Wednesday, March 18, 2015

39 Dividend Champions for Further Research

The list of dividend champions is the most complete list of US dividend stocks that have managed to boost dividends for 25 years in a row. David Fish painstakingly maintains this list, and spends many hours each month on this very useful tool for dividend growth investors. As a side bonus, his list also includes dividend contenders (those which have increased dividends for 10 to 24 years) and dividend challengers ( those which have increased dividends for 5 to 9 years in a row).

I did a quick screen on the list of dividend champions, where I isolated companies which have managed to grow dividends by 5%/year over the past 1, 3, 5 and 10 years. I believe that companies which have managed to grow dividends every year for over a quarter of century, deserve a second look for further analysis. I also believe that those companies that manage to grow those dividends at close to twice the rate of annual inflation deserve a second look. The reason is of course to find those companies which have the potential to keep delivering more dividend increases.

As I mentioned previously, the hidden power behind future dividend growth is earning growth. Without earnings growth, a company would be unable to grow dividends into the future. I am not interested in a company that merely grows dividends by expanding the dividend payout ratio. I am interested in a company that can grow earnings, and increase dividends as well. This combination also results in appreciation in the company’s value over time. You can see that dividend investors can have their cake (dividends) and eat it too ( capital gains as a bonus).

You all know my goal is to one day live off my dividends, when then exceed my annual expenses. I see the dividend income I will receive from companies I own as a salary substitute. I view capital gains as a bonus, which is dependent on a lot of extra factors I have little effect on. This is similar to my day job, where I know I can get a decent salary every 2 weeks. However, if my company does really well and I do my job really well, my total compensation could be much higher than the salary alone. This is how I view capital gains - as a nice bonus.

Using the output from the first screen, I went through the rate of earnings growth over the past decade for each company in the output. I tried to look for companies where earnings per share increased in the past decade. I was looking for a roughly doubling of earnings per share, and I ignored companies whose results seemed too volatile. The companies that I ended up with include:

3M CompanyMMMConglomerate5734.615.810.99Stock analysis
Air Products & Chem.APDChemical-Specialty32910.61111.2Stock analysis
Altria Group Inc.MOTobacco458.98.18.611.6Stock analysis
American States WaterAWRUtility-Water609.214.710.46.5
Automatic Data Proc.ADPBusiness Services4010.910.27.913.2
Becton Dickinson & Co.BDXMedical Instruments4310.110.911.114.1Stock analysis
Brown-Forman Class BBF-BBeverages-Alcoholic3111.810.6910Stock analysis
Chevron Corp.CVXOil & Gas277.910.99.610.7Stock analysis
Chubb Corp.CBInsurance3312.1879.8Stock analysis
Cintas Corp.CTASBusiness Services3210.416.312.611.4
Clarcor Inc.CLCAuto Parts3123.517.714.110.9
Colgate-Palmolive Co.CLPersonal Products526.87.810.511.5Stock analysis
Donaldson CompanyDCIIndustrial Equipment282729.922.518.9
Dover Corp.DOVMachinery592816.312.711.8
Eaton Vance Corp.EVFinancial Services34117.67.812.7Stock analysis
Franklin ResourcesBENFinancial Services3523.112.911.415.5Stock analysis
Genuine Parts Co.GPCAuto Parts5978.57.76.8Stock analysis
Gorman-Rupp CompanyGRCMachinery4212.
Hormel Foods Corp.HRLFood Processing4917.616.216.113.5
Illinois Tool WorksITWMachinery4011.
Johnson & JohnsonJNJDrugs/Consumer Prod.526.677.49.7Stock analysis
Lowe's CompaniesLOWRetail-Home Improv.5220.617.918.627.9
McCormick & Co.MKCFood Processing298.89.7910.2Stock analysis
McDonald's Corp.MCDRestaurants395.199.919.6Stock analysis
McGraw Hill Financial Inc.MHFIPublishing427.
Medtronic plcMDTMedical Devices378.37.88.314.1Stock analysis
Nordson Corp.NDSNMachinery5121.220.316.89.9
Parker-Hannifin Corp.PHIndustrial Equipment5816.313.115.715.1
PepsiCo Inc.PEPBeverages/Snack Food4313.18.47.712.5Stock analysis
Raven IndustriesRAVNBusiness Equipment285.411.912.716.7
Sherwin-Williams Co.SHWPaints371014.69.212.5
Sigma-Aldrich Corp.SIALChemical-Specialty3878.59.710.5
Stepan CompanySCLCleaning Products476.29.28.96
T. Rowe Price GroupTROWFinancial Services2915.812.41216.6Stock analysis
UGI Corp.UGIUtility-Electric/Gas279.55.997.3
Valspar Corp.VALPaints3717.414.512.511.6
VF Corp.VFCApparel422119.313.315.5
W.W. Grainger Inc.GWWElectronics-Wholesale4316.218.318.618.2
Wal-Mart Stores Inc.WMTRetail-Discount425.71112.614.8Stock analysis

Long-time readers know that I look at valuation before putting my hard earned money to work in a dividend growth stock. For example, I generally avoid buying companies for more than 20 times earnings. If a company sells for more than that, I wait patiently and monitor the situation. I believe that overpaying for a stock can reduce future returns, and provide no margin of safety for my capital. I also try to generally look for a minimum dividend yield of 2.50%, but I am more willing to break that guideline if I really like everything else about the company.

More sophisticated readers might also employ strategies such as put selling, in order to effectively purchase a stock at 20 times earnings.

After going through the exercise described above, I added a few shares in McCormick (MKC), PepsiCo (PEP) and initiated small positions in W.W. Grainger (GWW) and Genuine Parts Company (GPC).

Full Disclosure: I own shares in MMM, APD, MO, ADP, BDX, BF-B, CVX, CB, CL, EV, GPC, JNJ, LOW, MKC, MCD, MDT, PEP, TROW, GWW, WMT,

Relevant Articles:

Dividend Champions - The Best List for Dividend Investors
S&P Dividend Aristocrats Index – An Incomplete List for Dividend Investors
Dividend Angels – a possible searching ground for investment opportunities
The Pareto Principle in dividend investing
How to read my stock analysis reports


  1. Dear DGI, I am a regular follower of your newsletter and myself a follower (just started) of the dividend growth investment strategy ( I know everybody has a slightly different criteria for identifying suitable dividend stocks (from David Fish's list). I recognize that you - beyond other writers - very much focus on EPS growth /payout ratios as driver for DPS growth, so do I. However, considering the low interest environment and subsequent cheap financing for solid / investment grade rated corporations, a second look will reveal that a good part of EPS growth is driven by reduced financing costs rather than operational improvements, especially in the last years.

    Therefore, in addition to EPS growth, I feel more comfortable to consider revenue growth, too. Also from a valuation perspective you will recognize that albeith P/E multiples being already quite high, they are still moderate compared to exorbitantly accelerated EV/EBITDA multiples. The major difference (P&L wise) is for most coperations D&A, financial result, and taxes. As D&A and taxes is usually relative stable, cheap refinancing is possibly the main driver of EPS growth. Assuming that intetest rates will rise in the mid-/long term, corporates with debt levels will face a constant headwind to their EPS growth. Companies with declining or flat revenues will come under pressure.

    Happy to discuss!


  2. I think you will do well with MKC. That is a very capital efficient business with a strong brand. No position.

  3. Can't wait until Lowe's gets it's yield up. If it continues to increase at the same rate for the next ten years would it be better to buy it now I wonder?

  4. DGI,
    I'm a big fan of Mr. Fish's work. Gives us small investors a great start.

    BTW, today is the first day of my retirement. :) Probably take a while to sink in, just feels like a day off.

    1. Congratulations Keith! I retired at 54 in 2002 and still haven't figured it out. Don't worry, be happy! Karl N

    2. Congratulations with your early retirement, 16 years ago :-)

      How did you manage that? I think that would be at interesting real life story.

      Best regards

    3. How did you manage that? I think that it would be a nice story from real life :-)

  5. DGI

    I have been following your articles for years. Gone are the days of trying to hit it out of the park. Started with CVX 6 years ago and since then have created nice portfolio. Have used most of your metrics for identifying value. Keep up the good work.


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