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Sorry I hide my true identity but I'm a physicist/engineer, native contrarian and idea generator. I am an eclectic dividend investor with motto "In God We Trust, All Others Pay Cash" applied to companies I invest in. I like to read /and read a lot - did you look on my SA photo 8-)? / including... More
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  • Where can small dividend growth investor find alpha? 4 comments
    Mar 17, 2012 1:42 AM
    Where can small dividend growth investor find "alpha"?
    Initially posted 7/30/2011

    A small investor (i.e.person who handle own money without a financial advisor) competes with big investors such as mutual and pension funds, investment companies, etc. This competition is usually not fare because big investors have better access to information (direct contacts with firms and trade assocciations), non-free analyses (buy- and sell-side analysts), and usually computing power.

    So there is the edge (or alpha using this WWW site terminology, although alpha of finance science is quite different animal) for a small investor?
    I think the answer is - small companies without extensive analysts coverege. It is interesting that small companies (in terms of capitalization) often outperform big firms according to numerous studies.

    A small dividend growth investor can rely on free gem - David Fish's list of U.S. Dividend Champions (see dripinvesting.org/Tools/Tools.asp and recent update at seekingalpha.com/article/272663-101-divi...), known as CCC list. Unfortunately the list does not have information about number of analysts for each company. In order to fill this gap I collected data from Yahoo.com and MSN.com which are summarized in the table below. Both mentioned WWW sites provides quartely and annual analyst estimations of future earnings and other financial data. In each case I used the maximum number analysts for each company.

    Table: Analysts coverage for CCC companies (Data on 7/29/2011)

    Symbol # Analysts
    AAN 12
    ABC 19
    ABM 5
    ABT 21
    ACE 20
    ACI 22
    ACN 18
    ACO 4
    ACU 1
    ADI 22
    ADM 13
    ADP 25
    AFG 4
    AFL 20
    AFSI 7
    AGL 8
    AHGP 4
    AIN 4
    AIZ 10
    AJG 12
    ALB 11
    ALE 4
    ALNC 2
    ALOT 0
    ALTE 9
    AM 1
    AMP 13
    ANDE 6
    AOS 8
    APD 19
    APOG 7
    APU 7
    ARG 16
    ARLP 9
    AROW 1
    ARTNA 4
    ASBC 14
    ATNI 5
    ATO 9
    ATR 9
    ATRI 1
    AUBN 1
    AVA 6
    AVP 16
    AVY 8
    AWH 10
    AWR 6
    AXS 15
    AZN 8
    BA 28
    BAC 27
    BANF 2
    BBL 3
    BBT 35
    BBY 24
    BCR 22
    BDMS 0
    BDX 19
    BEC 0
    BEN 19
    BF-B 10
    BG 14
    BGH 0
    BHB 2
    BHP 4
    BKE 11
    BKH 7
    BMI 7
    BMRC 7
    BMS 11
    BOBE 7
    BOH 15
    BOKF 9
    BPL 10
    BRC 8
    BRO 15
    BUD 10
    BWL-A 0
    BWP 12
    BXS 13
    CAH 21
    CASS 1
    CASY 7
    CAT 19
    CB 22
    CBRL 9
    CBSH 11
    CBU 7
    CCNE 3
    CEO 4
    CFR 18
    CHCO 8
    CHD 17
    CHEV 1
    CHFC 3
    CHH 20
    CHK 30
    CHL 5
    CHRW 28
    CINF 6
    CIZN 0
    CL 23
    CLC 6
    CLX 17
    CMA 25
    CMI 15
    CMLP 5
    CMP 7
    CNI 24
    CNP 15
    CNQ 12
    COL 21
    COLM 14
    COP 20
    COST 26
    CPB 19
    CPK 3
    CPKF 1
    CPNO 6
    CPO 10
    CR 6
    CRR 14
    CRRC 1
    CRS 9
    CSL 6
    CSS 1
    CSVI 0
    CSX 29
    CTAS 14
    CTBI 4
    CTL 17
    CTWS 6
    CVS 24
    CVX 22
    CWCO 2
    CWT 8
    CZFS 0
    D 17
    DAKT 5
    DBD 9
    DCI 11
    DCM 2
    DE 18
    DEP 7
    DFG 6
    DGAS 1
    DGICA 1
    DGICB 0
    DHR 20
    DLR 17
    DNB 10
    DOV 10
    DPL 6
    DPM 8
    DRI 31
    DUK 19
    DV 22
    EBTC 0
    ECL 18
    ED 19
    EEI 1
    EFSI 1
    EGAS 1
    EGN 10
    EGP 14
    EIX 14
    ELS 6
    EMR 21
    ENB 7
    ENSI 0
    EOC 5
    EOG 29
    EPD 12
    EPE 0
    EPHC 1
    ERIE 1
    ESS 24
    ETE 5
    ETP 12
    EV 14
    EVEP 7
    EXLP 6
    EXPD 20
    FAST 12
    FCAP 0
    FDO 24
    FDS 8
    FDX 28
    FELE 2
    FFIN 10
    FII 11
    FITB 31
    FIX 5
    FL 15
    FLO 11
    FLS 11
    FMER 14
    FNB 10
    FPU 0
    FRT 18
    FUL 7
    FULT 15
    FUN 5
    GBCI 11
    GCI 12
    GD 24
    GE 15
    GEF 5
    GEL 5
    GGG 7
    GIS 20
    GKSR 8
    GMT 7
    GNTX 12
    GOLD 8
    GPC 12
    GPS 33
    GRC 4
    GTY 2
    GWW 18
    HARL 0
    HAS 16
    HB 7
    HBOS 2
    HCBK 18
    HCC 11
    HCP 18
    HCSG 6
    HEP 7
    HGIC 5
    HIFS 1
    HNBC 0
    HNI 5
    HNZ 18
    HOC 0
    HON 20
    HP 25
    HRB 9
    HRL 15
    HRS 17
    HSC 10
    HSY 15
    HWKN 1
    IBM 25
    IFF 13
    IMO 4
    INDB 6
    INFY 17
    INTC 49
    IPCC 6
    IRET 5
    ISCA 7
    ITC 9
    ITT 18
    ITW 16
    JBHT 30
    JCI 24
    JCS 0
    JJSF 4
    JKHY 9
    JNJ 23
    JOYG 13
    JW-A 3
    K 22
    KEY 27
    KFT 19
    KIM 19
    KMB 17
    KMP 15
    KNX 25
    KO 19
    KOF 8
    KR 21
    LANC 5
    LARK 0
    LCNB 0
    LDR 4
    LECO 7
    LEG 6
    LG 2
    LKFN 4
    LLL 19
    LLTC 23
    LLY 21
    LM 14
    LMT 25
    LNC 19
    LNN 5
    LNT 10
    LOW 27
    LSBK 0
    LSTR 25
    LZB 6
    MAS 17
    MATW 3
    MCD 26
    MCHP 16
    MCY 6
    MDP 8
    MDT 29
    MDU 8
    MEOH 6
    MGEE 1
    MGRC 2
    MHP 10
    MI 0
    MKC 12
    MLM 20
    MMLP 6
    MMM 19
    MMP 14
    MNRO 7
    MO 12
    MO 12
    MOCO 0
    MOLX 15
    MON 17
    MPR 2
    MSA 6
    MSEX 3
    MSFT 31
    MSM 10
    MTB 20
    MUR 13
    MWE 9
    MXIM 27
    MYE 3
    NAL 0
    NATI 6
    NATL 5
    NBL 24
    NBTF 0
    NC 1
    NDSN 8
    NE 37
    NEE 23
    NEU 5
    NFG 10
    NGLS 10
    NHC 2
    NHC 2
    NHI 5
    NJR 6
    NKE 21
    NKSH 2
    NNN 10
    NOC 22
    NPBC 11
    NPK 1
    NRCI 2
    NRGP 0
    NRGY 11
    NRP 8
    NS 14
    NSC 29
    NSH 7
    NSM 21
    NST 11
    NTRS 22
    NTT 1
    NU 14
    NUE 17
    NUS 10
    NVO 4
    NVS 6
    NWFL 0
    NWN 7
    O 14
    ODC 1
    OFC 11
    OGE 8
    OHI 7
    OKE 8
    OKS 14
    OMI 11
    ONB 11
    ORI 4
    ORRF 3
    OSG 16
    OTTR 3
    OVBC 0
    OXY 22
    OZRK 10
    PAA 16
    PAYX 23
    PBCT 18
    PBI 5
    PCG 20
    PEBO 2
    PEG 15
    PEP 19
    PFE 21
    PG 22
    PGN 19
    PGR 20
    PH 16
    PII 12
    PLL 11
    PNNT 14
    PNR 16
    PNY 6
    POOL 10
    POR 10
    PPDI 13
    PPG 9
    PPL 14
    PRE 17
    PRGO 13
    PRK 7
    PRSP 19
    PVR 5
    PX 20
    QCOM 36
    QNBC 0
    R 15
    RAI 10
    RAVN 1
    RBA 15
    RBC 12
    RBCAA 2
    RBN 8
    RDS-A 7
    RDS-B 7
    RF 21
    RGCO 0
    RGLD 6
    RHI 17
    RLI 11
    RNR 12
    ROH 0
    ROL 1
    ROP 12
    ROST 21
    RPM 6
    RSG 8
    RTN 22
    SAFM 10
    SBSI 1
    SCG 11
    SCHW 21
    SCL 2
    SEIC 5
    SEP 9
    SFG 12
    SHEN 2
    SHPGY 17
    SHW 15
    SIAL 12
    SJI 4
    SJM 13
    SJR 7
    SJW 3
    SKT 13
    SLGN 10
    SNH 10
    SNN 8
    SNV 26
    SO 22
    SOMH 1
    SON 12
    SPAN 0
    SPH 7
    SRCE 0
    SRE 10
    STBA 9
    STE 7
    STFC 4
    STI 28
    STON 3
    STR 9
    STRA 19
    STT 21
    SU 12
    SUSQ 15
    SVU 16
    SWK 9
    SWX 6
    SWY 20
    SXL 10
    SXT 5
    SYBT 5
    SYK 35
    SYY 10
    T 32
    TAC 5
    TCLP 9
    TDS 8
    TE 19
    TEF 2
    TEG 7
    TEVA 22
    TFX 4
    TGH 10
    TGP 8
    TGT 28
    THFF 2
    THG 6
    THI 9
    TIF 24
    TJX 24
    TK 9
    TLP 4
    TMK 15
    TMP 4
    TNC 3
    TOO 6
    TPL 0
    TPP 0
    TR 1
    TRH 7
    TRI 12
    TRMK 10
    TRN 6
    TROW 20
    TRV 22
    TSH 2
    TWGP 6
    TXN 39
    UBA 4
    UBCP 0
    UBSI 9
    UBSI 9
    UCBA 1
    UDR 23
    UFPI 4
    UGI 3
    UHT 2
    UL 4
    UMBF 3
    UN 3
    UNP 31
    UNS 4
    USB 29
    UTX 23
    UVV 1
    VAL 12
    VFC 18
    VGR 0
    VIVO 12
    VLGEA 1
    VLY 11
    VMC 15
    VMI 8
    VSEC 3
    VVC 7
    VZ 37
    WABC 9
    WAG 20
    WASH 3
    WEC 17
    WEYS 0
    WFC 28
    WFSL 14
    WGL 7
    WL 0
    WLK 8
    WM 8
    WMB 10
    WMT 31
    WPC 1
    WPZ 7
    WR 12
    WRB 13
    WRE 9
    WSBC 7
    WSC 0
    WSFS 5
    WSH 16
    WSM 25
    WSO 11
    WST 5
    WTR 11
    WWW 10
    WWY 0
    XEL 16
    XLNX 27
    XOM 22
    XRAY 11
    YORW 4
    YUM 22

    As a reader can see the range for number of analysts is from 0 (for 41 companies) to 49 (for Intel - INTC).

    I think that a small dividend growth investor should pay more attention to 168 companies with 0-5 analysts than to big firms with 6-49 analysts. Of course, the "5 analysts" boundary is arbitrary because it is also important how closely the analysts follows the specific company. It should be noted also that capitalization of many companies with zero or moderate analysts coverage is not big enough to be considered by institutional investors. Some correlations between number of analysts and stocks parameters (taken from FinViz.com) are shown in the figure below:

    Unfortunately Finviz doesn't provide data for BGH CPKF CSVI CZFS EFSI ENSI EPE FPU HNBC LCNB NRGP QNBC ROH TPP WSC WWY and I excluded these stocks from the picture. Also CCC list doubles info about 3 stocks (e.g. MO) and I excluded these duplications from the graph. As the results I got

    Log (Market Cap) y = -0.0032x + 3.472 R^2 = 0.7719 Right Y axis
    Log (Trade Volume) y = 0.1x + 4.3653 R^2 = 0.4805 Right Y axis
    Log (Shares Outstanding) y = 0.0566x + 1.3439 R^2 = 0.4467 Left Y axis
    Institutional Ownership % y = 0.0122x + 0.4895 R^2 = 0.1602 Left Y axis

    i.e., correlation between number of analysts and market cap is quite strong and other parameters show also positive slope.

    Therefore (to contribute in this WWW site title), I think that a small dividend growth investor can find so-called alpha in relatively unknown for Wall Street stocks. I should point that I didn't estimate risk (and for dividend growth investors the main risk, in my mind, is dividends cut), so the "alpha" here is a bit naive.
    Nevertheless I think dividend growth investors should not ignore small cap companies. See also A Note About Smaller Risk Of Small Public Companies at
    seekingalpha.com/instablog/725729-sds-se...

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Comments (4)
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  • Martin Schwoerer
    , contributor
    Comments (260) | Send Message
     
    This is a very good and interesting analysis, thank you SDS!

     

    I have a question: do you know of anybody who compiles dividend grower lists of European companies? Do you collect such data?

     

    Of course, there are lists of the usual suspects -- VOD, UL, Roche, GSK and whatnot, but I am referring to the many mid-size companies.

     

    I am thinking of paying a finance student or business student to research this, but of course I need to know the state of art first.
    26 Sep 2012, 05:42 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
     
    Author’s reply » Martin,
    1) International Dividend Achievers™ Index (http://bit.ly/SR4Zfl) but it isn't good.
    2) Guraaf articles on SA
    3) David Fish CCC list
    4) "I am thinking of paying a finance student or business student to research this" - please let me know via SA email - I had (and hopefully didn't delete) non-US dividend stocks database.
    SDS
    26 Sep 2012, 10:26 AM Reply Like
  • DGyoungster
    , contributor
    Comments (20) | Send Message
     
    Any news on this?
    13 Jan 2013, 09:08 AM Reply Like
  • SDS (Seductive Dividend Sto...
    , contributor
    Comments (4389) | Send Message
     
    Author’s reply » Roger G. Ibbotson and coworkers published in 2013 interesting article "Liquidity as an Investment Style" (http://bit.ly/1k8Sejp) where they show that low-liquidity stocks outperform (not as strong as value but better than size using FF92 terminology). Another psychological factor was nicely outlined by William J. Bernstein in http://bit.ly/1gCf3X4 "... the risk tolerance of an investor is determined largely by how often he checks his portfolio. .... Benjamin Graham commented in "The Intelligent Investor" that holders of obscure mortgage bonds happily held onto them through the depths of the Depression until they eventually recovered their value because they were highly illiquid and not often quoted. On the other hand, holders of frequently-quoted corporate bonds (far less risky but priced daily in the papers) panicked and sold after their initial drop. The largest financial holding of most families is their house—it's a good thing we don't see its value printed every day in the financial section. "

     

    Disclaimer: I hold some low-liquid stocks (such as SYBT FRS WHG JCS WEYS ESP) in my portfolio

     

    SDS
    26 Feb 2014, 10:33 AM Reply Like
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