Thursday, June 1, 2017

Thirty Dividend Champions to Consider

I have written about my dividend investing journey for almost a decade now. One of the most common question I get asks how I identify companies for further research. In today’s post I will discuss the simple steps I use to obtain a manageable list of companies for further research. These are all used for potential additions to my dividend portfolio. Investing does not have to be complicated, and this simple process attests to this fact.

The first step I take is to start with the list of the US dividend champions, which is maintained and updated by David Fish every single month. To be a dividend champion, a company must have been able to increase its annual dividends per share for a minimum of 25 consecutive years. Only a company with a defensive business model can afford to grow the business, while also raising the dividend annually for a quarter of a century. Being a dividend champion is an indication of quality.

The second step I take is to focus on valuation. I look at the companies which sell at a P/E of 20 or lower. We look at valuation, in an effort to avoid overpaying dearly for an investment. Even the best company in the world is not worth overpaying for. When you buy at a lower price, your future expected returns are higher than buying at a higher price. I typically use Yahoo Finance’s trailing 12 months earnings for the earnings portion of the Price to Earnings calculation. However, I have found that one-time items have made it very difficult to determine the correct earnings power. This is why I use P/E based on forward earnings as a quick trick to scan a large group of companies, without getting bogged down in researching 100 one-time hits/gains to earnings.

The third step I take is to focus on dividend safety. I accomplish this task by eliminating companies that have a dividend payout ratio above 60%. A dividend, which is well covered by earnings, is safer even when a recession hits and earnings dip temporarily.

The fourth step I take is to look for annual growth in dividends per share. In retirement, we are looking for an income stream that will at least maintain its purchasing power from the destructive forces of inflation. In this case, I focused my attention on companies where annual dividend payments grew faster than 3%/year over the past decade.

The next step I take is to evaluate trends in earnings per share over the past decade. I want to determine if dividend growth was supported by growth in earnings. Without growth in earnings, future dividend growth will run on fumes for a while, until it stops. The whole premise of successful dividend growth investing is to identify a company for the diversified portfolio with a growing dividend, purchase it at an attractive valuation, and have the company grow its earnings, dividends and intrinsic value for as long as possible.

After applying my criteria above on the list of dividend champions, I come out with the following list of companies for further research:


Company Name
Symbol
Dividend Track Record Years
Forward P/E
10 Year Annual Dividend Growth
Dividend Yield
Dividend Payout Ratio
Dividend/Share
Last Price
AFLAC Inc.
AFL
34
11.04
11.68%
2.30%
24.48%
 $   1.66
 $ 74.84
Target Corp.
TGT
49
13.01
18.09%
4.41%
55.50%
 $   2.32
 $ 54.40
T. Rowe Price Group
TROW
31
13.59
14.45%
3.27%
42.69%
 $   2.19
 $ 69.70
Walgreens Boots Alliance Inc.
WBA
41
14.77
17.83%
1.85%
26.91%
 $   1.48
 $ 81.25
Tompkins Financial Corp.
TMP
30
15.23
5.45%
2.34%
34.98%
 $   1.77
 $ 77.06
W.W. Grainger Inc.
GWW
46
15.28
15.84%
2.95%
42.96%
 $   4.88
 $173.58
Lowe's Companies
LOW
54
15.29
22.92%
1.73%
25.14%
 $   1.33
 $   80.91
Carlisle Companies
CSL
40
15.58
9.60%
1.37%
20.61%
 $   1.35
 $ 102.06
Bemis Company
BMS
34
15.8
4.32%
2.67%
41.20%
 $   1.17
 $   44.86
1st Source Corp.
SRCE
30
16.49
4.01%
1.64%
25.62%
 $   0.72
 $   46.35
Stepan Company
SCL
49
16.53
6.91%
0.95%
15.19%
 $   0.79
 $   85.96
Johnson & Johnson
JNJ
55
16.57
8.03%
2.65%
41.12%
 $   3.15
 $ 126.92
Eaton Vance Corp.
EV
36
16.59
9.85%
2.37%
38.25%
 $   1.09
 $   47.29
H.B. Fuller Company
FUL
48
16.66
8.26%
1.18%
18.30%
 $   0.56
 $   50.98
VF Corp.
VFC
44
16.84
12.17%
3.13%
47.96%
 $   1.53
 $   53.71
Stanley Black & Decker
SWK
49
16.91
6.71%
1.70%
28.31%
 $   2.29
 $ 136.79
Sonoco Products Co.
SON
35
16.94
4.28%
3.06%
48.50%
 $   1.46
 $   51.00
UMB Financial Corp.
UMBF
25
17.14
6.75%
1.43%
23.80%
 $   0.99
 $   71.29
Medtronic plc
MDT
39
17.16
14.66%
2.02%
33.67%
 $   1.67
 $   85.09
Genuine Parts Co.
GPC
61
17.63
6.92%
2.89%
50.09%
 $   2.65
 $   93.28
Commerce Bancshares
CBSH
49
17.78
4.62%
1.66%
28.20%
 $   0.86
 $   54.23
RPM International Inc.
RPM
43
18
5.56%
2.22%
38.33%
 $   1.15
 $   53.99
Becton Dickinson & Co.
BDX
45
18.02
12.16%
1.57%
26.18%
 $   2.71
 $ 186.48
Leggett & Platt Inc.
LEG
45
18.15
6.86%
2.76%
46.69%
 $   1.34
 $   52.08
Hormel Foods Corp.
HRL
51
19.03
15.27%
2.05%
34.48%
 $   0.60
 $   33.12
General Dynamics
GD
26
19.04
12.81%
1.66%
29.38%
 $   3.12
 $ 202.24
SEI Investments Company
SEIC
26
19.14
16.29%
1.12%
20.61%
 $   0.54
 $   50.15
Kimberly-Clark Corp.
KMB
45
19.16
7.06%
3.00%
55.18%
 $   3.73
 $ 129.51
Illinois Tool Works
ITW
42
19.97
12.55%
1.85%
34.14%
 $   2.40
 $ 140.37


The data was obtained from a watchlist I maintain at Yahoo! Finance. The data was obtained on Monday, May 29, 2017.

This list is not an automatic buy. It is just a list of companies for future research, which could potentially be added to an investor’s diversified dividend growth portfolio.

It is important to keep screening the list of dividend champions regularly, because different companies are available for sale at different times. It is also important to allocate money to a dividend portfolio regularly. It is time in the market that creates wealth with equities, not timing the market.


Thank you for reading!

Relevant Articles:

Key Ingredients for Successful Dividend Investing
The most important rule about dividend investing
- How to become a successful dividend investor
The most important metric for dividend investing
How to retire in 10 years with dividend stocks

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