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In the most recent installments of the Smackdown series, I screened the Dividend Champions (which can be found here) starting with Beta and, last month, with stocks' most recent (percentage) increase.

(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 decided to focus on the relationship between earnings and dividends, since the former should drive the latter. 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 Estimated Earnings Per Share Growth for the Next 5 Years (column AC), high to low. Eliminating companies that had percentages below 7% cut the list to 68 companies.

Step 2: 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, an indication that these companies had not only achieved good earnings growth, but had also passed that along to their owners. I eliminated any company with a DGR of less than 7%. Meeting this threshold were 41 companies.

Step 3: Sort the candidates by their Yield (column I), high to low. Dropping those with yields below 2% cut the list to 28 companies.

Step 4: Sort the companies by their Price/Earnings ratio (column U), in order to avoid stocks that may be overvalued. Dropping those with P/Es over 15 cut the list to 14 companies, which appear below.

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

Company

Stock

No.

5/31

Div.

TTM

Est 5-yr

DGR

Name

Symbol

Yrs

Price

Yield

P/E

Growth

5-yr

AFLAC Inc.

(NYSE:AFL)

29

40.08

3.29

7.97

11.1

17.5

Air Products & Chem.

(NYSE:APD)

30

79.04

3.24

14.86

10.4

10.7

Becton Dickinson & Co.

(NYSE:BDX)

40

73.13

2.46

13.37

7.9

13.8

Chubb Corp.

(NYSE:CB)

47

72.07

2.28

12.24

8.6

9.8

Dover Corp.

(NYSE:DOV)

56

56.56

2.23

12.32

11.1

10.7

Eaton Vance Corp.

(NYSE:EV)

31

24.34

3.12

13.45

8.7

11.7

Emerson Electric

(NYSE:EMR)

55

46.77

3.42

14.94

11.9

9.1

ExxonMobil Corp.

(NYSE:XOM)

30

78.63

2.90

9.50

8.6

7.6

Illinois Tool Works

(NYSE:ITW)

48

56.15

2.56

14.62

12.3

14.4

Nucor Corp.

(NYSE:NUE)

39

35.76

4.08

14.90

8.7

29.4

Parker-Hannifin Corp.

(NYSE:PH)

56

81.74

2.01

11.24

8.5

17.0

Target Corp.

(NYSE:TGT)

44

57.91

2.07

13.34

11.9

20.1

Walgreen Company

(NYSE:WAG)

36

30.52

2.95

10.42

10.5

22.9

Wal-Mart Stores Inc.

(NYSE:WMT)

38

65.82

2.42

14.12

8.6

16.5

Conclusion

Once again, the result includes many familiar names, but their strong earnings projections and dividend growth histories suggest that long-term investors can still enjoy a strong cumulative dividend stream and persistent price appreciation. As always, please consider this no more than a starting point for more in-depth research.

As an extra step, I'm including one of Chuck Carnevale's 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.


(Click to enlarge)

Source: Dividend Champions Smackdown XXVII