The New Nifty Fifty, Part 1 - Dividend Growth Style

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Includes: CL, CVX, GIS, JNJ, KMB, KO, MCD, O, PEP, PG, SO, T, TGT, XOM
by: Mike Nadel

Summary

The original Nifty Fifty was so '70s.

Ten Seeking Alpha contributors and/or commenters helped choose a new Nifty Fifty with a Dividend Growth focus.

The list includes all the "standards," but also some surprises.

While researching and writing my previous article about how an investor in the famed Nifty Fifty stocks of the 1970s would have fared four decades later, I couldn't help but wonder what a new, improved Nifty Fifty might look like today.

And as a practitioner of Dividend Growth Investing, I was especially interested in a Greatest Hits collection of proven income growers: companies highly likely to pay and increase dividends for decades to come.

Rather than merely presenting my choices, I solicited input from some of Seeking Alpha's most respected voices. In asking them to name their DGI Nifty Fifty picks, my request went on to say:

"I know that ideally a list might change a little depending upon an investor's age or circumstances, but please name your best 50 'all-occasion' DGI companies. Beyond that, I have no requirements that companies be (Dividend Aristocrats) or that they have a minimum yield or that they have a certain level of dividend growth or that tax implications are considered. They can come from any sector or country. They need not be fairly valued at this time, either. Having said that, if you want to give yourself guidelines pertaining to any of those things, that's perfectly fine."

Ten Seeking Alpha colleagues agreed to participate, and they combined to name 160 companies. Though some critics claim DG investors all pick the same stocks, the 10 panelists agreed on only five names. Several selections don't even pay dividends, as attempts were made to identify great companies that eventually might be aggressive income growers. And so, we are reminded once again that DGI isn't a one-size-fits-all strategy.

Without further ado, here (in alphabetical order) is our esteemed panel:

Chowder: A prolific commenter who also writes an extremely valuable Instablog, he is the "conscience of DGI" on Seeking Alpha. He popularized the oft-quoted "Chowder Rule" (current yield plus 5-year dividend growth).

David Crosetti: A contributor, frequent commenter and DG investor who also enjoys unearthing undervalued companies with potential for capital growth.

David Fish: Creator and caretaker of the indispensable "CCC list" of Dividend Champions, Contenders and Challengers.

Eli Inkrot: Author of the book, "You Don't Have A Money Problem," keeper of the Web site thecurrencyoftime.com and tireless Seeking Alpha contributor.

David Van Knapp: "The Godfather of DGI" has written seven eBooks on the subject, most recently "Top 40 Dividend Growth Stocks for 2014." He also has authored 200 articles.

Eric Landis: A civil engineer and self-directed investor who has served up a bountiful platter of insightful articles about DGI.

Tim McAleenan Jr.: One of the bright, young voices on income investing, he has written more than 500 Seeking Alpha articles, and runs the Web site theconservativeincomeinvestor.com.

Miz Magic DiviDogs: A regular commenter and occasional contributor who created an investing method she calls "DGI Lite."

ScottU: An outstanding "ideas guy" whose comments have helped many investors build and refine their portfolios.

Bob Wells: A contributor dedicated to educating retired investors, he specializes in thorough back-testing to determine companies that best survived recessionary times.

Why those 10 people? I wanted a cross-section of experienced investors and relative youngsters, as well as those with different philosophies, time frames and goals.

Nifty Fifty & DGI

The point of my September 25 article was to demonstrate that if one had bought Nifty Fifty components four decades ago and held them through today, one would be a multi-millionaire - despite the presence of numerous failed companies on that list. The article was my response to critics who like to cite Kodak, Polaroid, Kresge and other Nifty Fifty losers to "prove" DGI is a flawed strategy.

As David Fish pointed out in one of the nearly 700 comments the article received, Dividend Growth investors would have avoided most of the 50.

"Eastman Kodak was never a DG stock," he said. "If the Nifty Fifty existed today, DG investors would screen for records of consecutive dividend increases and then do due diligence to select only the best of the bunch."

And that is what this article is all about: picking the minds of educated observers to determine the best of the DGI bunch. So here goes...

Companies Named By All 10 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
Chevron (NYSE:CVX) 27 3.82 7.00 1 112.03 132.00
Coca-Cola (NYSE:KO) 52 2.77 8.93 1 44.07 44.00
Kimberly-Clark (NYSE:KMB) 42 3.15 3.70 1 106.60 101.00
Johnson & Johnson (NYSE:JNJ) 52 2.82 6.06 1 99.12 99.00
Procter & Gamble (NYSE:PG) 58 3.09 7.00 1 83.37 93.00

Companies Named By 9 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
ExxonMobil (NYSE:XOM) 32 3.04 9.52 1 90.84 109.00
McDonald's (NYSE:MCD) 39 3.75 4.94 1 90.73 98.00
PepsiCo (NYSE:PEP) 42 2.79 15.42 1 93.94 90.00
Southern Company (NYSE:SO) 13 4.58 3.45 2 45.85 45.00

Companies Named By 8 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
AT&T (NYSE:T) 30 5.44 2.22 1 33.82 34.00
Colgate-Palmolive (NYSE:CL) 51 2.24 5.88 1 64.19 63.00
General Mills (NYSE:GIS) 11 3.33 7.89 1 49.28 52.00
Realty Income (NYSE:O) 20 5.16 2.07 2 42.59 44.00
Target (NYSE:TGT) 47 3.44 20.93 2 60.44 65.00

Companies Named by 7 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
3M (NYSE:MMM) 56 2.57 34.65 1 132.90 131.00
Altria (NYSE:MO) 45 4.52 8.33 2 46.05 39.00
Genuine Parts (NYSE:GPC) 58 2.68 6.98 1 85.98 77.00
Lockheed Martin (NYSE:LMT) 12 3.47 12.78 1 172.88 141.00
Microsoft (NASDAQ:MSFT) 12 2.84 10.71 1 43.65 46.00
Philip Morris (NYSE:PM) 7 4.76 6.38 2 84.07 90.00
Walgreen (WAG) 39 2.22 7.14 1 60.69 58.00

Companies Named By 6 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
AFLAC (NYSE:AFL) 31 2.64 5.71 3 56.00 60.00
Baxter Int'l (NYSE:BAX) 8 2.99 6.12 1 69.66 84.00
ConocoPhillips (NYSE:COP) 14 4.29 5.80 1 68.07 80.00
Deere (NYSE:DE) 11 2.94 17.65 1 81.65 90.00
Emerson Electric (NYSE:EMR) 57 2.93 4.88 1 58.67 69.00
IBM (NYSE:IBM) 19 2.40 15.79 1 183.52 212.00
Kinder Morgan Inc. (NYSE:KMI) 4 4.85 8.33 2 35.50 40.00
Visa (NYSE:V) 6 0.78 21.21 1 204.28 223.00
Wal-Mart (NYSE:WMT) 41 2.48 2.13 1 77.56 80.00

Companies Named by 5 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
Becton Dickinson (NYSE:BDX) 42 1.73 10.10 1 125.83 127.00
General Electric (NYSE:GE) 4 3.67 15.79 3 23.95 29.00
Verizon (NYSE:VZ) 10 4.55 3.77 1 48.37 45.00
Wells Fargo (NYSE:WFC) 4 2.79 16.67 3 50.20 50.00

Companies Named By 4 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
Apple (NASDAQ:AAPL) 2 1.88 10.10 1 99.81 93.00
Automatic Data Processing (NASDAQ:ADP) 39 2.67 10.34 1 71.95 65.00
Caterpillar (NYSE:CAT) 21 3.05 16.67 3 91.68 100.00
Clorox (NYSE:CLX) 37 3.09 4.23 2 95.92 96.00
Dominion Resources (NYSE:D) 11 3.43 6.67 3 69.99 65.00
J.M. Smucker (NYSE:SJM) 17 2.63 10.34 1 97.41 92.00
Kraft Foods (KRFT) 2 3.97 4.76 2 55.40 53.00
McCormick (NYSE:MKC) 28 2.20 8.82 1 67.15 72.00
Qualcomm (NASDAQ:QCOM) 12 2.38 20.00 1 70.71 85.00
Starbucks (NASDAQ:SBUX) 4 1.44 23.81 1 72.19 80.00
United Technologies (NYSE:UTX) 20 2.37 10.28 1 99.31 115.00
Wisconsin Energy (NYSE:WEC) 11 3.37 7.96 1 46.23 38.00

Companies Named By 3 Panelists

COMPANY SYMBOL YRS YLD MR Inc VL PRICE M*FVE
HCP (NYSE:HCP) 29 5.16 3.81 3 42.24 51.00
Hershey (NYSE:HSY) 5 2.32 10.31 2 92.24 90.00
NextEra Energy (NYSE:NEE) 20 3.13 9.85 2 92.79 84.00
Omega Healthcare (NYSE:OHI) 12 5.60 8.06 NA 36.42 NA

YRS is consecutive years of dividend growth according to David Fish's CCC list; YLD is dividend yield as of 10/13/14; MR Inc is most recent dividend increase percentage; VL is Value Line's Safety score (1 highest, 5 lowest); PRICE is at market close 10/13/14; M*FVE is Morningstar's Fair Value Estimate.

Ideas Vs. Recommendations

Several panelists made a point of saying their lists included some overvalued stocks they probably wouldn't buy now. The above tables include current prices and Morningstar's Fair Value Estimates, and I urge potential investors to do more thorough research.

For example, although Eli Inkrot included Colgate-Palmolive on his list, he said he doesn't own it "because it seems there's always better opportunities."

"As such," he continued, "I might not 'recommend it.'... The top 50 companies wouldn't be the top 50 investment opportunities and vice versa."

I absolutely agree it's always important to keep valuation in mind, but the purpose of the article isn't to encourage readers to rush out and buy everything on the list.

Instead, an investor might say, "Wow, these 10 panelists sure dig Johnson & Johnson. I'll give it another close look, and if I like it as much as they do I'll grab some when it enters my value zone." In fact, I had that exact experience Tuesday morning: I topped off my JNJ position when the price surprisingly fell into my zone, despite a positive earnings report and strong forward guidance.

Different Strokes For DGI Folks

David Crosetti named 16 stocks that weren't on any other panelist's list, and included several low-yielders known more for growth than income, such as Broadcom (BRCM), C.R. Bard (NYSE:BCR) and Snap-On (NYSE:SNA). Miz, who is retired and relies upon dividends to supplement the Social Security she receives, was the only one to select high-yielding Vector Group (NYSE:VGR) and Textainer (NYSE:TGH). In a mild upset, David Fish tabbed non-CCC companies, such as GE, Starbucks and Paychex (NASDAQ:PAYX).

Tim McAleenan and Chowder both chose Berkshire Hathaway (NYSE:BRK.B) and Gilead Sciences (NASDAQ:GILD), while ScottU picked Google (GOOG, GOOGL), Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Berkshire; not one of those companies pays a dividend.

"Because the contemplated holding period is an extraordinarily long time, we have to be somewhat forward-looking and ought to pay attention to the occasional company or two that will pay a dividend but has not yet done so," Tim said. "Correctly anticipating dividend policies not yet initiated is as much art as skill, and happens to bestow great rewards upon the long-term investor that reaches the correct conclusion and acts upon it."

Unlike the nine participants who chose 50 companies each, David Van Knapp provided only 27 names. He arrived at them by reviewing his seven DGI eBooks and listing "the stocks that have been in the top 40 at least three times, including at least once in the last three years."

Hey, I don't want a horse's head in my bed, so I'm not arguing with The Godfather!

An Author's Prerogative

The last table above shows four stocks named by three panelists each. In reality, however, 14 companies were chosen by exactly three of my colleagues. Using my own Nifty Fifty list as a tiebreaker, HCP, HSY, NEE and OHI made the cut.

The other companies to receive three mentions: Aqua America (NYSE:WTR), Boeing (NYSE:BA), Home Depot (NYSE:HD), Church & Dwight (NYSE:CHD), Ross Stores (NASDAQ:ROST), Diageo (NYSE:DEO), Waste Management (NYSE:WM), Ventas (NYSE:VTR), Kellogg (NYSE:K) and Berkshire Hathaway.

I guess if we threw them in, we could call it the Sexy Sixty!

Conclusion

Although my list is different from those of the 10 fine Seeking Alphites who graciously participated in this project, I do hold 27 of the companies in this New DGI Nifty Fifty, and would have no qualms about owning the other 23. Why wouldn't I want the best of the best?

In Part 2, I will delve a little deeper into each panelist's Top 10.

Disclosure: The author is long BAX, COP, CVX, DE, GE, GIS, JNJ, KMI, KO, KRFT, LMT, MCD, MMM, MO, O, OHI, PEP, PG, PM, SO, T, TGT, VZ, WAG, WEC, WMT, XOM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.