How To Find Long-Term Dividend Stock Ideas

by: Dividend Growth Investor

One of the easiest ways to find long-term dividend stock ideas is the list of dividend champions that David Fish maintains and updates every single month. The list includes 106 companies which have managed to boost dividends for at least 25 years in a row. This is not a small accomplishment, given the fact that the past quarter century included several wars, a few bubbles bursting, several recessions, the collapse of the Soviet Union, and the economic rise of emerging markets such as China, India, Russia and Brazil. Thus, the list of companies which have been able to reward their patient shareholders with a dividend hike for 25 years in a row, is a good start for the search of dividend stock ideas.

The next step in the process would be to apply a quantitative screen against that list of companies, in order to weed out those firms that are overvalued, and those who are at risk of falling on hard times. I usually look for companies that sell below 20 times earnings, and have a minimum yield of 2.50% today. In addition, I look for a dividend payout ratio below 60%, plus a minimum of a 6% in annual dividend growth over the preceding decade. I also apply that criteria in order to narrow down the list of dividend champions to a more manageable level.

When I apply my screening criteria on the list of dividend champions, I come up with the following list of companies for further research.

(NYSE:ORI) Old Republic International 9.8 4.70% 45.86% 7.26% 15.39
(NYSE:CVX) Chevron Corp. 10.23 3.50% 36.07% 10.55% 113.48 (analysis)
(OTCQX:EFSI) Eagle Financial Services 11 3.60% 34.29% 7.32% 23.1
(NYSE:XOM) ExxonMobil Corp. 12.77 2.70% 34.19% 9.64% 94.11 (analysis)
(NYSE:HP) Helmerich & Payne Inc. 13.13 2.80% 36.23% 23.31% 90.59
(NYSEMKT:TMP) Tompkins Financial Corp. 13.56 3.40% 46.24% 6.25% 46.92
(NYSE:TGT) Target Corp. 15.01 3.10% 45.99% 19.78% 56.06 (analysis)
(NASDAQ:CINF) Cincinnati Financial 15.06 3.70% 56.41% 6.41% 47
(NASDAQ:WEYS) Weyco Group Inc. 15.07 2.80% 42.35% 14.55% 25.66
(NYSE:UGI) UGI Corp. 17.01 2.60% 43.97% 6.94% 43.66
(NYSE:MCD) McDonald's Corp. 17.26 3.40% 58.38% 22.80% 95.78 (analysis)
(NYSE:PEP) PepsiCo Inc. 18.08 2.90% 52.55% 13.71% 78.09 (analysis)
(NYSE:BMS) Bemis Company 19.15 2.80% 52.94% 6.39% 39.06 (analysis)
(NYSE:JNJ) Johnson & Johnson 19.3 2.80% 54.89% 10.84% 92.76 (analysis)
(NYSE:MMM) 3M Company 19.66 2.60% 50.89% 6.76% 132.12 (analysis)
(NYSE:KMB) Kimberly-Clark Corp. 19.93 2.90% 58.59% 9.16% 110.24 (analysis)

The next step in the process is to evaluate each and every company on that list. When I analyze individual companies, I look at trends in earnings, revenues, dividends, payout ratios and ability to deploy cash successfully. Next, I also try to understand how companies earn their money, and whether they possess a durable competitive advantage, that would allow them to keep earning money for the next 20 - 30 years. In order to determine that, you need to look for competitive advantages or as Buffett calls them "wide moats". I also try to determine any catalysts for future earnings growth. It is very important to understand that rising earnings are the fuel that will make future dividend increases possible. As you can see, there are a few companies on my list for further analysis, which I have not posted here yet. I am diligently working my way through the list.

I believe that if you patiently follow the above process every month, and put money to work consistently, you will be able to build yourself a diversified dividend portfolio that will pay your monthly expenses. Reaching your dividend crossover point will be dependent on the amount of money you can put to work, the types of companies you manage to put your money in and the amount of time you can let compounding work in your favor.

The most important thing for you to do is to keep learning more about investments, companies, and business, in order to be able to keep up with changes. Keeping an open and inquiring mind is the winning attitude that will pay big dividends for you down the road.

Disclosure: I am long CVX, XOM, TGT, MCD, PEP, JNJ, MMM, KMB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.