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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 Most Recent (Percentage) Increase and, last month, with stocks' Estimated Earnings Per Share Growth for the Next 5 Years.

(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 measures of "fair value" and dividend yield (and 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 the Premium (+) or Discount (-) to the Graham Number (column T), in ascending order. Since the Graham Number produces an estimate of Fair Value based on Mr. Graham's belief that a fair Price/Earnings ratio is 15 and a fair Price/Book Value is 1.5, the figure combines two methods of determining how much an investor should be willing to pay for a stock. Dividing that result into the current price produces an expression of Premium or Discount that the current price represents in relationship to that estimate. Eliminating companies that trade at a Premium to the Graham number cut the list to 47 companies.

Step 2: Sort the candidates by their Yield (column I), high to low. Dropping those with yields below 2% cut the list to 39 companies.

Step 3: Sort the candidates by their Most Recent Percentage Increase (column L), high to low. Dropping those with increases below 2% cut the list to 36 companies.

Step 4: Sort the companies by their five-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 5%. Meeting this threshold were 30 companies.

Step 5: Eliminate any company that does not have positive Earnings Per Share estimates for This Year, Next Year, AND the Next 5 Years (columns AA to AC). Since positive earnings growth will be the source of dividend growth, I wanted to be sure that each company has that potential. This step cut the list to nine companies, which appear below.

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

Company

Stock

No.

6/29

Div

LY%

+/-% vs.

TY%

NY%

Est 5-yr

DGR

Name

Symbol

Yrs

Price

Yield

Inc.

Graham

Growth

Growth

Growth

5-yr

Alliance Resource LP

(NASDAQ:ARLP)

10

56.12

7.31

3.54

(14.7)

21.6

6.8

7.0

13.6

Avista Corp.

(NYSE:AVA)

10

26.70

4.34

5.45

(3.0)

4.0

5.1

4.5

14.1

BancFirst Corp. OK

(NASDAQ:BANF)

18

41.91

2.58

8.00

(12.1)

8.5

1.2

10.0

9.1

BHP Billiton Ltd.

(NYSE:BHP)

10

65.30

3.37

8.91

(24.9)

87.4

11.9

6.1

22.9

BHP Billiton plc

(NYSE:BBL)

10

57.19

3.85

8.91

(15.2)

87.4

6.1

6.1

22.9

Community Bank Sys.

(NYSE:CBU)

19

27.12

3.83

8.33

(12.5)

6.3

5.4

10.0

5.4

ConocoPhillips

(NYSE:COP)

12

55.88

4.72

29.72

(46.4)

17.7

6.0

0.3

12.9

General Dynamics

(NYSE:GD)

21

65.96

3.09

8.51

(14.3)

1.8

5.5

9.1

15.5

Occidental Petroleum

(NYSE:OXY)

10

85.77

2.52

17.39

(9.3)

45.4

9.5

10.5

17.1

Conclusion

As usual, the results include 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. Some cautions apply, among them the different tax treatment for Master Limited Partnerships ((NYSEARCA:MLPS)) like Alliance Resource and foreign firms, such as BHP/BBL, and the possibility that the recent spin-off by ConocoPhillips may have skewed some metrics. As always, please consider this no more than a starting point for more in-depth research.

As an extra step, I am 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.

Click to enlarge

Source: Dividend Contenders Smackdown XXVIII