Twenty-Four Attractively Valued Dividend Champions For Further Research – ValueWalk Premium
Tom Gayner

Twenty-Four Attractively Valued Dividend Champions For Further Research

I monitor the list of dividend champions regularly, using my screening criteria. This is helpful to identify quality companies available at good prices, which may be good additions to my portfolio at the right time.

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Tom Gayner

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My screening process helps me narrow down the list of dividend champions to a more manageable level for further research. This of course is the first phase in company selection process; once the list is narrowed down to a more manageable level,

The screening criteria I used includes the following factors:

1) A dividend streak of annual dividend increases exceeding 25 years

This is understandable, since to be a dividend champion, a company needs to have increased dividends for at least 25 years in a row. I view a long streak of annual dividend increases as an indicator of business quality. After all, only a certain type of company can afford to grow the business, while also showering shareholders with more cash each year for over a quarter of a century. A long streak of dividend increases is a testament to a consistency in a business, strong competitive advantages, and an industry that quietly builds wealth to long-term shareholders over time.

2) A forward P/E ratio below 20

I want to remain disciplined, and focus on companies which are not overvalued. I do not want to overpay for future growth, as I also do not want to buy a cheap company that doesn’t grow either. To me valuation is important, because even the best company in the world may not be worth purchasing at an inflated price .If you overpay for a security, future returns could suffer, because you lock in a lower yield at the start.

3) A forward dividend payout ratio below 60%

I want to have a margin of safety in the dividend payment, which is what a lower dividend payout ratio helps to identify. I am after companies that reinvest a portion of earnings to grow the business and distributes the excess to shareholders. An adequate payout ratio provides a buffer in case there is some short term fluctuations in earnings.

4) Annual dividend growth exceeding 5% over the past five and ten years

Historical dividend growth has been around 5% – 6% on US stocks over the past 90 years. I wanted to find companies which consistently grow dividends, and do not materially decrease them over time. I also screened out companies whose last raise was less than 5%. Again, I value consistency in dividend growth.

5) A history of rising earnings per share over the past decade

Rising earnings per share are the fuel behind future dividend increases. There is a natural limit to dividend growth, if a company does not grow its bottom line. A company that grows earnings per share can afford to increase dividends, and reinvest more into the business. This also provides an additional margin of safety in the dividends, because a company has more tools within its disposal to tackle things such as a temporary high payout ratio. By growing earnings, a company can simply grow itself out of a higher payout ratio, as dividends grow slightly slower until the payout is normalized.

As a result of running this screen, I ended up with a list of the following dividend champions for further research:

Name Symbol Number of Annual Dividend Increases Last Price Annual Div Rate Annual Div Yield Dividend Payout Ratio Forward P/E 5yr Dividend Growth 10yr Dividend Growth Most Recent Increase
A.O. Smith Corp. AOS 25 45.25 0.88 1.94% 32%      16.70      27.00      19.94      22.22
BancFirst Corp. OK BANF 25 57.56 1.2 2.08% 32%      15.27        9.53        8.54      42.86
Carlisle Companies CSL 42 136.68 1.6 1.17% 22%      18.42      12.89        9.88        8.11
Eaton Vance Corp. EV 38 41.93 1.4 3.34% 44%      13.31        9.31        7.78      12.90
Franklin Electric Co. FELE 27 45.8 0.58 1.27% 24%      19.08        8.92        6.57      20.83
General Dynamics GD 28 173.59 4.08 2.35% 35%      14.82      10.63      10.48        9.68
Genuine Parts Co. GPC 63 102.92 3.05 2.96% 51%      17.30        5.69        6.33        5.90
Gorman-Rupp Company GRC 46 30.66 0.54 1.76% 32%      18.04        9.10        7.14        8.00
W.W. Grainger Inc. GWW 48 271.87 5.76 2.12% 32%      15.10        8.35      13.21        5.88
Illinois Tool Works ITW 44 149.21 4 2.68% 50%      18.72      16.45      11.25      28.21
Johnson & Johnson JNJ 57 140.23 3.8 2.71% 44%      16.34        6.45        7.03        5.56
Lowe’s Companies LOW 56 99.31 2.2 2.22% 36%      16.39      21.22      18.36      17.07
Medtronic plc MDT 41 97.96 2 2.04% 39%      19.02      12.20      11.88        8.70
McGrath Rentcorp MGRC 27 60.98 1.5 2.46% 44%      18.04        6.03        5.08      10.29
3M Company MMM 61 171.86 5.76 3.35% 55%      16.32      16.45      10.52        5.88
Parker-Hannifin Corp. PH 63 166.56 3.52 2.11% 30%      14.30      10.56      12.32      15.79
PPG Industries Inc. PPG 47 114.68 1.92 1.67% 31%      18.38        8.98        5.94        6.67
Stepan Company SCL 51 90.84 1 1.10% 20%      17.85        7.31        8.09      11.11
SEI Investments Company SEIC 28 54.34 0.66 1.21% 21%      17.53      11.38      14.87      10.00
1st Source Corp. SRCE 32 45.25 1.08 2.39% 31%      12.93        9.20        6.18        8.00
Stanley Black & Decker SWK 51 144.56 2.64 1.83% 31%      16.93        5.44        7.43        4.76
T. Rowe Price Group TROW 33 107.4 3.04 2.83% 44%      15.48      13.00      11.30        8.57
United Technologies UTX 25 126.62 2.94 2.32% 37%      16.01        5.25        7.74        5.00
Walgreens Boots Alliance Inc. WBA 43 52.8 1.76 3.33% 29%        8.64        7.32      15.01      10.00

I just wanted to caution you that this is not an automatic recommendation to buy or sell securities. I am not a financial advisor, just someone who writes about dividend investing. Any decision you make about investments is solely your responsibility. This means that each company needs to be analyzed in detail, both from a quantitative and qualitative standpoint. In addition, just because a company looks attractively valued today, that doesn’t mean that this company cannot get cheaper from here.

Furthermore, I am sharing a rudimentary process for screening the list of dividend champions on a regular basis, in order to show investors how I go about identifying companies, and build a diversified portfolio over time. I have found that the ability to stick to a process, invest regularly, and to keep holding through patiently thick or thin is my edge in investing. By sharing my experience, I am hopeful to inspire you into developing your own methodology, and use it to work towards your financial objectives.

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