Dividend Champions: Smackdown VI

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David Fish submits:

In previous installments of the Smackdown series, I screened the Dividend Champions list of companies that have paid higher dividends for at least 25 straight years (which can be found here ) using fundamental factors that are important to dividend-oriented investors. But buying a stock at a reasonable valuation is an important part of the equation, as emphasized in a recent article by Chuck Carnevale. So I thought I'd start this Smackdown with a column that I recently added to the Champions spreadsheet, the percent below the 52-week high. Admittedly, this is more of a technical factor, but it's useful for highlighting stocks that are not overpriced...or at least, not as overpriced as they had been. (As always, it's also important to screen for other positive qualities before choosing any investment.) So I screened the latest update as follows:

Step 1: Sort the companies by % from High, which can be found in column AE, all the way to the right-hand side. I decided to focus on stocks that were at least 10% below their 52-week high, which left me with a reasonable 30 companies, on ce I eliminated Questar Corp. ( STR ), which appears to be 67.7% below its high, but spun off QEP Resources ( QEP ) on July 1, trimming more than half of its trading price. I also eliminated Bowl America (BWL.A), which has not increased its dividend in over a year, leaving 29 companies.

Step 2: Sort those companies by yield. I didn't want to select companies that had excessively low payouts, even after declining in price. Eliminating yields below 2.50% cut the list almost in half, leaving a total of 15 companies .

Step 3: Sort those companies by the percentage of their most recent dividend increase, so as to eliminate companies that have been too stingy of late. Dropping those with recent increases of less than 3% shrunk the list of candidates to 10 companies.

Step 4: Sort the remaining companies by price/earnings (P/E) ratios. Since it is earnings that drive stock price (and dividend) growth, I reasoned that this screen would narrow the selection process to companies whose earnings were not being adequately reflected in their stock prices. Eliminating those with P/Es above 20 cut the list to seven companies.

Step 5: Compare the remaining companies (all of which had dividend streaks of at least 28 years) by the percentage increase of Next Year's EPS estimate over This Ye ar's EPS estimate. (See column AC in the spreadsheet.) I wanted to make sure that earnings growth was expected to be healthy enough to support future dividend increases. I eliminated one company (United Bankshares ( UBSI )) whose earnings are expected to increase by only 1.25% next year. The list of remaining candidates follows:

Company

Tck.

# Yrs

10/29Price

Yield

% Inc.

Payout % Ratio

TTM P/E

NY/TY %Growth

% From High

Illinois Tool Works

[[ITW]]

47

45.68

2.98

9.68

41.85

14.06

17.86

13.4

Leggett & Platt Inc.

[[LEG]]

39

20.38

5.30

3.85

92.31

17.42

12.61

19.0

ExxonMobil Corp.

[[XOM]]

28

66.49

2.65

4.76

33.98

12.84

8.87

13.1

Medtronic Inc.

[[MDT]]

33

35.23

2.55

9.76

28.48

11.15

7.92

24.5

Colgate-Palmolive Co.

[[CL]]

47

77.12

2.75

20.45

50.60

18.41

7.07

11.8

Commerce Bancshares

[[CBSH]]

42

36.84

2.55

5.00

37.45

14.68

6.04

14.8

And the Winner Is...

...subjective. All of these companies have attractive properties, but the ultimate winner (as always) will depend on what is most important to each investor. Illinois Tool Works has the highest expected earnings growth next year, followed by Leggett & Platt, which has appeared in several Smackdowns. But Medtronic is more than 20% below its 52-week high, whereas Colgate-Palmolive had the only double-digit percentage dividend increase. All six finalists are deserving of further study for possible purchase.

Bonus Smackdown: The Contenders

I performed the same steps on the Dividend Contenders (increases of 10-24 years) and the "winners" were:

Company

Tck.

# Yrs

10/29 Price

Yield

% Inc.

Payout % Ratio

NY/TY %Growth

% From High

Republic Bancorp KY

[[RBCAA]]

12

20.44

2.80

8.33

18.63

2.58

22.7

Community Bank System

[[CBU]]

17

23.37

4.11

9.09

61.54

4.97

11.8

Cullen/Frost Bankers

[[CFR]]

17

52.44

3.43

4.65

55.05

7.85

13.7

Tompkins Financial Corp.

[[TMP]]

24

38.60

3.52

10.00

43.04

7.96

11.7

Citizens Holding Co.

[[CIZN]]

10

18.45

4.55

10.53

57.14

n/a

30.3

Ohio Valley Banc Corp.

[[OVBC]]

15

18.51

4.54

5.00

63.16

n/a

26.0

1st Source Corp.

[[SRCE]]

21

17.67

3.62

6.67

55.65

n/a

13.2

First Capital Inc.

[[FCAP]]

10

15.00

5.07

5.56

89.41

n/a

11.8

All of the surviving companies are banks. Note that the bottom four did not have earnings estimates for the final screen. I'll leave any further conclusions to the reader.

Disclosure: Author long ITW, XOM, MDT, and CL

See also AAII Sentiment Survey: Bullish Sentiment Falls 17.6% 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 , US Markets

Referenced Stocks: ITW , LEG , QEP , STR , UBSI

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