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Dividend Stock Picks For June 2015

|Includes: ADM, ATNI, BDX, CMP, CSVI, CZFS, LECO, MDP, MMM, NEE, NUS, OXY, QCOM, SHW, SPAN, STR, TROW, Walmart Inc. (WMT), XOM

This month I am trying out a "Point" rating system to screen for dividend stocks. I start with David Fish's excellent spreadsheet of dividend paying stocks (which you can find here), and apply points for each criterion met. Here's how it works:

  • One point is given for each criteria passed
  • The greater number of points, the better the stock (in overall terms)
  • Stocks are eliminated that don't meet a minimum "Chowder Rule" requirement
  • The list is then ranked by sector; the stock with the highest points in each sector is the "pick" for this month

To reduce risk, I only use two of the lists provided by Mr. Fish, the "Dividend Champions" (stocks which have paid increasing dividends for 25+ years) and "Dividend Contenders" (stocks that have paid increasing dividends for 10+ years, though I only use stocks with 12+ years for an added measure of safety--their dividend would have survived three business cycles.)

Here are the seven criteria that points are awarded for:

  1. Equaling or exceeding the "Chowder Rule" requirement of 11% for "Dividend Champions" and 11.5% for "Dividend contenders. The "Chowder Rule" is simply the yield plus the average dividend growth for the past 5 years
  2. Dividend Yield must be above a minimum, which I have arbitrarily set at 2.5%, but it is recommended to be 1.5x the S&P 500's dividend yield, which is currently 1.96%. So the minimum recommended yield to meet the "Chowder Rule" recomendations is 2.94%
  3. Beta being less than 1.0, ie, less volatile than the market at large. Lower beta stocks perform better than higher beta stocks over time
  4. Dividend growth is accelerating, ie, the amount of dividends being paid as a percentage keeps increasing
  5. Payout ratio is less than 60%. When it's higher that 60%, the dividend isn't as secure and any fluctuation might affect dividend continuity
  6. Debt/Equity ratio is less than 0.5
  7. P/E Ratio is less than 20

Here are the Dividend Champion Picks from June, 2015:

Consumer Discretionary: Walmart WMT (5 of 7 points)
Consumer Staples: Archer Daniels Midland ADM (5 of 7 points)
Energy: Exxon Mobil XOM (7 of 7 points)
Financials: T. Rowe Price TROW (5 of 7 points)
Health Care: Becton Dickinson & Co. BDX (3 of 7 points)
Industrials: 3M Company MMM (5 of 7 points)
IT: Computer Services Inc. OTCQX:CSVI (4 of 7 points)
Utilities: Questar Corp. STR (5 of 7 points)

Here are the Dividend Contender Picks from June, 2015:

Consumer Discretionary: Meredith Corp MDP (4 of 7 points)
Consumer Staples: NuSking NUS (6 of 7 points)
Energy: Occidental Petroleum OXY (5 of 7 points)
Financials: Citizens Financial OTCPK:CZFS (6 of 7 points)
Health Care: Span-America Medical SPAN (4 of 7 points)
Industrials: Lincoln Electric LECO (5 of 7 points)
IT: Qualcomm QCOM (5 of 7 points)
Materials: Compass Minerals CMP (5 of 7 points)
Telecom: Atlantic Tele Network ATNI (X of 7 points)
Utilities: Next Era Energy NEE (5 of 7 points)

All of this really does it narrow down the field of potential candidates to a solid pool for further research. I can see many flaws with this process as it doesn't weed out negative EPS, take into account moats, etc. So next month I will improve the process to drill down further to eliminate the unworthy.

If you would like to download a PDF of the Champions, click here.

For the Contenders, click here.

Many thanks to David Fish for his great spreadsheet and to you in advance for your comments!

Disclosure: I am/we are long XOM, TROW, QCOM.

Additional disclosure: Stock picks are presented as a starting point for further research and are not investment recommendations.