One of the best ways to come up with ideas for further research is the list of dividend champions. I use it regularly in order to come up with companies for further research.
I was able to screen the list of dividend champions, against my screening criteria. The criteria I applied include:
1) Being member of the dividend champions list. This is an elite list of companies that have managed to boost dividends every single years for at least a quarter of a century.
2) Having a P/E ratio below 20. I have discussed below my reasoning behind using a P/E ratio of 20.
3) Dividend payout ratio below 60%. To me, having an adequate margin of safety in dividends is essential for sound dividend investing. I go beyond dividend payout ratios however – I also look at trends in earnings, dividends and the trend in the ratio itself. For this exercise, I included two companies that I believe will deliver satisfactory returns, whose payout ratios were above 60%. You will see them by browsing the list below
4) The company is able to grow earnings and dividends over the past decade. I took out companies that have not been able to grow earnings per share over the past decade. I am also watchful for companies where earnings per share growth has flattened over the past few years. Without earnings growth, we won’t be able to have dividend growth and the value of the business won’t increase.
5) Last, but not least I also removed companies that have been unable to grow distributions above the rate of inflation, and also have low yields today.
The results of the screen are listed below:
Symbol
|
Years
Dividend Increases
|
Trailing
P/E
|
Dividend
Yield
|
Dividend/Share
|
Price
|
Dividend
Payout Ratio
|
5
year annual dividend growth
|
10
year annual dividend growth
|
(T)
|
33
|
15.96
|
5.82%
|
$
1.95
|
$ 33.97
|
65%
|
2.2%
|
3.7%
|
(WBA)
|
42
|
16.28
|
2.38%
|
$
1.50
|
$ 64.48
|
27%
|
12.9%
|
17.8%
|
(AFL)
|
34
|
12.69
|
2.14%
|
$
1.70
|
$ 83.94
|
25%
|
6.2%
|
11.7%
|
(SCL)
|
49
|
20.59
|
1.14%
|
$
0.81
|
$ 79.07
|
16%
|
8.2%
|
6.9%
|
(KMB)
|
45
|
18.77
|
3.42%
|
$
3.78
|
$112.41
|
57%
|
6.3%
|
7.1%
|
(TROW)
|
31
|
16.14
|
2.40%
|
$
2.22
|
$ 93.98
|
40%
|
11.7%
|
14.5%
|
(GPC)
|
61
|
19.13
|
3.02%
|
$
2.67
|
$ 88.35
|
52%
|
7.5%
|
6.9%
|
(PNR)
|
41
|
20.64
|
1.94%
|
$
1.37
|
$ 70.13
|
35%
|
11.2%
|
9.3%
|
(MO)
|
48
|
8.56
|
4.07%
|
$
2.44
|
$ 64.92
|
69%
|
8.3%
|
11.6%
|
(HRL)
|
51
|
18.75
|
2.24%
|
$
0.66
|
$ 30.38
|
40%
|
17.9%
|
15.3%
|
(GD)
|
26
|
20.25
|
1.64%
|
$
3.20
|
$204.99
|
30%
|
10.2%
|
12.8%
|
Data as of October 27, 2017. Source: Yahoo Finance, Dave Fish and Author calculations
I have listed the company name, ticker, and years of annual dividend increases along with a few tidbits of information to aid in my decision making. Those include dividend growth rates over the past five and ten years, along with growth in earnings per share. We also include information on valuation such as P/E and dividend yield, along with dividend payout ratios.
This screening criteria is a work in progress in itself. There is a degree of subjectivity as to which companies I include, and which I exclude. In my last screen for example, I excluded W.W. Grainger (GWW) because its earnings had been on the decline since 2013. Yet, I included Genuine Parts Company (GPC), where earnings per share are also not growing as of recently. This was mostly because I believe that the latter has a better chance of growing earnings per share over time. It is also because the number of years of flat earnings was shorter with GPC than with GWW.
All of those companies are not automatic buy ideas however. The investor needs to review each company in detail, before deciding for themselves if those are suitable investments for them.
There are circumstances where an investment may be attractive today, but the investor will not purchase it because they are overweight that security or that they recently purchased shares in it. I believe in diversification across companies and industries and time.
Relevant Articles:
- How to value dividend stocks
- Dividend Champions - The Best List for Dividend Investors
- Key Ingredients for Successful Dividend Investing
- 19 Dividend Champions For Further Research