Dividend Champions Smackdown XIV - Seeking Alpha

Dividend Champions Smackdown XIV

In previous installments of the Smackdown series, I screened the Dividend Champions list of companies that have paid higher dividends for at least 25 straight years (which can be found here) using factors such as yield, payout ratio, and, most recently, the Premium or Discount to the Graham Number.

This time, I wanted to focus on the idea of isolating the “longest” and “strongest” dividend streaks, but that left me with two somewhat different ideas about a starting point. So I ended up deciding on a dual approach, which I will label as Smackdown A and Smackdown B in the text that follows:

Smackdown A: Strongest of the Longest

The first approach begins, as usual, with the Dividend Champions, companies that have paid higher dividends for at least 25 straight years. My idea of the “strongest” was to focus on companies with the highest rates of dividend growth and yield. (It would be easy to argue that “strongest” involves other factors, such as earnings, payout ratio, etc., but that would be another Smackdown idea.) For this screen, I started with the Dividend Champions and, after eliminating any that had not raised their payouts in the last year, I took the 50 stocks with the longest streaks (at least 39 years), roughly the longest half the listing, and screened as follows:

Step 1: Sort the companies by 10-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 40.

Step 2: Sort the companies by 5-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 30.

Step 3: Sort the companies by 3-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 10 companies, reducing the field to 20. I decided to skip the 1-year DGR, since 2010 included a more conservative set of increases overall, and I was really looking for longer-term strength. I also skipped the most recent increases because it was a mixture of 2010 and 2011 increases, which may not be directly comparable.

Step 4: Sort the companies by Yield, highest to lowest. I eliminated the lowest 10 companies, reducing the field to the following 10 companies:

(Note that I've sorted all tables back into alphabetical order)

		No.	5/31		DGR	DGR	DGR
Company	Symbol	Yrs	Price	Yield	3-yr	5-yr	10-yr
Abbott Laboratories	ABT	39	52.25	3.67	10.6	9.7	8.8
Altria Group Inc.	MO	42	28.06	5.42	18.3	14.8	11.7
Coca-Cola Company	KO	49	66.81	2.81	9.0	9.5	10.0
Colgate-Palmolive Co.	CL	48	87.53	2.65	13.2	12.8	12.4
Emerson Electric	EMR	54	54.55	2.53	7.5	9.8	6.4
Johnson & Johnson	JNJ	49	67.29	3.39	9.2	10.6	13.0
Leggett & Platt Inc.	LEG	39	25.83	4.18	14.5	11.1	10.1
PepsiCo Inc.	PEP	39	71.12	2.90	11.3	13.7	13.0
Procter & Gamble Co.	PG	55	67.00	3.13	11.5	11.6	10.9
Sysco Corp.	SYY	41	32.21	3.23	9.6	10.8	15.3

Conclusion

This screen produced some very familiar companies, with yields ranging from 2.53% to 5.42% and Dividend Growth Rates ranging from 6.4% to 18.3%. Although some people may not like seeing such familiar names yet again, it's obvious why these companies keep coming up: Not only have they been strong enough to have increased their dividends for at least 39 straight years, but they have also proven their ability to reward shareholders with healthy rates of dividend growth that far exceeds the rate of inflation.

Smackdown B: Longest of the Strongest

The second approach was to try to identify the strongest companies in terms of dividend growth and yield, then to focus on those that had maintained that strength the longest. So I began with the entire CCC “universe” of 449 stocks. After eliminating those that had not increased their dividend the past year and others that have agreed to be acquired, the initial field of candidates totaled 417 companies. In order to make this more manageable, I decided to “pre-screen” based on Yield and, once I eliminated those yielding less than 2%, had 256 companies, which I screened as follows:

Step 1: Sort the companies by 10-year Dividend Growth Rate (DGR), highest to lowest. I eliminated rates of less than 5%, but allowed the Challengers with “n/a” to advance. This reduced the field to 187 companies.

Step 2: Sort the companies by 5-year Dividend Growth Rate (DGR), highest to lowest. I eliminated 17 Challengers that also had “n/a” in this column (too short!) and then narrowed the field to the highest 100 5-year DGRs, which were at least 9.7%.

Step 3: Sort the companies by 3-year Dividend Growth Rate (DGR), highest to lowest. I eliminated the lowest 50 companies, reducing the field to 50, all of which had 3-year DGRs of at least 12.5%. (As I did in Smackdown A, I decided to skip the 1-year DGR and the most recent increases.)

Step 4: Sort the companies by Yield, highest to lowest. I eliminated the lowest 25 companies, reducing the field to 25 companies yielding at least 2.70%.

Step 5: Sort the remaining companies by length of dividend streak, longest to shortest. At this point, I intended to present about 15 companies, but several had 9-year streaks, so the 18 “longest of the strongest” follow:

		No.	5/31		DGR	DGR	DGR
Company	Symbol	Yrs	Price	Yield	3-yr	5-yr	10-yr
Alliance Resource Part.	ARLP	9	72.88	4.88	13.4	15.3	12.4
Altria Group Inc.	MO	42	28.06	5.42	18.3	14.8	11.7
Avista Corp.	AVA	9	24.93	4.41	18.9	12.9	7.6
Enbridge Inc.	ENB	16	67.29	2.91	12.5	11.8	9.8
Flowers Foods	FLO	10	33.33	2.70	23.0	24.8	22.1
Harleysville Group	HGIC	24	32.03	4.50	15.9	14.7	9.6
Healthcare Services Gp	HCSG	9	17.06	3.66	28.7	37.2	n/a
Leggett & Platt Inc.	LEG	39	25.83	4.18	14.5	11.1	10.1
McDonald's Corp.	MCD	34	81.54	2.99	14.6	27.5	26.5
Nippon Tel & Tel	NTT	9	23.49	2.95	23.9	23.4	13.6
Novartis AG	NVS	10	64.52	3.65	22.5	18.2	6.3
NTT DoCoMo Inc.	DCM	9	18.61	3.19	15.8	19.8	n/a
Nucor Corp.	NUE	38	42.34	3.42	31.7	36.9	25.4
Shaw Communications	SJR	9	21.43	4.29	16.3	47.2	42.3
Southside Bancshares	SBSI	17	20.16	3.37	18.7	14.3	19.0
Telefonica S.A.	TEF	9	24.33	8.14	24.2	23.4	n/a
UniSource Energy Corp.	UNS	12	37.89	4.43	20.1	15.5	17.2
Watsco Inc.	WSO	10	66.94	3.41	15.9	26.9	35.2

Conclusion

This screen produced a wider variety of companies, with a few familiar names and yields ranging from 2.70% to 8.14% and Dividend Growth Rates from 6.3% to 47.2%. Only two companies – Altria Group and Leggett & Platt – appear in both Smackdowns, although both Nucor and McDonald's had streaks that were nearly long enough to have appeared in Smackdown A. Three Challengers benefited by getting a Pass in Step 1 and several of the final candidates are foreign companies, so their payouts may be irregular enough to merit some concern about sustainability. Whatever industries the reader is interested in adding to his or her portfolio, there seem to be some good candidates. As always, please consider this no more than a starting point for more in-depth research.

Disclosure: I am long ABT, MO, KO, CL, EMR, JNJ, PEP, PG.