Wednesday, October 15, 2014

Top Dividend Growth Stocks of the past decade

Dividend growth investing is sustainable when derived from consistent earnings growth. In its true form, successful dividend growth investing is characterized by instances where annual earnings and dividend growth are almost identical. In addition, companies that exhibit such traits tend to have their current yields being in the same range of 2% - 3% during prolonged periods of time. Ordinary yield chasing investors tend to ignore such companies, because they lack the patience or forward thinking to care for high future yields on cost or strong total returns. As a result, many of these companies offer low current yields, which tend to stay low for extended periods of time. The lucky investors who purchased such securities however are able to generate high yields on cost over time.

I selected the fifteen dividend champions which have achieved the highest ten year dividend growth rates:

Name
Ticker
Yrs Consecutive Div Increase
10 Year Annual Div Growth
P/E Ratio
Yield
Div Payout Ratio
Stock Analysis
AFLAC Inc.
AFL
31
16.8%
8.90
2.60%
23%
Becton Dickinson & Co.
BDX
42
17.6%
20.50
1.70%
35%
Computer Services Inc.
CSVI
43
17.0%
19.30
2.30%
44%

Donaldson Company
DCI
28
18.4%
21.70
1.70%
37%

Helmerich & Payne Inc.
HP
42
23.3%
13.10
3.10%
41%

Lowe's Companies
LOW
52
29.2%
22.40
1.70%
38%
McDonald's Corp.
MCD
39
22.8%
16.70
3.70%
62%
MSA Safety Inc.
MSA
43
16.5%
22
2.50%
55%

Nucor Corp.
NUE
41
22.1%
27.20
3.00%
82%

Raven Industries
RAVN
28
19.2%
21.10
2.20%
46%

T. Rowe Price Group
TROW
27
16.2%
17.40
2.30%
40%
Target Corp.
TGT
47
19.8%
19.00
3.30%
63%
W.W. Grainger Inc.
GWW
43
17.2%
21.60
1.70%
37%

Walgreen Company
WAG
39
22.0%
17.50
2.20%
39%
Wal-Mart Stores Inc.
WMT
41
18.0%
16.10
2.50%
40%

High dividend growth does not make companies automatic buys. Investors need to evaluate each company in detail, and understand where future growth will come from. A solid plan with concrete deliverables communicated from the company is just one instance of something that could propel solid dividend growth going forward. Other variables that could translate into high earnings and dividend growth include taking advantage of favorable demographic trends in healthcare, baby boomers needs for retirement saving, and the rise of the emerging markets middle class.

Investors should also take with a red flag companies whose dividend growth has been slowing down considerably in the past five years or less. Nucor (NUE) rode the boom in steel prices in the first half of the decade, only to reach a plateau at the onset of the financial crisis of 2007 – 2009. The dividend growth has been miniscule for the past five years.

Investors should also look into the valuation of each company, prior to investing. Purchasing even the best company in the world that is guaranteed to boost earnings and dividends for the next 10 years could still lead to losses, if investment is made at very high valuations. Investors in Wal-Mart Stores (WMT) in 1999 and Coca-Cola (KO) in 1998 can certainly attest to this fact.

However, a booming business can be rewarding eventually even for the most unlucky investors, provided they are true long-term investors. Great businesses like Wal-Mart and Coca-Cola are attractively priced today, and have managed to record better sales, profits and dividends since hitting all-time-highs at the end of the last millennium. If they can continue pushing forward, their investors will eventually make good profits.

Full Disclosure: Long WMT, KO, NUE, LOW, AFL, BDX, MCD, TGT, WAG

Relevant Articles:

The Tradeoff between Dividend Yield and Dividend Growth
Why Dividend Growth Stocks Rock?
Four Characteristics of The Best Dividend Growth Stocks
Living off dividends in retirement
Four Percent Rule for Dividend Investing in Retirement

8 comments:

  1. David,

    I see you hold 9 out of the 15 mentioned. Any reason why the others didn't make your cut ?

    ReplyDelete
  2. Interesting list, thanks for sharing. Definitely need to make sure that you do your own due diligence on these, as sometimes these companies are not as attractive as they appear; a single large spike may be throwing off these numbers. For example, LOW's 10 year growth rate is 29.2%, while the five year is only 15.6%. MSA's is 16.5%, but the five year is only 4.7%. NUE is just as bad. These numbers are not as they seem, so be careful.

    ReplyDelete
  3. I like the table. Easy to read.

    ReplyDelete
  4. Good day to mention these. Allot of price drops today for the mentioned companies.

    ReplyDelete
  5. Nice table, numbers don't lie. I believe a numerical approach can be very profitable. Thanks for your work.

    ReplyDelete
  6. I'm a small owner of several on the list. I'm really liking the declining prices at the moment that has presented some opportunity. Thanks for the posting, as it was certainly insightful.

    ReplyDelete
  7. Thanks for posting. I read your articles often and once again, this is excellent advice. The things I look for the most when evaluating companies are the dividend growth rates. The thing that keeps me up at night is the rate of inflation. Great article. Keep them coming.
    Respectfully,
    Dennis McCain

    ReplyDelete
  8. Nice list.

    It's really no surprise that so many of them would be considered household names. It's typically those companies that have strong brand profiles that are able to boast such solid dividend growth records.

    When you take double digit dividend growth and you're able to get it at a reasonable yield of +2.5%, Yield on Cost can become staggering over a good enough time period.

    - Ryan from GRB

    ReplyDelete

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