In the most recent installments of the Smackdown series, I screened the Dividend Champions (which can be found here) for a 7% earnings and dividend growth and, last month, by market capitalization and dividend growth.
(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 take a "bask to basics" approach, using the primary measures that investors might use to identify good investment candidates. 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 Price/Earnings (P/E) ratio (column U), low to high. Keep in mind that this figure is for the trailing twelve months, or the most recent four quarterly reports, and may not yet reflect this year's third-quarter reports. Eliminating companies with P/Es above 16 cut the list of candidates to 77 companies.
Step 2: Sort the companies by Yield (column I), high to low, and eliminate those below 2%. This step cut the list to 58 companies.
Step 3: Sort the remaining companies by their 5-year Dividend Growth Rate (column AN), high to low. Dropping those below 6% cut the list to 49 candidates. As a secondary step, I eliminated 18 companies whose most recent increase (column L) was below 6%.
Step 4: Sort each group by their 5-year Estimated Earnings Per Share Growth (column AC), high to low, and eliminate any company with expected growth below 6%. That cut the list to 20 firms and repeating that process for the expected growth this year and next trimmed the list to 8 companies, which appear below.
(Note that I've sorted each group back into alphabetical order.)
Cardinal Health Inc.
Cracker Barrel OC
John Wiley & Sons Inc.
Republic Services Inc.
South Jersey Industries
As usual, there are several familiar names, but that is another testament to their high quality in terms of basic measurements of value. 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 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 image).
Disclosure: I am long UTX.