Friday, January 5, 2018

Dividend Champions, Contenders & Challengers: The most complete list of US dividend growth stocks available

A long streak of annual dividend increases is a filter to weed out unwanted companies. Companies that pay dividends are able to do that based on earnings growth. A company cannot grow dividends for 25 years in a row, if earnings are not increasing. This company is thus focusing on only the projects with the most potential, when they invest their cash.

If you put money in a dividend stock, you earn higher dividends for decades. The growing earnings stream supports the higher dividend payments, and results in intrinsic value growth over time.

Early in my journey as a dividend growth investor, I was limited to using the Dividend Aristocrats and the Dividend Achiever indexes. The dividend aristocrat index is maintained by McGraw Hill/S&P Global, who also owns the rights to the S&P 500 index. It included companies which were part of the S&P 1500 index, and which had raised dividends for at least 25 years in a row.

The index included some of the best known dividend stocks such as Coca-Cola(KO), Wal-Mart (WMT), Johnson & Johnson (JNJ) to name a few. Since I was a new investor, I had a list of about 50 companies to research, which made it easier to focus on those and choose only the ones that fit my value criteria. The problem was that it didn’t seem to be including other quality companies with long dividend growth streaks such as Altria (MO), Colgate Palmolive (CL) to name a few. As a result, I was potentially missing out on other companies. By focusing on dividend increases every week, I was able to uncover more companies which were never part of Dividend Aristocrats index. I then created my own list of companies to follow, but this took a lot of extra time, which I already didn’t have. I am not sure why S&P committee excludes certain companies. I believe it has to do with the index requirements.

As a long-term, buy and hold owner of businesses that increase dividends every year, I simply do not find it important that a company have a certain market capitalization, have a certain share turnover or be a member of an index. The things that matter to me are quality of business, prospects for future growth, management competency, current valuation and endurance of the company’s competitive position over time. Therefore, it is greatly important to find a list of companies, which regularly increase dividends, and which have streaks of consecutive dividend growth. This list makes my life much easier, since I can easily apply my screening criteria against it, and come up with a number of companies for further research.

I stumbled upon the Dividend Champions list in early 2008, and immediately became a huge fan of the publication, which is run by Dave Fish. He maintains a list of dividend champions, which are companies traded on US exchanges, which have a 25 year streak of consecutive dividend increases.

This is an extremely rare trait for a company, and it shows a business that has a unique business model which allowed it to grow earnings over time, in order to achieve that consistency in dividend growth. Only 115 such dividend champions businesses exist in the US.

Every month, David Fish painstakingly updates that list of dividend champions, and has added a lot of useful information such as dividend streaks, latest dividend increase, ten year dividend growth. In addition, over the years, his list also added companies which have managed to increase dividends for at least a decade, but less than 25 years. This list is called the dividend contenders list. It is superior to the dividend achiever index out there, because again it does not exclude companies based on irrelevant market capitalization, float, or trading volume.

Other additions include a listing of companies which have managed to boost dividends for at least five years in a row. This list is called the dividend contenders list.

This list is a major time saver for every dividend investor. Imagine how much extra time it would take for you to keep up with dividend increase announcements, create and update a list of prospective dividend growth stocks, and also create and update a database of key information behind those companies.

The dividend champions and the dividend contenders lists are my bread and butter, if I was a serious dividend growth investor. The breadth of data, and the fact that it is up-to-date, makes it an invaluable tool for the dividend investor.

Full Disclosure: I own shares in all companies listed in this article

Relevant Articles:

Does Market Capitalization Matter in dividend investing?
S&P Dividend Aristocrats Index – An Incomplete List for Dividend Investors
Dividend Champions - The Best List for Dividend Investors
Create Your Own Dividend ETF With Motif Investing

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