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:
| Name | Symbol | Industry | Yrs | 1-yr | 3-yr | 5-yr | 10-yr | |
| 3M Company | MMM | Conglomerate | 57 | 34.6 | 15.8 | 10.9 | 9 | Stock analysis |
| Air Products & Chem. | APD | Chemical-Specialty | 32 | 9 | 10.6 | 11 | 11.2 | Stock analysis |
| Altria Group Inc. | MO | Tobacco | 45 | 8.9 | 8.1 | 8.6 | 11.6 | Stock analysis |
| American States Water | AWR | Utility-Water | 60 | 9.2 | 14.7 | 10.4 | 6.5 | |
| Automatic Data Proc. | ADP | Business Services | 40 | 10.9 | 10.2 | 7.9 | 13.2 | |
| Becton Dickinson & Co. | BDX | Medical Instruments | 43 | 10.1 | 10.9 | 11.1 | 14.1 | Stock analysis |
| Brown-Forman Class B | BF-B | Beverages-Alcoholic | 31 | 11.8 | 10.6 | 9 | 10 | Stock analysis |
| Chevron Corp. | CVX | Oil & Gas | 27 | 7.9 | 10.9 | 9.6 | 10.7 | Stock analysis |
| Chubb Corp. | CB | Insurance | 33 | 12.1 | 8 | 7 | 9.8 | Stock analysis |
| Cintas Corp. | CTAS | Business Services | 32 | 10.4 | 16.3 | 12.6 | 11.4 | |
| Clarcor Inc. | CLC | Auto Parts | 31 | 23.5 | 17.7 | 14.1 | 10.9 | |
| Colgate-Palmolive Co. | CL | Personal Products | 52 | 6.8 | 7.8 | 10.5 | 11.5 | Stock analysis |
| Donaldson Company | DCI | Industrial Equipment | 28 | 27 | 29.9 | 22.5 | 18.9 | |
| Dover Corp. | DOV | Machinery | 59 | 28 | 16.3 | 12.7 | 11.8 | |
| Eaton Vance Corp. | EV | Financial Services | 34 | 11 | 7.6 | 7.8 | 12.7 | Stock analysis |
| Franklin Resources | BEN | Financial Services | 35 | 23.1 | 12.9 | 11.4 | 15.5 | Stock analysis |
| Genuine Parts Co. | GPC | Auto Parts | 59 | 7 | 8.5 | 7.7 | 6.8 | Stock analysis |
| Gorman-Rupp Company | GRC | Machinery | 42 | 12.1 | 9.3 | 7.4 | 7.4 | |
| Hormel Foods Corp. | HRL | Food Processing | 49 | 17.6 | 16.2 | 16.1 | 13.5 | |
| Illinois Tool Works | ITW | Machinery | 40 | 11.9 | 8.1 | 7.1 | 13.3 | |
| Johnson & Johnson | JNJ | Drugs/Consumer Prod. | 52 | 6.6 | 7 | 7.4 | 9.7 | Stock analysis |
| Lowe's Companies | LOW | Retail-Home Improv. | 52 | 20.6 | 17.9 | 18.6 | 27.9 | |
| McCormick & Co. | MKC | Food Processing | 29 | 8.8 | 9.7 | 9 | 10.2 | Stock analysis |
| McDonald's Corp. | MCD | Restaurants | 39 | 5.1 | 9 | 9.9 | 19.6 | Stock analysis |
| McGraw Hill Financial Inc. | MHFI | Publishing | 42 | 7.1 | 6.3 | 5.9 | 7.2 | |
| Medtronic plc | MDT | Medical Devices | 37 | 8.3 | 7.8 | 8.3 | 14.1 | Stock analysis |
| Nordson Corp. | NDSN | Machinery | 51 | 21.2 | 20.3 | 16.8 | 9.9 | |
| Parker-Hannifin Corp. | PH | Industrial Equipment | 58 | 16.3 | 13.1 | 15.7 | 15.1 | |
| PepsiCo Inc. | PEP | Beverages/Snack Food | 43 | 13.1 | 8.4 | 7.7 | 12.5 | Stock analysis |
| Raven Industries | RAVN | Business Equipment | 28 | 5.4 | 11.9 | 12.7 | 16.7 | |
| Sherwin-Williams Co. | SHW | Paints | 37 | 10 | 14.6 | 9.2 | 12.5 | |
| Sigma-Aldrich Corp. | SIAL | Chemical-Specialty | 38 | 7 | 8.5 | 9.7 | 10.5 | |
| Stepan Company | SCL | Cleaning Products | 47 | 6.2 | 9.2 | 8.9 | 6 | |
| T. Rowe Price Group | TROW | Financial Services | 29 | 15.8 | 12.4 | 12 | 16.6 | Stock analysis |
| UGI Corp. | UGI | Utility-Electric/Gas | 27 | 9.5 | 5.9 | 9 | 7.3 | |
| Valspar Corp. | VAL | Paints | 37 | 17.4 | 14.5 | 12.5 | 11.6 | |
| VF Corp. | VFC | Apparel | 42 | 21 | 19.3 | 13.3 | 15.5 | |
| W.W. Grainger Inc. | GWW | Electronics-Wholesale | 43 | 16.2 | 18.3 | 18.6 | 18.2 | |
| Wal-Mart Stores Inc. | WMT | Retail-Discount | 42 | 5.7 | 11 | 12.6 | 14.8 | Stock analysis |
Check full spreadsheet here.
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