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Roger F. Goodrich's  Instablog

Roger F. Goodrich
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I have been investing for 40 years. My wife and I retired 24 years ago and currently manage our portfolios. Our sole income is derived from these portfolios and Social Security. I have a BEE from Clarkson University (1958) and a MSEE from University of Arizona (1966).
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  • Screening David Fish's CCC Lists, First Cut

    Screening David Fish's CCC Lists, First Cut

    Those of us that do dividend growth investing have an extremely valuable tool, thanks to a gentleman named David Fish. It is the CCC List of companies that have increased dividends over the years. I access this free download by googling 'David Fish's CCC List'. I download the file in January after he has updated it for the previous year. In the past I have used each of the three lists, Champions, Challengers, Contenders, separately using a variety of techniques to sift out the jewels I was looking for. This year I decided to approach this in a more organized fashion. Since I don't really care about which stocks fall in which list, I downloaded 'all' into one file. This simple change makes a more efficient use of the data.

    To help sort the data and cherry pick those stocks that are 'best of breed', I used the following screen. For each parameter to be sorted, I insert a column. Since I am primarily interested in dividend growth, these were added between the columns depicting dividend growth rates [DGR] and the annual dividends. Thus the first added column is AR. Initially I had 4 added columns, AR - Yield * 1-yr DGR (see note 1); AS - Yield; AT - 3-yr DGR; AU - 5-yr DGR. Row 6 was used to indicate these parameters as a reference. In Row 5 in each column I inserted the cut-off value. As a tool, I used logic functions; IF(Test,True,False), where Test is a formula like 'yield greater than 3 (Y>3)'. True and False are what is done as a result of the test. For example, IF (AO7> $AT$5, AO7, "") means IF 3-yr DGR (Col. AO, Row 7) is greater than the value in AT5, print the value of 3-yr DGR, if not leave blank. The IF formulas are placed in Row 7, the first stock in the table. These are then applied to the remaining rows using the copy, paste routines in the edit function.

    The result of all this is a value in the row/column for each stock that meets the criteria. It is easy to scan down and find those stocks that 'pass'. Blank cells indicate that the stock does not meet the screening test. One great advantage of this technique is that the original layout is kept intact. You can save the result, come back later to use the table for whatever. Another advantage, if the test fails for any one test, you can look up the value for that stock and see how much it lacks. If by a small amount, you can add it to the pass list. Before continuing on, check your work to insure accuracy.

    Note 1: Yield times dividend growth is a metric I call [FOM], Figure of Merit. It allows tradeoff between the 2 parameters. For example, a lower yield is permitted if dividend growth is higher or a higher yield/lower dividend growth combination.

    Initially, I used the following cut-off values: 20 for Yield (Col. I) * 1-yr DGR (Col. AN); 1.8 for Yield, 10 for 3-yr DGR (Col. AO) and 5-yr DGR (Col. AP). There were 88 stocks that passed out of a total of 476 in the table. I was excited because 24 of them I own (in modest amounts). Since I have a spreadsheet for my portfolio that has the pertinent data and is easily modified, the following graph depicts dividend growth for these 24 stocks, equally weighted, shares 'purchased' EOY 2013 investing $1000 per stock. Current yield is 3.14%. This sub-portfolio has 15 stocks I classify as Div Gr (low yield - high exponential dividend growth) and 9 Hi Inc (Utilities, REITs, MLPs and Telecoms), higher yield - moderate linear dividend growth. This makes it a good mix for a 'managed' portfolio.

    (click to enlarge)

    It is important to note that a 18% exponential growth rate means, according to the Rule of 72, that dividends will double every 4 years. The manager's task is to keep the growth exponential above a minimum acceptable value. In my case, that is 11%. My purpose in this current exercise is to collect additional stock candidates that could be used as substitutes in case some in my portfolio start to lag.

    Backing up a bit, I would be perfectly happy to take the 88 stocks already screened, take out the ones I own and do due diligence on the remaining 64. Remember, I am after high dividend growth companies that meet set standards. Adding more screening metrics will likely throw out candidates that would be perfectly acceptable. To illustrate this point I added 2 screens, Market Cap (Col. AI) > 1000 and Debt/Equity (Col. AK) < 0.95. Micro Caps are too risky and I wanted to cull out the Hi Inc group because they don't fit the objective.

    The result of that change was a list of 43 stocks. The goal of reducing the Hi Inc content was partly successful, but during this process I 'lost' Safeway (NYSE:SWY) which has a Debt/Equity of 1.74. I may have lost others, but I want to illustrate a point. I own SWY. It has a 2013 yield of 2.3%. Dividend growth is shown in the graph below, a nearly 20% exponential growth rate is not shabby. Payout for the years 2008-2012 varied between 6 and 10% using the metric 'Dividends Paid / (Net Income + Depreciation + Non-Cash Items)' from the Cash Flow Sheet. The metric I use for debt, 'Long Term Debt / (Net Income + Depreciation + Non-Cash Items)', was 2.0 increasing to 2.8 in 2012. This metric is the number of years it takes to payoff debt using all available excess cash. For C Corporation stocks it averages around 2, so SWY is high currently and warrants investigation. I would prefer to find all this out during the due diligence process rather than have the stock culled out in screening for secondary metrics.

    In my opinion, using secondary parameters/metrics in screening a large group of stocks as a means of reducing the list to a manageable number risks 'throwing out the baby with the wash'. Unless one can show a distinct relationship between these secondary parameters/metrics and the primary objective (in this case high dividend growth), then one is better off restraining from doing so. Many of these secondary's are industry sensitive and should not be used across the broad spectrum of stocks. Being easy to do does not justify its use.

    (click to enlarge)

    I thought it would be interesting to look at the dividend growth of the 43 stocks that resulted in this second screening to see what an un-managed, or passively managed group would look like. To set up infrastructure that could be used for future purposes, I copied these stocks down to an area below the main table in the CCC spreadsheet. Using the same approach as above in using 2013 EOY price data to equal weight the group, the graph below shows the result. Yield for 2013 was 2.37%.

    (click to enlarge)

    This is not as good as the first 'managed' case, but not too bad. There is a difference in stock content. The managed group had more Hi Inc stocks which increased the yield but reduced dividend growth. A second point, it is not apparent that anything was gained by adding more screening. We know from the first graph that there is pay dirt in the original 88 stocks.

    So let's go back to the original screen of 88 stocks and try again. Column C in the CCC Lists shows the Industry the stock is in. Since here we are interested in low yield - high dividend growth (exponential), we can eliminate those stocks in industries that are not consistent with this objective or are in an industry/group we do not want to include. The industries I choose to eliminate are MLPs, Utilities, REITs, Telecoms, Banking, Insurance, Tobacco. This reduces the list to 63, 17 of which I own. These will be eliminated from further consideration (for the current exercise), leaving 46 stocks on the list.

    Since we are moving back and forth across a very large spreadsheet, it facilitates matters to color-code the Stock Ticker Symbol (Column B) for those that pass the screen. As stocks are eliminated, that status is noted by simply removing the color-code. Different colors can denote separate screening processes. Using the Bold function accomplishes the same purpose with fewer clicks. The graph below shows results of this screen: cut-offs used were 20-1.8-10-10 (FOM, Yield, 3yr DGR, 5yr DGR).

    (click to enlarge)

    The green non-l.r. curves for the last two screens are about the same, but we can see comparing both that in the last curve, DGR increased slightly. The 2013 yield was 2.27%. DGR in the last part of the curve is 20.2%/year. This is due, in part, to deleting the high dividend - moderate dividend growth from consideration. That group will be analyzed separately and results reported in a future article. Note, also, that there was no visible difference in adding the Debt/Equity metric. This last screen will constitute the baseline for selecting my list of potential low yield - high (exponential) DGR. At the present time, I don't see any further screening using the spreadsheet as is.

    To cherry-pick the top performers, we can tighten the metric cut-offs. These were changed to: 40-2.4-14-12 resulting in 10 stocks (one passed the screen but was deleted due to an unusual dividend pattern). Yield was 2.81%, the last DGR was 22.8%. The stocks in this last group are: ConocoPhillips(NYSE:COP), Cracker Barrel Old Country(NASDAQ:CBRL), Microsoft(NASDAQ:MSFT), Occidental Petroleum(NYSE:OXY), ONEOK(NYSE:OKE), Syngenta AG(NYSE:SYT), TEVA Pharmaceuticals(NYSE:TEVA), Texas Instruments(NASDAQ:TXN), United-Guardian(NASDAQ:UG), Western Union(NYSE:WU). The dividend chart is shown below.

    (click to enlarge)

    Using this last screen on the original CCC list adds the following 17 stocks to the list above: Alliance Holdings GP LP(NASDAQ:AHGP), Baxter International(NYSE:BAX), Brookfield Infrastructure Partners LP(NYSE:BIP), China Petroleum & Chemicals(NYSE:SNP), Darden Restaurants(NYSE:DRI), Digital Realty Trust(NYSE:DLR), El Paso Pipeline Partners LP(NYSE:EPB), Equity Lifestyle Properties(NYSE:ELS), High Country Bancorp(OTCPK:HCBC), Lockheed Martin(NYSE:LMT), Safeway, Sunoco Logistics Partners LP(NYSE:SXL), Target(NYSE:TGT), Textainer Group Holdings(NYSE:TGH), Western Gas Partners LP(NYSE:WES), Williams Companies(NYSE:WMB), Wisconsin Energy(NYSE:WEC). Of these I own 11.

    The tables below show the numbers for both stock groups:

    Stock

    Yield

    1yr DGR

    3yr DGR

    5yr DGR

    COP

    3.91

    16

    18

    13

    CBRL

    2.73

    79

    45

    28

    MSFT

    2.99

    17

    21

    16

    OXY

    2.69

    18

    19

    15

    OKE

    2.44

    17

    18

    14

    SYT

    2.51

    16

    21

    16

    TEVA

    3.19

    24

    20

    21

    TXN

    2.73

    51

    30

    21

    UG

    3.44

    13

    15

    12

    WU

    2.90

    18

    26

    66

    Stock

    Yield

    1yr DGR

    3yr DGR

    5yr DGR

    AHGP

    5.51

    14

    18

    19

    BAX

    2.82

    29

    17

    16

    BIP

    4.39

    15

    16

    14

    SNP

    4.82

    8

    23

    20

    DRI

    4.05

    13

    23

    23

    DLR

    6.35

    7

    17

    20

    EPB

    7.22

    17

    17

    20

    ELS

    2.76

    15

    17

    21

    HCBC

    5.71

    60

    30

    28

    LMT

    3.58

    20

    22

    21

    SWY

    2.46

    17

    19

    20

    SXL

    3.34

    28

    16

    14

    TGT

    2.72

    20

    23

    21

    TGH

    4.57

    12

    23

    16

    WES

    3.76

    17

    17

    37

    WMB

    3.94

    20

    44

    27

    WEC

    3.70

    20

    22

    22

    These are interesting groups. I was surprised at some, but that is the result of the screening process. I think looking at the baseline group of 46 stocks will yield some acceptable candidates. You may not agree with my choice of screening parameters, but the method (using logic functions) is simple to use.

    Disclosure: I am long SWY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: Of the stocks listed in the article, I am Long BAX, DRI, DLR, LMT, SWY, SXL,TGT, TGH, WES, WMB, WEC

    Jan 16 4:04 PM | Link | Comment!
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