The next step in the process would be to apply a quantitative screen against that list of companies, in order to weed out those firms that are overvalued, and those who are at risk of falling on hard times. I usually look for companies that sell below 20 times earnings, and have a minimum yield of 2.50% today. In addition, I look for a dividend payout ratio below 60%, plus a minimum of a 6% in annual dividend growth over the preceding decade. I also apply that criteria in order to narrow down the list of dividend champions to a more manageable level.
When I apply my screening criteria on the list of dividend champions, I come up with the following list of companies for further research.
SYMBOL
|
Name
|
P/E
|
YIELD
|
DPR
|
10 yr DG
|
PRICE
|
Analysis
|
(ORI)
|
Old Republic International
|
9.8
|
4.70%
|
45.86%
|
7.26%
|
15.39
|
|
(CVX
|
Chevron Corp.
|
10.23
|
3.50%
|
36.07%
|
10.55%
|
113.48
|
|
(EFSI
|
Eagle Financial Services
|
11
|
3.60%
|
34.29%
|
7.32%
|
23.1
|
|
(XOM
|
ExxonMobil Corp.
|
12.77
|
2.70%
|
34.19%
|
9.64%
|
94.11
|
|
(HP
|
Helmerich & Payne Inc.
|
13.13
|
2.80%
|
36.23%
|
23.31%
|
90.59
|
|
(TMP
|
Tompkins Financial Corp.
|
13.56
|
3.40%
|
46.24%
|
6.25%
|
46.92
|
|
(TGT
|
Target Corp.
|
15.01
|
3.10%
|
45.99%
|
19.78%
|
56.06
|
|
(CINF
|
Cincinnati Financial
|
15.06
|
3.70%
|
56.41%
|
6.41%
|
47
|
|
(WEYS
|
Weyco Group Inc.
|
15.07
|
2.80%
|
42.35%
|
14.55%
|
25.66
|
|
(UGI
|
UGI Corp.
|
17.01
|
2.60%
|
43.97%
|
6.94%
|
43.66
|
|
(MCD
|
McDonald's Corp.
|
17.26
|
3.40%
|
58.38%
|
22.80%
|
95.78
|
|
(PEP
|
PepsiCo Inc.
|
18.08
|
2.90%
|
52.55%
|
13.71%
|
78.09
|
|
(BMS
|
Bemis Company
|
19.15
|
2.80%
|
52.94%
|
6.39%
|
39.06
|
|
(JNJ
|
Johnson & Johnson
|
19.3
|
2.80%
|
54.89%
|
10.84%
|
92.76
|
|
(MMM
|
3M Company
|
19.66
|
2.60%
|
50.89%
|
6.76%
|
132.12
|
|
(KMB)
|
Kimberly-Clark Corp.
|
19.93
|
2.90%
|
58.59%
|
9.16%
|
110.24
|
The next step in the process is to evaluate each and every company on that list. When I analyze individual companies, I look at trends in earnings, revenues, dividends, payout ratios and ability to deploy cash successfully. Next, I also try to understand how companies earn their money, and whether they possess a durable competitive advantage, that would allow them to keep earning money for the next 20 – 30 years. In order to determine that, you need to look for competitive advantages or as Buffett calls them “wide moats”. I also try to determine any catalysts for future earnings growth. It is very important to understand that rising earnings are the fuel that will make future dividend increases possible. As you can see, there are a few companies on my list for further analysis, which I have not posted here yet. I am diligently working my way through the list.
I believe that if you patiently follow the above process every month, and put money to work consistently, you will be able to build yourself a diversified dividend portfolio that will pay your monthly expenses. Reaching your dividend crossover point will be dependent on the amount of money you can put to work, the types of companies you manage to put your money in and the amount of time you can let compounding work in your favor.
The most important thing for you to do is to keep learning more about investments, companies, and business, in order to be able to keep up with changes. Keeping an open and inquiring mind is the winning attitude that will pay big dividends for you down the road.
Relevant Articles:
- Dividend Champions - The Best List for Dividend Investors
- Dividend Champions Index – Five Year Total Return Performance
- How to read my stock analysis reports
- The work required to have an opinion
- Diversified Dividend Portfolios – Don’t forget about quality