If you're looking for a stable and increasing source of cash flow, it makes sense to seek out securities that have a propensity to provide this. One great resource right here from Seeking Alpha is David Fish's list of Dividend Champions - companies that have not only paid but also increased their payouts for at least 25 straight years. Naturally this doesn't always work out - companies reduce, freeze or eliminate dividends from time to time. Yet it does provide you with a beginning list of securities that might be of interest.
One problem that comes up is that you've whittled down your investment universe - but you still have hundreds of companies to contemplate. As such, I thought it might be useful to present a list of 10 Dividend Champions that have a trailing P/E ratio under 15 to go along with a "current" dividend yield above 3%. This isn't a recommendation. Instead, it's a demonstration of how you might learn more about a company or a group of companies.
Here's the list:
Old Republic (NYSE:ORI)
Emerson Electric (NYSE:EMR)
Community Tr Bancorp (NASDAQ:CTBI)
Archer Daniels Mid (NYSE:ADM)
Eaton Vance (NYSE:EV)
Tompkins Financial (NYSEMKT:TMP)
T. Rowe Price (NASDAQ:TROW)
Below is a look at these same securities with the screened P/E ratios and dividend yields:
Note that the P/E ratio was calculated based on adjusted trailing earnings, and the table was organized by the most recent annualized dividend yield.
Once you have this sort of list, it can be enlightening to learn more about the securities. Instead of hundreds of names, it makes the task a bit simpler. It doesn't mean that these 10 companies will prove to be better investments than any other collection of holdings. Yet it does set you up to become more aware - a trait I find to be exceptionally important in the investing world.
It remains me of a Peter Lynch quote: "I've always believed that searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you'll likely find one grub; if you turn over 20 rocks you'll find two." So perhaps in presenting the 10 companies above, we'll find one security that might be interesting. That's the game, that's what makes it fun.
For instance, if we look at the highest yielding security on the lost - AT&T - you could see why the investment belongs in the same sentence as even very fast growing companies. AT&T isn't expected to grow all that quickly (although the expected growth rate has indeed picked up) but the high starting yield and lower valuation can make up for this. When you start out with a 5%+ yield you don't need much growth to turn in reasonable investment results.
Or you could look into a company like Archer Daniels Midland - with a share price near its yearly low. Now to be sure the P/E ratio is a bit skewed. Last year the company earned around $3 per share and for the upcoming year something closer to $2.60 is expected. Yet there are a couple of mitigating factors that could come into play. The company recently announced a 7% dividend increase and cyclical companies can turn out to be more impressive investments when their earnings look the worst.
Perhaps creating this sort of list points out securities that you would have never thought about. As an example, when thinking about asset management Dividend Aristocrats, Franklin Resources (NYSE:BEN) and T. Rowe Price likely come to mind. To be sure the increase streaks and financial standing of these companies are impressive. Yet this misses out on a company like Eaton Vance - which is on the Dividend Champion list, but falls through the Dividend Aristocrat cracks. In turn, ignoring one of the best performing publicly traded investments of the past few decades.
Of course, T. Rowe Price could still spike your interest to learn more about the business. I've previously demonstrated that the company doesn't need much (or any) company-wide growth to provide reasonable investment results. Add to that a 3% starting dividend yield, excellent balance sheet, potential special dividends and a reasonable valuation and its not hard to want to dig in and study a bit more.
Even a company like Wal-Mart is nice to check in on from time to time. In the next couple of years earnings are expected to decline, but for the long-term investor today's price is much lower than it has been. As such, I'd contend that the "investment bar" is now lower as well. If you suspect the business will remain viable for the long-term, today's price appears to be offering you a fair chance of capturing business performance.
In short, this is not a "top 10" recommendation list or anything of the sort. Instead, it's simply a list of Dividend Champions, which met the criteria of a trailing P/E ratio under 15 and a dividend yield above 3%. I find that it can be useful to scale down your area of search and start flipping over rocks in a predefined area. If you're looking at thousands of securities at a time, it's easy to get distracted or overwhelmed. With 10 names to look at, perhaps you find one that you'd like to dig into a bit deeper. This is the purpose. This is the idea behind narrowing your focus and flipping over investment rocks.
Disclosure: I am/we are long T.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.