The first step I take is to start with the list of the US dividend champions, which is maintained and updated by David Fish every single month. To be a dividend champion, a company must have been able to increase its annual dividends per share for a minimum of 25 consecutive years. Only a company with a defensive business model can afford to grow the business, while also raising the dividend annually for a quarter of a century. Being a dividend champion is an indication of quality.
The second step I take is to focus on valuation. I look at the companies which sell at a P/E of 20 or lower. We look at valuation, in an effort to avoid overpaying dearly for an investment. Even the best company in the world is not worth overpaying for. When you buy at a lower price, your future expected returns are higher than buying at a higher price. I typically use Yahoo Finance’s trailing 12 months earnings for the earnings portion of the Price to Earnings calculation. However, I have found that one-time items have made it very difficult to determine the correct earnings power. This is why I use P/E based on forward earnings as a quick trick to scan a large group of companies, without getting bogged down in researching 100 one-time hits/gains to earnings.
The third step I take is to focus on dividend safety. I accomplish this task by eliminating companies that have a dividend payout ratio above 60%. A dividend, which is well covered by earnings, is safer even when a recession hits and earnings dip temporarily.
The fourth step I take is to look for annual growth in dividends per share. In retirement, we are looking for an income stream that will at least maintain its purchasing power from the destructive forces of inflation. In this case, I focused my attention on companies where annual dividend payments grew faster than 3%/year over the past decade.
The next step I take is to evaluate trends in earnings per share over the past decade. I want to determine if dividend growth was supported by growth in earnings. Without growth in earnings, future dividend growth will run on fumes for a while, until it stops. The whole premise of successful dividend growth investing is to identify a company for the diversified portfolio with a growing dividend, purchase it at an attractive valuation, and have the company grow its earnings, dividends and intrinsic value for as long as possible.
After applying my criteria above on the list of dividend champions, I come out with the following list of companies for further research:
Company Name
|
Symbol
|
Dividend Track Record Years
|
Forward P/E
|
10 Year Annual Dividend Growth
|
Dividend Yield
|
Dividend Payout Ratio
|
Dividend/Share
|
Last Price
|
AFLAC Inc.
|
AFL
|
34
|
11.04
|
11.68%
|
2.30%
|
24.48%
|
$ 1.66
|
$ 74.84
|
Target Corp.
|
TGT
|
49
|
13.01
|
18.09%
|
4.41%
|
55.50%
|
$ 2.32
|
$ 54.40
|
T. Rowe Price Group
|
TROW
|
31
|
13.59
|
14.45%
|
3.27%
|
42.69%
|
$ 2.19
|
$ 69.70
|
Walgreens Boots Alliance Inc.
|
WBA
|
41
|
14.77
|
17.83%
|
1.85%
|
26.91%
|
$ 1.48
|
$ 81.25
|
Tompkins Financial Corp.
|
TMP
|
30
|
15.23
|
5.45%
|
2.34%
|
34.98%
|
$ 1.77
|
$ 77.06
|
W.W. Grainger Inc.
|
GWW
|
46
|
15.28
|
15.84%
|
2.95%
|
42.96%
|
$ 4.88
|
$173.58
|
Lowe's Companies
|
LOW
|
54
|
15.29
|
22.92%
|
1.73%
|
25.14%
|
$ 1.33
|
$ 80.91
|
Carlisle Companies
|
CSL
|
40
|
15.58
|
9.60%
|
1.37%
|
20.61%
|
$ 1.35
|
$ 102.06
|
Bemis Company
|
BMS
|
34
|
15.8
|
4.32%
|
2.67%
|
41.20%
|
$ 1.17
|
$ 44.86
|
1st Source Corp.
|
SRCE
|
30
|
16.49
|
4.01%
|
1.64%
|
25.62%
|
$ 0.72
|
$ 46.35
|
Stepan Company
|
SCL
|
49
|
16.53
|
6.91%
|
0.95%
|
15.19%
|
$ 0.79
|
$ 85.96
|
Johnson & Johnson
|
JNJ
|
55
|
16.57
|
8.03%
|
2.65%
|
41.12%
|
$ 3.15
|
$ 126.92
|
Eaton Vance Corp.
|
EV
|
36
|
16.59
|
9.85%
|
2.37%
|
38.25%
|
$ 1.09
|
$ 47.29
|
H.B. Fuller Company
|
FUL
|
48
|
16.66
|
8.26%
|
1.18%
|
18.30%
|
$ 0.56
|
$ 50.98
|
VF Corp.
|
VFC
|
44
|
16.84
|
12.17%
|
3.13%
|
47.96%
|
$ 1.53
|
$ 53.71
|
Stanley Black & Decker
|
SWK
|
49
|
16.91
|
6.71%
|
1.70%
|
28.31%
|
$ 2.29
|
$ 136.79
|
Sonoco Products Co.
|
SON
|
35
|
16.94
|
4.28%
|
3.06%
|
48.50%
|
$ 1.46
|
$ 51.00
|
UMB Financial Corp.
|
UMBF
|
25
|
17.14
|
6.75%
|
1.43%
|
23.80%
|
$ 0.99
|
$ 71.29
|
Medtronic plc
|
MDT
|
39
|
17.16
|
14.66%
|
2.02%
|
33.67%
|
$ 1.67
|
$ 85.09
|
Genuine Parts Co.
|
GPC
|
61
|
17.63
|
6.92%
|
2.89%
|
50.09%
|
$ 2.65
|
$ 93.28
|
Commerce Bancshares
|
CBSH
|
49
|
17.78
|
4.62%
|
1.66%
|
28.20%
|
$ 0.86
|
$ 54.23
|
RPM International Inc.
|
RPM
|
43
|
18
|
5.56%
|
2.22%
|
38.33%
|
$ 1.15
|
$ 53.99
|
Becton Dickinson & Co.
|
BDX
|
45
|
18.02
|
12.16%
|
1.57%
|
26.18%
|
$ 2.71
|
$ 186.48
|
Leggett & Platt Inc.
|
LEG
|
45
|
18.15
|
6.86%
|
2.76%
|
46.69%
|
$ 1.34
|
$ 52.08
|
Hormel Foods Corp.
|
HRL
|
51
|
19.03
|
15.27%
|
2.05%
|
34.48%
|
$ 0.60
|
$ 33.12
|
General Dynamics
|
GD
|
26
|
19.04
|
12.81%
|
1.66%
|
29.38%
|
$ 3.12
|
$ 202.24
|
SEI Investments Company
|
SEIC
|
26
|
19.14
|
16.29%
|
1.12%
|
20.61%
|
$ 0.54
|
$ 50.15
|
Kimberly-Clark Corp.
|
KMB
|
45
|
19.16
|
7.06%
|
3.00%
|
55.18%
|
$ 3.73
|
$ 129.51
|
Illinois Tool Works
|
ITW
|
42
|
19.97
|
12.55%
|
1.85%
|
34.14%
|
$ 2.40
|
$ 140.37
|
The data was obtained from a watchlist I maintain at Yahoo! Finance. The data was obtained on Monday, May 29, 2017.
This list is not an automatic buy. It is just a list of companies for future research, which could potentially be added to an investor’s diversified dividend growth portfolio.
It is important to keep screening the list of dividend champions regularly, because different companies are available for sale at different times. It is also important to allocate money to a dividend portfolio regularly. It is time in the market that creates wealth with equities, not timing the market.
Thank you for reading!
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