Top 10 Dividend Champions’ Price-to-Earnings Ratios

The price-to-earnings ratio (P/E) is an investment metric commonly used by investors to help determine whether or not the price they’re paying for a company represents a good value.  As Warren Buffett is oft quoted, “Price is what you pay.  Value is what you get.”

Know the difference between price and value.

Price-to-earnings can signal many things.  For instance, if the price per share is 40 or 50 times the current earnings per share of a firm, investors may take that information to mean the company is expected to grow its revenues quickly.  In other words, investors are paying for “promise”.

Conversely, a firm with a share price only 7 or 8 times current earnings per share can be viewed negatively.  Investors may presume the firm’s growth prospects to be negligible since the market isn’t willing to pay a far larger multiple for the promise of increasing future earnings. 

Since signs of growth get media attention and lots of “votes” in the market, investors often gravitate to stocks with high price-to-earnings multiples, increasing the demand, driving up the price, and widening the P/E ratio even further.  Stocks found in a cycle in which excess demand is driven by perception may be referred to as “over bought”.

To avoid paying too much for over bought shares, I prefer Dividend Champions.  In Dividend Farming the objective is to maximize the return while minimizing the risk; the risk of paying too much for an investment. 

Stocks with solid records of dividend growth aren’t usually equated with high growth companies in the context of stock valuation.  As a result, they’re not inclined to be over bought by institutions, momentum investors, day traders, and the like. 

Below are the 10 Dividend Champions with the lowest, generally best, P/E as of 1/31/19.

Company	P/E
Consolidated Edison	3.53
Black Hills Corp.	6.76
Old Republic International	7.22
NACCO Industries	7.80
Artesian Resources	8.49
Franklin Resources	9.20
Nucor Corp.	10.16
First Financial Corp.	11.42
Eaton Vance Corp.	11.64
Community Trust Banc.	12.12

Knowing Dividend Champions are less susceptible to trend induced price inflation than alternatives isn’t a cure-all by itself.  The P/E ratio is still one of several indicators of a company’s ability to be profitable in general.

 

Because price-to-earnings is a ratio it’s possible to have the ratio widen not because the stock is over-bought, but because the firm is struggling to generate earnings.  Mathematically you can increase the ratio by increasing the numerator (over-priced) while holding the denominator steady, or decreasing the denominator (poor earnings) while holding the numerator steady, or some combination of the two. 

Looking for firms with low P/E and other solid metrics, like length of dividend payments, debt-to-equity, and Price-to-Book, discussed in a future post, helps determine whether the price being asked for a particular issue represents a good value.

In the case of the 10 Dividend Champions with the best P/E ratio a true value investor will look beyond that metric alone before adding to his or her dividend farm.  However, filtering by Dividend Champion and rock solid P/E ratios is not a bad way to begin the selection process. 

With that said, be careful when looking at P/E.  Using the P/E based on the trailing twelve-month (TTM) earnings means the ratio is based on something akin to fact.  Alternatively, some investors are interested in the P/E incorporating earnings projections for the coming year. 

In my view using the forecast means my P/E decision criteria becomes one of shear speculation.  In the aviation industry it’s said good information leads to good decisions.  Speculation should not be mistaken for good information whether you’re flying airplanes or farming dividends.  Best practice suggests sticking with the TTM in the price-to-earnings calculation to help generate the margin of safety in your investment and keeping your Dividend Farm healthy and growing properly.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Perspectives offered should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Dividend Champions: Best Dividend Growers

10 Best Dividend Growers

It’s been said in business that a firm can’t cut its way to sustained profitability.  It’s also been said that if a firm’s not growing, it’s dying.  The universal truth of those statements may be debated.  What’s not debatable is actual, long-term performance.

Ben Graham’s rules for value investors focus on the selection of well established, conservatively financed firms.  Graham defines such firms as those with a record of paying dividends for more than 10 consecutive years, among other criteria. 

The Dividend Champions list provides a host of firms exceeding that criteria.  They are paying out dividends for more than twice as long as Graham recommends while increasing those payments annually.

Below is a list of firms having delivered the largest percentage growth in their dividend payments during the past decade.  This list was filtered from the Dividend Champions updated on 1.31.19.

Company	10-year Growth Rate %
Helmerich & Payne Inc.	31.0
A.O. Smith Corp.	19.9
Stryker Corp.	19.0
Roper Technologies Inc.	19.0
Lowe's Companies	18.4
Jack Henry & Associates	17.3
Cintas Corp.	16.1
Target Corp.	15.4
Computer Services Inc.	15.0
Hormel Foods Corp.	15.0

The top end of this range is the equivalent of seeing your annual pay for each of the past 10 years rise at a rate compounded at 31% during the period; effectively what Helmerich & Payne has done. 

Another way to think of it is to realize that if your annual pay started at $50,000 ten years ago it would be in the neighborhood of $65,000 to $70,000 today.  In the case of dividends, however, you don’t have to work at it.  It just happens.  This is the beauty of Dividend Farming.

The Top 10 Dividend Growers represent the upper end of the Dividend Champions club.  However, any firm throwing off dividends at an increasing rate for decades is an investment force to be taken seriously. 

Relative to firms paying steady or declining dividends, or none at all, the top Dividend Growers may represent the kind of high quality firms capable of delivering solid returns while minimizing investment risk.  Intelligent Investors and Dividend Farmers following Graham’s value investing lead are unlikely to be disappointed.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions provided should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Dividend Champion Diversification

Nearly anything we do carries with it a level of risk.  Risk is an inherent part of life we accept.  We learn to mitigate or transfer it in a variety of ways.  We use seat belts when driving (mitigation) and purchase home owners insurance (transference).

Investing also presents risk to the investor.  As Dividend Farmers, it’s our job to mitigate the risk while maximizing our result.  One way of reducing our investment risk is to spread our money across multiple investments with different characteristics. 

Instead of putting all our money in the Blue Sky Co. and watching it vanish entirely if Blue Sky crashes, we allocate or diversify our resources across firms in various sectors or industries.  Doing so ensures that if one firm becomes insolvent it doesn’t take our full investment down with it.

Spread your investments to reduce risk.

One way to diversify a portfolio is to select a variety of Dividend Champions.  The first chart below offers a list of the 5 most commonly found sectors among the Champions list from 1/31/19. 

Sectors represent broad cross-sections of company types from which to choose.  For instance, the Financial sector is heavily represented with 33 different banks and insurance firms among those growing their dividends for 25 or more consecutive years.  The Industrials sector includes Aerospace, Machinery, and Commercial Services firms conforming to the 25 year minimum dividend growth history.  

Top 5 Dividend Champion Sectors

Sectors	Champions	Representation
Financials	33	Banks & Insurance
Industrials	25	Aerospace, Industrial Conglomerate, Machinery, Commercial Services
Consumer Staples	17	Food, Household Products, Tobacco
Utilities	16	Electric & Water
Materials	11	Chemicals, Containers & Packaging, Mining & Metals

Each of the sectors may be further segmented into industries.  For instance, the Chemicals industry is a component of the Materials sector.  Subdividing sectors into industries offers investors an opportunity to fine tune their portfolio diversification in a more granular way.

Top 5 Dividend Champions Industries

Industry	Champions
Banks	19
Machinery	11
Insurance (tied)	8
Chemicals (tied)	8
Water Utilities	7

An interesting point when looking at the top sectors or industries within the Dividend Champions list is that technology firms aren’t found among the top 5 in either case.  Although there are technology companies within the Dividend Champions, they aren’t heavily represented. 

If you’re looking for a wide variety of trendy tech plays, you won’t find it in Dividend Champions land.  Instead, you’ll have to move forward with solid, consistent, dividend payers that don’t regularly make MSNBC or Cramer’s Mad Money, but would be worthy of Ben Graham, Warren Buffett, and value-investing Dividend Farmers.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions provided should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Highest Yield Dividend Champions

Highest Yielding Dividend Champions

A key objective in Dividend Farming is the development of a cash flow stream through dividend payments.  Strategically speaking, it’s important that dividend growth is compounded at a rate greater than inflation e.g., Consumer Price Index (CPI).  If not, the purchasing power of your cash flow erodes over time. 

Inflation beating compound growth may be achieved in several ways.  Investing in firms growing dividend payments quickly, acquiring companies with stable dividend yields greater than the CPI, or a combination of the two are all possible.

The table below highlights Dividend Champions with the 10 highest dividend yields among those raising their dividends for 25 or more years as of 1.31.19.  These data points are drawn from the DRIP Investing site which is a great place to begin looking for solid dividend paying firms that can help build an inflation besting dividend stream.

10 Highest Yielding Dividend Champions
Company	Yield	Dividend Payment
AT&T Inc.	6.79	$0.5100
Altria Group Inc.	6.48	$0.8000
Tanger Factory Outlet Centers	6.15	$0.3500
Universal Corp.	5.20	$0.7500
Urstadt Biddle Properties	5.14	$0.2750
Helmerich & Payne Inc.	5.07	$0.7100
Mercury General Corp.	4.85	$0.6275
ExxonMobil Corp.	4.48	$0.8200
People's United Financial	4.27	$0.1750
Chevron Corp.	4.15	$1.1900

Full disclosure note:  AT&T and Altria are both in my portfolio and have been for years. 

With that said, firms in this list deliver dividend yields above the 2018 Consumer Price Index (CPI) as reported by the U.S. Bureau of Labor Statistics.  The All Items Index for the 2018 12-month period was 1.6%.  This means the companies shown provided a range of dividend payments more than twice the inflation rate to nearly 6 times as great!  These companies have been growing their payments for more than a quarter century and it stands to reason based on the previous Top 10 post regarding Dividend Champions that the growth will continue.

As an investor you have many choices.  Among those are growth company investments in which investors hope the companies grow as forecast.  Alternatively, you can dive into large, solid firms that aren’t Wall Street darlings but reliably put cash in your pocket every quarter.  Those cash payments compound until you’re ready to use them producing an amazing crop for your future self and family.  When that happens, you may look back at your past self and say thanks for choosing to become a Dividend Farmer.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions provided should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Dividend Champions: Growing Dividends for Over 50 Years

Dividend Champions

If you’re working the Dividend Farming field, you’ll find DRIP Investing’s list of Champions, Contenders and Challengers packed with information to help you select investments.  Dividend Farming is a value-based approach to building a portfolio of stocks providing residual cash flow in the form of dividend payments.  In a nutshell, Dividend Farmers seek large companies with solid financial metrics and long histories of growing their dividends; possessing characteristics like those Ben Graham detailed in The Intelligent Investor.

In relation to those business traits, the table of Dividend Champions below, culled from the CCC List of 1.31.19, have grown their dividend payments for more than 50 consecutive years. 

  

To be a Dividend Champion, a firm must raise its dividend payment every year for 25 or more years.  All the firms in this table have more than doubled the minimum requirement to be considered a Champion.

Company	Sector	Industry	Years
American States Water	Utilities	Water Utilities	64
Dover Corp.	Industrials	Machinery	63
Northwest Natural Gas	Utilities	Gas Utilities	63
Emerson Electric	Industrials	Electrical Equipment	62
Genuine Parts Co.	Consumer Discretionary	Distributors	62
Procter & Gamble Co.	Consumer Staples	Household Products	62
Parker-Hannifin Corp.	Industrials	Machinery	62
3M Company	Industrials	Industrial Conglomerates	60
Vectren Corp.	Utilities	Multi-Utilities	59
Cincinnati Financial	Financials	Insurance	58

Why is the length of consecutive annual dividend payments, much less growth of those dividend payments, important?

 

Inertia is a start.  When a large firm engages in a practice, such as increasing its dividend for a long period of time, that activity becomes difficult to change.  Companies with long records of dividend payments are unlikely to change their payment practices due to habit.

Consequences to market value are a second reason long dividend growth histories are important.  Companies with lengthy records of increasing dividend payments know that changes to that pattern can have dire consequences to their stock prices, market image, and perceived credit worthiness.  Firms generally don’t flirt with consequences of that nature unless there are no alternatives and doing so becomes imperative.

Signaling financial strength to the market is a third reason to pay attention to dividend histories.  Firms increasing dividend payments annually over long periods communicate to the market they have the business strength to consistently generate cash to support those dividends.  Furthermore, the firms expect that strength to continue into the future.  Whether that “signal” is intentional or not, it persists and should not be discounted.

As a DIY Dividend Farmer, focus on risk minimization is critical.  If you’ll recall from the post on Risk vs Reward, risk is represented by a simple formula:  the probability of an event times the magnitude of the event.

 

Firms demonstrating a persistent record of increasing their dividends have a lower probability of running into financial issues, in my view, than firms without those records.  Although this probability may be difficult to quantify and may be considered subjective, I believe it’s supported by the characteristics of inertia, consequence, and signaling noted above inherently reducing the probability a firm will stop growing its dividend payment.

 

Reducing the probability of a negative event reduces the risk.  As Ben Graham, Warren Buffett, and his partner Charlie Munger regularly advise: build a margin of safety into your investing.  Dividend paying firms with stellar histories of increasing their dividend payments are a great way to do so.  Reviewing the 10 Dividend Champions with the longest time horizon of increasing dividend payments is a fine place to dive in if you’re considering Dividend Farming.

NOTE:  Of the ten firms listed in the table, Dividend Farmer owns shares in Proctor and Gamble.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions provided should not be considered investment advice.  They are presented for discussion and entertainment purposes only.  For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.