In my strategy, I look for companies that have raised dividends for at least ten years in a row. I also add things like P/E, yield requirements and growth requirements. If you have read my stock analyses before, you would note that I also look in trends in earnings per share, dividends per share, dividend payout ratios, as I gauge stability of the business, the dividend and try to make an educated guess whether the good times can continue on.
I believe I have focused a lot more than I should on the initial yield. I do not believe I have discussed the importance of looking at that yield in conjunction with its corresponding dividend growth part. If you have a minimum yield requirement, you may consider rethinking the way you do things, because you may be missing out on the next great dividend growth story merely because it never yielded a certain percentage. As I have discussed before, I will consider looking at yield but only in conjunction with the dividend growth I see.
I ran a screen for dividend champion companies that have managed to boost dividends/distributions by 5%/year in the past 1,3,5,10 year periods. My screen came out with 58 companies. Thirty-six of those companies had yields exceeding 2% as of the end of January, and twenty-two had yields that were lower than 2%. The results can be accessed from this spreadsheet.
Company
Name
|
Ticker
Symbol
|
No.
'Yrs
|
Dividend
Yield
|
1-yr
DG
|
3-yr
DG
|
5-yr
DG
|
10-yr
DG
|
3M
Company
|
MMM
|
58
|
2.83
|
19.9
|
20.2
|
14.3
|
9.3
|
AFLAC
Inc.
|
AFL
|
33
|
2.76
|
6.8
|
5.6
|
6.7
|
13.6
|
Air
Products & Chem.
|
APD
|
33
|
2.45
|
6.0
|
8.6
|
10.8
|
9.9
|
Altria
Group Inc.
|
MO
|
46
|
3.67
|
8.4
|
8.4
|
8.4
|
11.6
|
American
States Water
|
AWR
|
61
|
2.11
|
5.3
|
11.2
|
10.9
|
6.9
|
Archer
Daniels Midland
|
ADM
|
41
|
3.43
|
16.7
|
17.0
|
13.3
|
12.7
|
Automatic
Data Proc.
|
ADP
|
41
|
2.50
|
16.3
|
12.4
|
10.5
|
13.7
|
Becton
Dickinson & Co.
|
BDX
|
44
|
1.79
|
10.1
|
10.1
|
10.7
|
13.1
|
Brown-Forman
Class B
|
BF-B
|
32
|
1.38
|
8.9
|
10.4
|
9.9
|
9.4
|
C.R.
Bard Inc.
|
BCR
|
44
|
0.50
|
7.0
|
5.7
|
5.6
|
6.3
|
Carlisle
Companies
|
CSL
|
39
|
1.33
|
17.0
|
13.1
|
10.8
|
8.6
|
Cintas
Corp.
|
CTAS
|
33
|
1.25
|
23.5
|
17.9
|
16.9
|
12.6
|
Clarcor
Inc.
|
CLC
|
32
|
1.83
|
15.5
|
18.3
|
15.6
|
12.2
|
Coca-Cola
Company
|
KO
|
54
|
3.25
|
8.2
|
9.0
|
8.4
|
9.0
|
Colgate-Palmolive
Co.
|
CL
|
52
|
2.32
|
5.6
|
7.1
|
8.1
|
10.5
|
Computer
Services Inc.
|
CSVI
|
44
|
2.78
|
23.7
|
21.0
|
18.1
|
16.2
|
Donaldson
Company
|
DCI
|
29
|
2.41
|
5.5
|
24.2
|
22.0
|
16.9
|
Dover
Corp.
|
DOV
|
60
|
2.76
|
5.8
|
13.9
|
12.9
|
11.5
|
Eaton
Vance Corp.
|
EV
|
35
|
3.67
|
11.5
|
9.2
|
9.0
|
11.6
|
Emerson
Electric
|
EMR
|
59
|
3.89
|
7.1
|
5.4
|
6.9
|
8.4
|
Erie
Indemnity Company
|
ERIE
|
26
|
3.11
|
7.2
|
7.2
|
7.2
|
7.7
|
ExxonMobil
Corp.
|
XOM
|
33
|
3.64
|
6.7
|
9.7
|
10.6
|
9.7
|
Federal
Realty Inv. Trust
|
FRT
|
48
|
2.54
|
10.6
|
8.2
|
6.0
|
5.3
|
Franklin
Resources
|
BEN
|
36
|
2.01
|
25.0
|
17.8
|
15.4
|
16.2
|
Genuine
Parts Co.
|
GPC
|
60
|
2.92
|
5.2
|
7.7
|
8.2
|
6.9
|
Gorman-Rupp
Company
|
GRC
|
43
|
1.66
|
9.5
|
9.1
|
8.5
|
8.2
|
H.B.
Fuller Company
|
FUL
|
46
|
1.35
|
10.9
|
15.6
|
12.9
|
7.8
|
Hormel
Foods Corp.
|
HRL
|
50
|
1.36
|
25.0
|
18.6
|
18.9
|
14.4
|
Illinois
Tool Works
|
ITW
|
41
|
2.33
|
14.9
|
11.2
|
9.6
|
13.1
|
Jack
Henry & Associates
|
JKHY
|
26
|
1.36
|
13.6
|
29.5
|
21.4
|
18.7
|
Johnson
& Johnson
|
JNJ
|
53
|
2.85
|
6.9
|
7.1
|
6.9
|
8.8
|
Kimberly-Clark
Corp.
|
KMB
|
44
|
2.82
|
6.9
|
7.5
|
7.1
|
7.6
|
Lancaster
Colony Corp.
|
LANC
|
53
|
1.97
|
5.6
|
8.8
|
8.9
|
6.4
|
Lowe's
Companies
|
LOW
|
53
|
1.66
|
24.4
|
19.3
|
20.6
|
26.1
|
McCormick
& Co.
|
MKC
|
30
|
1.84
|
8.1
|
8.9
|
9.0
|
9.6
|
McGraw
Hill Financial Inc.
|
MHFI
|
43
|
1.60
|
10.0
|
9.0
|
7.0
|
7.2
|
Medtronic
plc
|
MDT
|
38
|
1.96
|
17.1
|
10.7
|
9.8
|
14.3
|
Nordson
Corp.
|
NDSN
|
52
|
1.34
|
18.4
|
19.7
|
18.2
|
10.8
|
Parker-Hannifin
Corp.
|
PH
|
59
|
2.49
|
21.7
|
15.9
|
18.7
|
16.0
|
Pentair
Ltd.
|
PNR
|
40
|
2.77
|
16.4
|
13.3
|
11.0
|
9.4
|
PepsiCo
Inc.
|
PEP
|
44
|
3.08
|
9.1
|
9.5
|
8.2
|
10.9
|
Questar
Corp.
|
STR
|
37
|
3.55
|
12.0
|
8.1
|
9.2
|
6.6
|
Raven
Industries
|
RAVN
|
29
|
3.40
|
6.1
|
8.7
|
10.9
|
14.7
|
RLI
Corp.
|
RLI
|
40
|
1.21
|
5.6
|
6.0
|
5.6
|
9.6
|
RPM
International Inc.
|
RPM
|
42
|
2.69
|
7.7
|
6.6
|
5.0
|
5.6
|
SEI
Investments Company
|
SEIC
|
25
|
1.36
|
9.1
|
17.0
|
20.4
|
16.4
|
Sherwin-Williams
Co.
|
SHW
|
38
|
1.24
|
21.8
|
19.8
|
13.2
|
12.6
|
Stanley
Black & Decker
|
SWK
|
48
|
2.34
|
4.9
|
5.9
|
9.8
|
6.5
|
Stepan
Company
|
SCL
|
48
|
1.53
|
5.8
|
8.0
|
8.3
|
6.4
|
T.
Rowe Price Group
|
TROW
|
30
|
3.13
|
18.2
|
15.2
|
14.0
|
16.3
|
Target
Corp.
|
TGT
|
48
|
2.86
|
13.7
|
17.8
|
20.8
|
19.6
|
Tompkins
Financial Corp.
|
TMP
|
29
|
3.12
|
4.9
|
5.2
|
5.0
|
5.8
|
UGI
Corp.
|
UGI
|
28
|
2.46
|
10.1
|
7.9
|
8.2
|
7.4
|
Valspar
Corp.
|
VAL
|
38
|
1.69
|
13.9
|
15.4
|
14.0
|
11.9
|
VF
Corp.
|
VFC
|
43
|
2.27
|
20.1
|
20.6
|
17.0
|
17.1
|
W.W.
Grainger Inc.
|
GWW
|
44
|
2.16
|
10.1
|
14.5
|
17.2
|
17.4
|
Walgreens
Boots Alliance Inc.
|
WBA
|
40
|
1.82
|
6.9
|
11.7
|
17.4
|
19.5
|
Weyco
Group Inc.
|
WEYS
|
34
|
2.94
|
5.3
|
6.2
|
5.0
|
12.2
|
The next step is looking at each one of those, and making sure dividend growth was not a mere function of expansion in the dividend payout ratio. One still needs to focus on evaluating earnings for past and future growth. In my usual screens, I would also get rid of companies at the top of my acceptable valuation range. Some of these companies like Illinois Toolworks (ITW), W.W. Grainger (GWW) and V.F. Corp (VFC) are examples of what could fall through the cracks by merely focusing on screening criteria if I had used an entry yield higher than 2.50%. Investors should look beyond screening criteria in an effort to improve the quality and breadth of potential candidates for their portfolios.
In my case, my holding period is the next 20- 30 years. Therefore, I do not focus on the yields today, but on the highest potential future yields on cost. A stock yielding 1% today that will generate an yield on cost of 20% in 20 years is potentially more valuable to me than a slow moving utility or a telecom company which is yielding 4% - 5% today, and will yield 8% - 10% on cost in 20 – 25 years.
On the other hand, the future is unknown. Therefore, it may make sense to hold both types of companies, since each group will work best under different conditions. To reiterate the information in the paragraphs above, you need to consider the trade-off between yield and growth on the individual company level and at the portfolio level.This will ultimately strengthen my portfolio. For example, a company like Visa (V) could deliver mind-boggling yields on cost and total returns over the next 20 - 30 years. However, it will take time for the yield to grow, and there is always the risk that this future growth doesn't materialize. On the other hand, a company like AT&T (T) will not grow a lot each year, but it could provide respectable and dependable dividend payments that match the rate of inflation over time. If I were starting from scratch, I would be considering essentially building a basket of those companies, and investing 30 – 40 – 50 companies at a time.
Relevant Articles:
- The Tradeoff between Dividend Yield and Dividend Growth
- The importance of yield on cost
- 24 Dividend Champions for Further Research
- A Dividend Portfolio for Early Retirees
- Why Investors Should Look Beyond Typical Dividend Growth Screens
