The concept of Dividend Champions, Contenders and Challengers is well developed. Thanks to David Fish for maintaining those lists. We submit to dividend oriented investors that there is one more list that could reasonably be added, which we would call the "Inevitables."
The lists are for companies that have paid and increased dividends every year for at least:
- Champions: 25 years
- Contenders: 10 years
- Challengers: 5 years
The Inevitables are paying dividends now and are certain by any reasonable set of assumptions to be Challengers within 5 or fewer years, and likely to make it to Contender status after that.
It is not, in our view, entirely necessary in every case to wait 5 years to be able to look back and say a stock was a Challenger. In some, admittedly rare cases, it is reasonably possible to be so certain of the future as to predict the next five years, and construct a list of Inevitables.
This post is a call to readers to nominate stocks for the Inevitables list. That list is unlikely to ever become as official as Champions, Contenders and Challengers, because those lists are based on hard facts, and the Inevitables must be based on assumptions. However, as investors, assumptions are the stuff of what we do.
To be an Inevitable, a stock must be paying a dividend, and be so overwhelmingly likely to continue to pay and increase dividends that it would almost seem silly to think that they would not.
Had the Inevitables list been started in 2003, Microsoft (MSFT) would have been a charter member of the list. They were buried in cash, generating cash like crazy, and had just begun a dividend payout. In 2008 they became a Challenger, and will most certainly be a Contender in 2013..
Beginning the Inevitables list today, Apple (AAPL) is the same story as Microsoft nine years later. They have more money than they can possibly use, have just initiated a dividend payment, and most certainly will not stop it within the next five years. That means they are inevitably members of the Challenger list in 2017.
Apple is the first charter member of the Inevitables list. Are there any others that should be charter members too?
The Inevitables list is by its criteria destined to be a very short list, sometimes consisting of zero companies, but right now consisting of at least one company. There are 103 Champions, 166 Contenders, 194 Challengers, and now at least 1 Inevitable.
My wish is that readers would begin a comment stream of nominations and debates for and about any other potential Inevitables.
Why wait five years to measure that Apple in fact paid and increased a dividend for the past five years? It's going to happen.
Are there any other companies that should be on the list? A company with four years of payment and virtually no chance of not paying and increasing dividends in the coming year? Another cash fat cat with an cash generation machine and no visible need to or probably of spending the cash on research and development or acquisitions?
Apple is a category in and of itself, but a company need not be another Apple to be an Inevitable.
Disclosure: QVM has positions in AAPL in some accounts as of the creation date of this article (April 12, 2012).
Disclaimer: This article provides opinions and information, but does not contain recommendations or personal investment advice to any specific person for any particular purpose. Do your own research or obtain suitable personal advice. You are responsible for your own investment decisions. This article is presented subject to our full disclaimer found on the QVM site available here.