Dividend Champions for May 2011

by: David Fish

The Dividend Champions spreadsheet and PDF have been updated through 4/29/11 and are available here. 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 focused on updating the listings for dividend increases and other announcements. Following is a discussion of my latest efforts:

What's New

During April, there were no new Champions, but a few of the longest streaks were extended, with American States Water (NYSE:AWR) paying a higher dividend for the 57th straight year, Procter & Gamble (NYSE:PG) logging its 55th consecutive annual increase, and Johnson & Johnson (NYSE:JNJ) boosting its payout for the 49th straight year. There were also companies graduating from Challenger to Contender status with their 10th straight year of higher dividends, including Watsco Inc. (NYSE:WSO), Southern Company (NYSE:SO), and Valmont Industries (NYSE:VMI). And although Contender Hudson City Bancorp (NASDAQ:HCBK) was deleted after its anticipated dividend cut, the ranks of CCC companies still expanded to 448 with the 5th year of higher dividends by Teekay Offshore Partners (NYSE:TOO) and Southwest Gas (NYSE:SWX). Already, 14 of 42 companies in my recent article of expected increases have announced dividend hikes.

A new column has been added to the spreadsheet and PDF that shows the premium or discount to the Graham Number. A good description of the Graham Number can be found in this SA article by Dividends4Life: which says in part:

Price calculated by taking the square root of 22.5 times the tangible book value per share times EPS (trailing twelve months). Benjamin Graham, Warren Buffett’s mentor and the father of value investing, developed rules for defensively screening stocks. This formula uses his principles to calculate the 'maximum' price one should pay for the stock.

The 22.5 was derived by multiplying what Graham considered reasonable values of 15 for a Price/Earnings ratio and 1.5 for a Price/Book Value ratio. I've taken this a step further by calculating the premium or discount that the current trading price represents, compared with the Graham Number. (I think it would have been hard to use (or even eyeball) the Graham number in column T and the Price in column H.)

Trends Still Strong

Companies continue to be generous with their increases now that the recent recession has passed and profits are growing. The average increase by the 100 Champions rose from 6.37% at the end of March to 6.56% at the end of April. The average yield slipped from 2.82% to 2.79%, while the average share price increased from $54.12 to $54.85, a new high since I began compiling the listing in December 2007. Meanwhile, the Contenders' average increase slipped from 8.33% to 8.07%, while the average yield dipped from 2.95% to 2.88%, largely because the average price was $50.31, up from $48.34 at the end of March. The Challengers' average dividend increase bounced back from 9.50% to 9.52%, while the average price and yield went from $46.12 and 2.92%, respectively, to $47.17 and 2.90%.

The average yield for the 448 companies slipped from 2.91% to 2.87%, still more than a full percentage point above the S&P 500's yield, while the latest dividend increases average a healthy 8.44%. One thing that might be more noticeable is the prevalence of companies increasing their dividends for the second time this year, indicated in the Note column by the '&' symbol.

This is especially true of the MLPs (Master Limited Partnerships), which feature low-percentage recent increases, but increase the rate each quarter. Note that I've also expanded the column descriptions on the Notes tab to describe the new Premium or Discount to the Graham Number and other Fundamental Data columns. As always, I welcome suggestions in the Comment section below.

Disclosure: I am long PG, JNJ.