Dividend Challengers Smackdown XXIX

by: David Fish

Dividend Challengers Smackdown XXIX

In the most recent installments of the Smackdown series, I screened the Dividend Champions (which can be found here) starting with stocks' Estimated Earnings Per Share Growth for the Next 5 Years and, last month, with stocks' Premium (+) or Discount (-) to the Graham Number.

(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 borrow an idea from fellow Seeking Alpha Contributor Jeff Paul, who has written several articles about the combination of high yield and low payout ratio, like this one. Of course, there's always a question about what is meant by "high" and "low" and I didn't want to let extreme interpretations severely limit the number of candidates that were eligible, so I'll just preface this Smackdown by saying that I mentally added the word "somewhat" before each of those terms. 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 Yield (column I), high to low. (The CCC average is 3.22%.) Eliminating companies that yield less than the CCC average cut the list to 78 companies.

Step 2: Sort the candidates by their Payout Ratio (column S), low to high. Dropping those that payout more than the CCC average (64.64% of earnings) cut the list to 27 companies.

Step 3: Sort the candidates by their Beta (column AF), low to high, to ensure relatively low volatility. Dropping those with Betas above the CCC average of 0.80 cut the list to 16 companies.

Step 4: Eliminate any company whose most recent dividend increase (column L) was less than 2%. This step cut the list to 12 companies, which appear below.

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

Company

Stock

No.

7/31

Div.

MR%

Payout

Stk

Name

Symbol

Yrs

Price

Yield

Inc.

%Ratio

Beta

Alliance Financial Corp.

(NASDAQ:ALNC)

6

35.13

3.53

3.33

48.82

0.57

CenterPoint Energy

(NYSE:CNP)

7

21.06

3.85

2.53

45.25

0.61

China Mobile Limited

(NYSE:CHL)

7

58.12

3.68

4.95

44.08

0.56

General Mills

(NYSE:GIS)

9

38.70

3.41

8.20

56.17

0.16

Kellogg Company

(NYSE:K)

8

47.70

3.69

2.33

52.07

0.46

Laclede Group Inc.

(LG)

9

41.78

3.97

2.47

55.15

0.06

NorthWestern Corp.

(NYSE:NWE)

8

36.93

4.01

2.78

58.27

0.65

Raytheon Company

(NYSE:RTN)

8

55.48

3.60

16.28

35.97

0.72

Safeway Inc.

(NYSE:SWY)

8

15.55

4.50

20.69

37.84

0.78

Sempra Energy

(NYSE:SRE)

9

70.41

3.41

25.00

43.48

0.52

Somerset Hills Bancorp

(NASDAQ:SOMH)

8

8.64

3.70

14.29

51.61

0.58

Xcel Energy

(NYSE:XEL)

9

29.30

3.69

3.85

64.29

0.36

Click to enlarge

Conclusion

Although the results include some familiar names, there are also a few that generally fly under the radar, suggesting that long-term investors can benefit from owning companies that have above average yields without alarmingly high payout ratios or excess volatility. 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

Click to enlarge

Disclosure: I am long RTN.