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