Comparing Dividend Aristocrats to Dividend Champions

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David Van Knapp submits:

There are two lists that serve as basic source material for investors interested in long-term dividend-raisers. One is the well-known Dividend Aristocrats list published by S&P. (To get the list, click the link here, then Market Attributes, then Dividend Aristocrats. Free registration is required.) The other is the lesser-known Dividend Champions list maintained by The DRiP Investing Resource Center, a non-profit organization.

In my book, the latter list is far more useful than the former. What follows is a comparison between the two lists.

Goals: Both lists, at first glance, appear to have the same goal: To identify companies that have raised their dividends for 25 consecutive years. That would lead one to believe that the lists should be identical. But they are not. The Dividends Aristocrats [DA] list identifies 43 such companies as of February 17, 2010. The Dividend Champions [DC] list names 98 . How can that be? The answer lies in the methods used to compile the lists.

The two organizations use slightly different wording to describe what their lists show. S&P states that the DA list shows companies with "25 consecutive years of increased cash payments." DriP puts it this way: "[C]ompanies that have increased their dividend in at least 25 consecutive years[,…]broadened to include additional companies that [have] paid higher dividends (without necessarily having increased the quarterly rate in every calendar year."

Source Universe: DA uses the S&P 500. If a company is removed from the S&P 500, it is immediately removed from the DA list. If a company is added to the S&P 500, it is not eligible to be included on the DA list until the list is recompiled in mid-December each year. DC does not specify its universe, but it appears simply to be all US-based companies. Note that neither list includes foreign-based companies.

Update Schedule: S&P's DA list is updated once per year, in mid-December. It remains unchanged during the year unless a company is dropped from the S&P 500 as just described. Each month during the year, DA is updated to show whether or not a dividend increase or decrease has been declared by each company on the list. So even if a company declares a decreased dividend early in the year, the company will remain on the DA list for the rest of the year. For example, when GE announced in Feb. 2009 that it intended to cut its dividend, GE remained on the DA list for the rest of 2009, with a notation that its dividend had "decreased in February."

DC is updated every month. GE was deleted from its list at the end of Feb, 2009, as it should have been. DC maintains a running chronology of changes to its list. That chronology notes, "2/27/09: Deleted General Electric (div. reduced)." GE has not appeared on the DC list since that date.

What Qualifies as a Dividend Increase: S&P focuses on "dividend actions." These are positive declarations by a company that it is increasing its dividend.

DriP focuses on the actual dividend paid annually. This introduces another difference between the two lists. A company can increase its dividend distribution year-over-year without declaring a dividend increase. For example, "alternators" are companies that declare a dividend increase every other year, then hold the payment steady between increases. Say that a company pays out four times per year, as is typical of US companies. Then the actual annual dividend distribution will rise each year even if there is a declared increase only every other year. DC picks up such companies, DA does not. (If it is not intuitive to you why every-other-year increases result in annually increasing payouts, see the example in the DC document.)

Another apparent difference is that DC accounts for "special dividends." When a company declares a special dividend, it can appear the following year that it cut its dividend, even though its "regular dividend" has actually increased. DC factors out special dividends for its listing, and therefore it does not drop a company on the basis that it issued a special dividend the preceding year.

Information Provided by Both Lists: Each list gives the company name, ticker symbol, and sector/industry for each company on its list. Each list is available in Excel spreadsheet form. DriP also provides a pdf version of DC. The DA list is alphabetical, while the DC list is in descending order of the dividend streak.

Additional Information Provided: DA provides a year-by-year tabulation (going back 8 years) of dividend actions by the companies on its list. It tells what month the dividend was increased in that year. For the current year, it tells whether a company has decreased its dividend, without removing the stock from the list. If the company has neither increased nor decreased its dividend in the current or preceding year, that cell is left blank in the spreadsheet. Even if a company has declared a decreased dividend, S&P keeps the company on the DA list until the next December update. So, for example, in the list dated 11/11/2009, DA showed 52 companies, even though 8 of them had decreased their dividends (as noted in the document). Two other companies remained on the list even though no increase was noted in either 2008 or 2009. All 10 of those companies have been removed from the 2010 list.

DriP's DC list provides a host of additional information beyond the bare list itself:

  • Number of years of consecutive dividend increases (the leader = Diebold [DBD] at 56 years)
  • Whether the company offers a dividend re-investment plan [DRIP]
  • Price and yield as of the end of each month
  • The old and new quarterly dividend rate
  • The percentage of the most recent dividend increase
  • The ex-dividend, record, and payment dates
  • DriP's source of information for each stock
  • Notes, such as whether a stock's information has been adjusted because it issued a stock dividend, or if its payment schedule is other than quarterly
  • Totals and averages for all the stocks
  • A chronology of all adds, deletes, and methodology adjustments since the DC list was first published in 2007

The DC list uses colors to flag special situations: It uses green to indicate that an increase announcement is expected in the next 30 days. It uses red to indicate that the last dividend increase was more than a year ago (i.e., that this stock is a candidate to be dropped from the list.)

The DC list drops stocks that freeze their dividend across two consecutive years. For example, Johnson Controls ( JCI ) is one of the companies noted earlier that S&P kept on its list even though their spreadsheet showed blanks for both 2008 and 2009 (i.e., no dividend increases). DRiP, on the other hand, noted in its chronology that Johnson Controls was dropped in 9/2009 because "4 divs. pd. 2009 = 2008."

Finally, the DC list includes an addendum of "contenders," companies that have recorded at least 15 but less than 25 years of dividend growth. Thus, DC is really a source for companies that have increased their dividends for 15 years or more I have seen it said that business cycles typically last for 3-8 years. Therefore, a company with a 15-year history of dividend growth has maintained that record through at least two business cycles, while a company with 25 straight years has done it through at least three cycles. Each is an impressive achievement.

Notes on Use: In my opinion, either list should be used only as a starting point for doing your own due diligence. As many banks proved in 2008-09, just because a company has raised its dividend many years in a row does not mean that it has the financial wherewithal to keep doing so. Some financial institutions raised their dividends (and repurchased shares) just months before failing. Utilize a method for determining the financial soundness of a company, and the sustainability of its business model, before investing in it for increasing dividends. I modestly suggest the method laid out in my own The Top 40 Dividend Stocks for 2010: How to Generate Wealth or Income from Dividend Stocks .

Also, just because a company has been raising its dividend for many years does not mean that it has a good yield. If you have a threshold minimum yield of 2.5% or 3%, some of these companies will not meet it. For example, Parker-Hannifin (52-year streak) yields 1.8% at the moment. Tootsie Roll (44 years) yields 1.2%.

Company Comparison: The following table compares the two lists. It shows vividly the difference between them as sources for 25-year dividend raisers. You will note that just one company-Supervalu-appears on the DA list and not on the DC list. The company cut its dividend last October; it is not clear why S&P kept it on the DA list for 2010.

Company

S&P

Dividend Aristocrat?

DRiP

Dividend Champion?

Abbott Laboratories ( ABT )

Yes

Yes (37 years)

ABM Industries ( ABM )

Yes (43)

Aflac ( AFL )

Yes

Yes (27)

Air Products & Chemicals ( APD )

Yes

Yes (27)

American States Water ( AWR )

Yes (55)

Archer Daniels Midland ( ADM )

Yes

Yes (34)

AT&T ( T )

Yes (26)

Automatic Data Processing ( ADP )

Yes

Yes (35)

Bancorp South ( BXS )

Yes (25)

Bank of Hawaii ( BOH )

Yes (30)

Becton Dickinson ( BDX )

Yes

Yes (37)

Bemis ( BMS )

Yes

Yes (26)

Black Hills ( BKH )

Yes (40)

Bowl America (BWL-A)

Yes (38)

Brown-Forman (BF-B)

Yes

Yes (26)

California Water Service ( CWT )

Yes (43)

Carlisle ( CSL )

Yes (33)

CenturyLink ( CTL )

Yes

Yes (35)

Chubb ( CB )

Yes

Yes (44)

Cincinnati Financial ( CINF )

Yes

Yes (49)

Cintas ( CTAS )

Yes

Yes (27)

Clarcor ( CLC )

Yes (26)

Clorox ( CLX )

Yes

Yes (32)

Coca-Cola ( KO )

Yes

Yes (47)

Colgate-Palmolive ( CL )

Yes (46)

Commerce Bancshares ( CBSH )

Yes (41)

Community Trust Banc. ( CTBI )

Yes (28)

Connecticut Water Services ( CTWS )

Yes (40)

Consolidated Edison ( ED )

Yes

Yes (36)

C. R. Bard ( BCR )

Yes

Yes (38)

Diebold ( DBD )

Yes (56)

Dover ( DOV )

Yes

Yes 54)

Eaton Vance ( EV )

Yes (29)

Eli Lilly ( LLY )

Yes

Yes (42)

Emerson Electric ( EMR )

Yes

Yes (53)

Energen ( EGN )

Yes (28)

ExxonMobil ( XOM )

Yes

Yes (27)

Family Dollar Stores ( FDO )

Yes

Yes (34)

Federal Realty ( FRT )

Yes (42)

Franklin Resources ( BEN )

Yes (29)

Genuine Parts ( GPC )

Yes (53)

Gorman-Rupp ( GRC )

Yes (35)

H. B. Fuller ( FUL )

Yes (40)

Helmerich & Payne ( HP )

Yes (37)

Hormel Foods ( HRL )

Yes (44)

Illinois Tool Works ( ITW )

Yes (45)

Integrys Energy ( TEG )

Yes

Yes (51)

Johnson & Johnson ( JNJ )

Yes

Yes (47)

Kimberly-Clark ( KMB )

Yes

Yes (37)

Lancaster Colony ( LANC )

Yes (47)

Leggett & Platt ( LEG )

Yes

Yes (38)

Lowe's ( LOW )

Yes

Yes (47)

McDonald's ( MCD )

Yes

Yes (33)

McGraw-Hill ( MHP )

Yes

Yes (37)

Medtronic ( MDT )

Yes (32)

MGE Energy ( MGEE )

Yes (34)

Middlesex Water ( MSEX )

Yes (37)

Mine Safety Appliances ( MSA )

Yes (37)

National Fuel Gas ( NFG )

Yes (39)

Nordson ( NDSN )

Yes (46)

Northwest Natural Gas ( NWN )

Yes (54)

Nucor ( NUE )

Yes (37)

Old Republic International ( ORI )

Yes (27)

Parker-Hannifin ( PH )

Yes (52)

Pentair ( PNR )

Yes (34)

Pepsico ( PEP )

Yes

Yes (37)

Piedmont Natural Gas ( PNY )

Yes (31)

Pitney Bowes ( PBI )

Yes

Yes (27)

PPG Industries ( PPG )

Yes

Yes 38)

Procter & Gamble ( PG )

Yes

Yes (53)

Questar ( STR )

Yes

Yes (30)

RLI ( RLI )

Yes (35)

RPM International ( RPM )

Yes (36)

Sherwin-Williams ( SHW )

Yes

Yes (31)

Sigma-Aldrich ( SIAL )

Yes

Yes (33)

SJW ( SJW )

Yes (43)

Sonoco Products ( SON )

Yes (26)

Stanley Works ( SWK )

Yes

Yes (42)

Stepan ( SCL )

Yes (42)

SuperValu ( SVU )

Yes

Sysco ( SYY )

Yes (40)

Target ( TGT )

Yes

Yes (42)

Teleflex ( TFX )

Yes (31)

Telephone & Data Systems ( TDS )

Yes (34)

Tennant ( TNC )

Yes (38)

Three M ( MMM )

Yes

Yes (51)

Tootsie Roll ( TR )

Yes (44)

United Bancshares ( UBSI )

Yes (36)

Universal ( UVV )

Yes (39)

Valspar ( VAL )

Yes (29)

Vectren ( VVC )

Yes (50)

V. F. ( VFC )

Yes

Yes (37)

Walgreen ( WAG )

Yes

Yes (34)

Wal-Mart ( WMT )

Yes

Yes (35)

Washington REIT ( WRE )

Yes (38)

Wesco Financial ( WSC )

Yes (38)

Weyco ( WEYS )

Yes (28)

WGL Holdings ( WGL )

Yes (33)

W. W. Grainger ( GWW )

Yes

Yes (38)



Author's Disclosure : Long PG, EMR, MMM, JNJ, CB, ABT, PEP, CTL, MCD, T, SHW

See also Productivity: Cyclical or Structural? on seekingalpha.com



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks


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