10.2

11.9

Chevron

CVX

3.0

12.4

11.9

5.1

6.8

8.8

Intel

INTC

3.0

12.5

21.7

2.3

12.5

24.2

Emerson Electric

EMR

3.1

16.9

13.1

7.7

1.9

6.3

Procter & Gamble

PG

3.1

12.4

14.0

11.0

9.6

9.1

PepsiCo

PEP

3.2

20.5

18.5

9.4

6.3

7.0

4.4

Abbott Laboratories

ABT

3.3

10.4

10.8

19.5

10.3

9.3

6.3

Phillip Morris

PM

3.4

45.4

8.9

15.6

Clorox

CLX

3.5

31.0

13.2

11.6

9.4

9.5

Johnson & Johnson

JNJ

3.5

11.3

10.8

7.5

9.3

6.6

Sysco

SYY

3.6

11.8

15.8

9.1

4.2

4.0

3.4

Raytheon

RTN

3.8

6.9

9.0

10.5

18.6

16.0

16.3

Excelon

EXC

3.9

15.1

3.7

0.0

0.0

Hasbro

HAS

3.9

42.9

26.7

5.3

18.8

21.1

20.0

Pfizer

PFE

3.9

20.8

10.3

-37.5

-10

11.1

Kimberly Clark

KMB

4.0

8.3

9.1

4.8

8.4

8.5

5.7

Paychex

PAYX

4.1

47.8

19.6

1.6

0.0

0.8

Waste Management

WM

4.1

9.1

12.5

7.4

8.6

7.9

4.1

Southern

SO

4.2

3.9

4.2

4.2

4.0

3.9

Lockheed Martin

LMT

4.5

17.6

24.5

27.9

12.8

23.1

Cincinnati Financial

CINF

4.7

6.9

8.9

2.6

1.3

1.1

Leggett & Platt

LEG

4.9

2.9

42.9

1.0

4.0

3.8

Verizon

VZ

5.2

1.5

6.4

6.0

3.1

2.6

Altria

MO

5.3

11.1

35.2

12.2

9.2

9.2

AT&T

T

5.6

6.8

12.7

2.5

2.4

2.4

Click to enlarge

At least for these stocks, the common belief in the see-saw relationship between yield and DGR does not seem to hold, although of course specific examples can be found.

For example, the lower yielders include Target with high and rising DGRs from the teens to around 30%, but also a Chubb, with recent DGRs in the mid-single digits. Conversely, the high yield stocks include an AT&T (T) that fits the general belief of low DGR but also a Lockheed Martin that defies it.

Conclusion

My takeaway from this information is that dividend growth stocks need to be analyzed on a stock-by-stock basis. General trends or common wisdom are often bucked by counter-examples and stocks that do not fit general patterns. This underscores the constant advice that you should do your own due diligence before investing in any stock for any purpose.

Disclosure: I am long (ABT), (T), (CVX), (INTC), (JNJ), (KMB), (MCD), (PEP), (PG).