Year End Dividend Champions

by: David Fish

The Dividend Champions spreadsheet (and PDF) will be updated through 12/31/10 after Friday's market close and will be posted at its usual location. Note that all references to Champions mean 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.

During the past month, I have been working on major structural changes, some of which were suggested by readers, as well as updating the listings for dividend increases and other announcements. Listed below are those changes, along with what's ahead in 2011.

What's New This Month

Once again, I focused on providing additional detail and revising formulas to reflect the year that is ending. Major changes include the following:

Enhanced Dividend Histories. The first addition was a column reflecting dividends paid in 2010, along with switching the calculation of Dividend Growth Rates (DGRs) from the 2009 column. So, for example, the 5-year DGR now compares 2010 to 2005 and the 10-year DGR now compares 2010 to 2000. I made an allowance for a few companies that accelerated their January payment into December so that those companies would not be “penalized” by showing a lower 2011 payout, which could cause them to be deleted. Secondly, I added two new columns to reflect the 1- and 3-year DGRs. A third change was the addition of a line at the bottom to show the average percentage change for each year, compared with the previous year.

Challengers' Dividend History Added. Columns were added to the Challengers tab listing dividends paid back to 1999, along with the DGRs and the A/D (Acceleration/Deceleration) ratio. Since this group is composed of companies with 5-9 years of increases, many of the figures are shown in Red and many show “n/a” for the 10-year DGR and A/D (since they started with a zero dividend amount), while some show negative numbers if they had reduced their payout early in the decade, before beginning a streak of dividend increases.

Fiscal Year-ending Month Added. Appearing in the Fundamental Data section, each company's fiscal year-end is now reflected. Although the majority of companies adhere to a December year-end, those with a different fiscal year may be viewed differently in terms of the earnings and other data shown.

Appendix Added for 4-Year Streaks. I've added a second page to the Notes tab to keep track of those companies that are on the verge of joining the Challengers listing. As mentioned from time to time, I began writing these down only a few months ago, so I suspect that this preliminary listing will expand beyond the two dozen or so that are initially listed.

What's Ahead in 2011

Having made all of the structural changes I can foresee, I'll concentrate my efforts on dividend increases and related issues in 2011, which I think will be an exciting year and include the following:

More Champions. Among the Dividend Contenders, there are six companies that have recorded 24 years of increases, so I expect those to graduate to Champion status in 2011. They are (with the Ex-Dividend Date of their most recent increases):

HCP Inc. (NYSE:HCP) 2/9/10, Raven Industries (NASDAQ:RAVN) 3/29/10, Tompkins Financial (NYSEMKT:TMP) 5/5/10, Harleysville Group (NASDAQ:HGIC) 9/13/10, Donaldson Company (NYSE:DCI) 12/2/10, Mercury General (NYSE:MCY) 12/14/10. Note that Donaldson increased its dividend more than once in 2010, so it may graduate as early as March.

More Contenders. No less than 24 Challengers recorded their ninth year of increases in 2010, and exactly half of those should graduate to Contender status by mid-year, including such well know firms as Novartis AG (NYSE:NVS), PPL Corp. (NYSE:PPL), Novo Nordisk A/S (NYSE:NVO), Southern Company (NYSE:SO), FedEx (NYSE:FDX), and Flowers Foods (NYSE:FLO). Following them in the second half of 2011 should be such stalwarts as Norfolk Southern (NYSE:NSC), Bunge Ltd. (NYSE:BG), Sanderson Farms (NASDAQ:SAFM), Sunoco Logistics Partners (NYSE:SXL), Microchip Technology (NASDAQ:MCHP), and Nike (NYSE:NKE).

More Challengers. As mentioned earlier, I've added a listing of companies with 4-year streaks, although I suspect that that list will expand. Here, too, some familiar names should find their way to the Challengers listing, including Dun & Bradstreet (NYSE:DNB), Flowserve (NYSE:FLS), Lubrizol (LZ), Southwest Gas (NYSE:SWX), Frisch's Restaurants (NYSEMKT:FRS), and Duncan Energy Partners (NYSE:DEP).

More Generous Dividend Increases. After averaging increases of 5.1% in 2010 and 6.05% for their latest announcements, I expect the Champions' average increases to rise in 2011. The precedent is strong: After falling to an average of 4.4% in 2002, the group's average increase rose to 11.8% in 2008, before the most recent recession prompted more conservative dividend hikes. The Contenders pattern was not as severe: 7.4% in 2002, followed by a rise to 10.6% in 2007 and a recent 6.6%. The average Challenger fared even better, bottoming at 9.3% in 2009.

More Mergers and Acquisitions. Not surprisingly, companies that have a history of raising their dividends (and have the earnings and balance sheets to support that habit) are attractive acquisition candidates. Already, Dividend Champion Wesco Financial (NYSEMKT:WSC-OLD) and Contender NSTAR (NYSE:NST) have agreed to be acquired, and Challenger Airgas (ARG) is the subject of a hostile bid by Champion Air Products & Chemicals (NYSE:APD). Expect more of the same in 2011.

More Stock Splits, Buybacks and Special Dividends. In the past two months, a handful of dividend raisers have announced splits as their share prices continued to rise. The average Champions' stock price is around $50, up from a low of under $30 at the end of February 2009, and increased profitability should continue that trend. And companies that have been building up cash are likely to declare special distributions and buybacks, if they don't use it for acquisitions.

Final Words

I've enjoyed working on the major enhancements and additions that readers have suggested, but I suspect that the structure of the Dividend Champions listing has just about reached its full potential. The good news is that, absent the impetus to expand the listing, I should be better able to focus on the actual dividend increases as we enter a period of more robust growth. I hope that the spreadsheet and PDF will be useful to investors, but remind everyone that it is just a starting point for additional research. As always, your feedback is welcome.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.