Tuesday, January 6, 2015

Dividend Kings List for 2015

The dividend kings index includes companies which have managed to increase dividends for over fifty consecutive years. A company that regularly raises dividends to the tune of fifty years in a row is the type of company that every serious dividend growth investor should study. None of those companies are automatic purchases however. The important thing is to learn the type of business those companies are in, and what factors might have helped them achieve the dividend success. By gathering little bits and pieces of wisdom along the way, the dividend investor greatly increases their knowledge of business. Knowledge is like compound interest – it builds and accumulates over time.

The companies in the 2015 dividend kings list include:

Name
Symbol
Yrs Div Gro
10-yr Div Gro
Fwd P/E
Yield
10 year EPS
Analysis
American States Water
AWR
60
5.62%
25.8
2.20%
15.23%

Dover Corp.
DOV
59
9.79%
15.6
2.20%
15.23%

Northwest Natural Gas
NWN
59
3.69%
22.2
3.70%
3.42%

Genuine Parts Co.
GPC
58
6.23%
23.1
2.20%
8.04%
Parker-Hannifin Corp.
PH
58
13.39%
16.2
2%
19.89%

Procter & Gamble Co.
PG
58
10.59%
20.8
2.80%
8.04%
Emerson Electric
EMR
57
7.71%
15.6
3%
9.61%
3M Company
MMM
56
6.76%
21.9
2.10%
8.33%
Cincinnati Financial
CINF
54
6.41%
19.8
3.40%
4.04%

Vectren Corp.
VVC
54
2.53%
20.1
3.30%
0.56%

Coca-Cola Company
KO
52
9.79%
20.7
2.90%
9.89%
Johnson & Johnson
JNJ
52
10.84%
17.5
2.70%
7.20%
Lowe's Companies
LOW
52
29.19%
25.4
1.40%
6.32%
Colgate-Palmolive Co.
CL
51
11.45%
23.6
2.10%
6.82%
Lancaster Colony Corp.
LANC
51
6.92%
24.4
2%
2.04%

Nordson Corp.
NDSN
51
8.11%
18.5
1.10%
20.00%


It is very interesting that the dividend kings returned 14.10% in 2014 and 30.70%. In comparison, the S&P 500 returned 13.50% in 2014 and 32.305 in 2013.

There was one company that was taken from the list in 2014. Diebold (DBD) had managed to grow dividends for 60 years in a row. Unfortunately, the company failed to increase distributions in 2014, which violated the long history of consistent dividend growth. If Diebold starts growing dividends again 2015, it would take it until 2075, before it achieves the same level of accomplishment. Given the fact that earnings per share didn’t grow at all in the past decade, but followed an erratic pattern, I am not surprised that the dividend was left unchanged. Rising earnings per share are the essential fuel behind future dividend growth.

There were no additions in 2014 to the list. Based on my analysis of dividend streaks, it looks like there won’t be an addition until sometime in 2016, when Hormel Foods (HRL) and Tootsie Roll Industries (TR) reach dividend king status. Currently, each of those two companies has managed to grow dividends for 48 years in a row.

I believe the valuations are a little overstretched right now for many of the companies on the list. The only companies which meet my entry screen of valuation, growth and dividend sustainability include Johnson & Johnson and Emerson Electric. If I were willing to reduce the entry yield to 2%, I could add Dover and Parker Hannifin on the list for further research.

Other companies like Cincinati Financial (CINF) have decelerated their rate of dividend growth, which is slower than the ten year average. Coca-Cola (KO) is a great company I am holding on to, but the problem I am seeing is that it has been unable to grow earnings per share for several years in a row. Without earnings growth, dividends will not grow over time and the intrinsic value of the business cannot grow either. For certain companies like Colgate-Palmolive (CL), valuations are a little high above 25 times earnings. I also find it hard to justify purchasing a utility which has increased dividends by 3%/year at an entry yield below 4%. Investors who overpay even for the most stable companies with the widest of moats might be in for some poor returns in the first decade of their investment. Hopefully we would see a sustained correction in 2015, which will correct the excess we are seeing. Let's wait and circle back in early 2016 on that.

Full Disclosure: Long KO, JNJ, PG, LOW, CL, MMM, EMR,

Relevant Articles:

The Dividend Kings List Keeps Expanding
Dividend Champions - The Best List for Dividend Investors
Dividend Champions Index – Five Year Total Return Performance
S&P 8000 – The power of reinvested dividends in action
How to be a successful dividend investor

7 comments:

  1. I can't parse your second paragraph; I think a key number or word is missing.

    Johnson & Johnson looks interesting, but its dividend growth is outstripping its earning growth, which could lead to a potential shortfall. EMR's only downside is it's below-average 10-year dividend growth, but I still rank it the highest of this list.

    ReplyDelete
  2. "Knowledge is like compound interest – it builds and accumulates over time."

    Great quote and I agree 100%. One of the best ways to get ahead in life is to find someone who has compounded their knowledge and can pass it along. Much like you and this site =)

    ReplyDelete
  3. Thanks very much for your site and your info. It's been very useful for me, as new to the concept of DGI to see your objective criteria. As a professional engineer, I find this very appealing.

    One question? I have been interested in a REIT HCP which, with the exception of divident pay out ratio, appears to meet the listed screening requirements. However, their dividend pay out ratio is 98%? My question is whether a REIT would also follow the <60% recommended? It seems to me that a REIT would, of necessity, have to have a higher ratio here?

    ReplyDelete
    Replies
    1. Hi newguy40. When looking at a REIT you don't want to look at the dividend payout ratio, you want to look at the FFO Payout ratio. REITs are structured in a way that requires different analysis. More info is available here:

      http://www.dividendgrowthinvestor.com/2013/04/five-things-to-look-for-in-real-estate.html

      Delete
    2. Actually, I see DGI on Dec 12th added to his HCP position and said he may be posting a fresh analysis of it in coming weeks. Keep an eye out for that. Here was his prior one from a few years ago,

      http://www.dividendgrowthinvestor.com/2010/04/health-care-property-investors-inc-hcp.html

      I found that by popping HCP into the search box at upper left corner of the site. :)

      Delete
  4. Hi Newguy40,

    REIT's are required to pay out a high percentage of their cash flow. I am long HCP and will be for decades to come. Excellent way to get a decent current yield with dividend growth slightly above inflation.

    ReplyDelete
  5. Thank you Jon and roy7 for your helpful responses. I appreciate it.

    ReplyDelete

Questions or comments? You can reach out to me at my website address name at gmail dot com.

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