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.

Dividend Farming Scorecard: The Southern Company

In an early December post on selecting investments for my Dividend Farm, I highlighted factors I investigate when considering whether or not to add a firm to my portfolio.  It’s a new year and time to think about adding seed money to expand my crop of dividend payers.  With that in mind, I thought it might be interesting to begin analyzing possible additions.

The table below provides a summary of factors I consider as part of my selection process as applied to Southern Company on January 1, 2019.  Laying out my analysis like this helps me quickly benchmark against my target metrics and compare this firm to alternatives.

FACTOR	METRICS	THE SOUTHERN COMPANY
CCC List	Champion	Contender
Current Yield	4.0%	5.7%
Company Profile	Red Flags	Telco Svcs?
Industry Leadership	Top 10	#9
Market Cap	$10 B+	$45 B
P/E	< 20	18.3
P/B	< 2	1.8
Debt / Equity	< 1	6
Dividend History	25 Years	18 Years
12 Month Price Range	Lower Half	Yes
Dividend Payout Ratio	< 75%	98.3
Portfolio Weight	Slightly Over	Yes

The first column lists the primary factors I review.  The middle column lists the benchmarks I’m aiming for.  The last column highlights The Southern Company’s metrics so I can see how well they align with my benchmarks.

CCC List: The list is in reference to firms found on the DRIPinvesting.org web site in the Champions, Contenders, Challengers list.  SO is located in the Contenders section so it’s off to a great start.

Current Yield:  SO’s yield is a healthy 5.7% as of the CCC chart last updated on 12.1.18.  A 5.7 yield handily beats my 4% target.  SO is two-for-two.

Company Profile:  In reviewing the profile I notice that SO is not just into generation and transportation of power (electric and gas), but it’s also got a play in the telco sector.  This strikes me as being outside the firm’s circle of competence (potentially) as Warren Buffett puts it, but it’s not a show stopper.  Additionally, I take a look at recent news articles about the company to see if there are any events being reported that may have long-term, negative implications.  I didn’t locate any for SO.

Industry Leadership:  I’m interested in companies in the Top 10 of their industry.  Investopedia listed SO as the 9^th largest utility in the United States so that’s good.

Market Capitalization:  SO’s market cap is well in excess of my target for large companies in which case it’s still on track as a possible add.  I should add that I’ll reference the market cap against revenue to ensure I’m not getting tangled up in something stratospherically priced relative to income.  I consider it a cross-check to the P/E.

Price to Earnings:  The P/E ratio is below my target metric as well.  The P/E is for the trailing 12-months rather than the leading 12-months.  I’d rather base my analysis on facts vs forecasts when possible.  Also, the P/E of 20 for the trailing 12-month period is a Benjamin Graham recommendation.  SO meets the mark here as well.

Price to Book:  P/B should be less than 2 in my estimation.  Beyond 2 and I figure I’m paying for blue sky, good will, or any number of other things that don’t translate into cash flow or profit.  This metric is another of Ben Graham’s.  SO squeezes under the bar on this one so it remains in the running.

Debt to Equity:  D/E is important to me for the same reason my debt relative to my income and net worth was important to my lender when I borrowed money to buy a house.  Too much of the former and not enough of the latter generally spells trouble on the mortgage front.  Therefore, a firm that’s too far of the market on this metric must provide a significant advantage or meet a critical need elsewhere as an offset.  However, when the D/E is 3x my target, I immediately consider taking a pass.

Dividend History:  18 consecutive years of dividend payments is solid.  However, it’s not outstanding because it’s less than 75% of my target.  Although not a show stopper by itself, in tandem with the D/E figure, it may well be.

Price Range:  The price at the time of this writing was $43.92 which put in in the lower half of SO’s twelve-month price range.  I’d rather be in the bottom half of the range than the top in order to avoid over paying or potentially getting caught in the hysteria of Mr. Market.  Also, I generally don’t look long at firms with stock prices well in excess of $100 a share.  I’d prefer buying a larger number of shares than smaller for a given dollar amount.  Less is more.

Payout Ratio:  I generally like the dividend payout ratio to be under 75% in hopes there may be a little extra headroom for growth.  However, I’m not overly concerned if it rises above that point as long as the firm delivers a steady, high yield due to my preference for high yield vs high growth, all things considered.  SO has a pretty steady dividend history so a high payout ratio, particularly in a regulated industry with large capital infrastructure costs and enormous barriers to entry like those of utilities, doesn’t give me heartburn.

Portfolio Distribution:  Last, but not least, I look at what the holding would do to my portfolio distribution if I add it.  Utilities fall into my Energy segment which is the third largest bucket of the nine I break my portfolio into.  The size of the additional investment I make will affect my decision.

Taken in a vacuum, SO appears promising.  Except for the high debt to equity figure and the potential effect on my portfolio balance it actually looks attractive to a conservative Dividend Farmer.  However, I don’t normally look at firms on a stand-alone basis.  Instead, I’ll run this analysis across multiple possibilities to see if any one of them provides a better fit than SO.  If the opportunity-cost exercise is favorable, then SO could be a valuable addition to the portfolio. 

I don’t currently have a stake in SO.  How the firm stacks up relative to other options and to my pot of funds available to invest will determine whether or not it gets added.  Stay tuned.  In the meantime, spring is just around the corner.  No better time than now to think about Dividend Farming.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions expressed here 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 Farming with DRiPs

As a fan of dividend paying companies, particularly those with long histories of dividend payouts, there’s no more valuable resource I’m aware of than DripInvesting.org and its Tools page.  If you want to find dividend champions, contenders, and challengers with stable records of dividend payments, the top of the Information column on this page is the place to start.

There you’ll find a regularly updated spreadsheet listing all U.S. companies paying dividends according to the following consecutive years of dividend distributions:

•         Champions:  25 or more years
•          Contenders:  10 to 24 years
•          Challengers:  5 to 9 years

The latest update to this selection, often referred to as the CCC, is October 1, 2018.  Accordingly there are 127 Champions, 209 Contenders, and 560 Challengers on the list.  Several of the Champions have paid dividends for more than 60 consecutive years.  What’s more, you can find firms on the list that have increased their dividend payments each year for many consecutive years.

The beauty of this tool is that it incorporates far more than company name and number of years of dividend payments.  It also includes the:

•         Stock price
•          Yield
•          Last dividend increase
•          Dividend growth rate over various periods
•          Earnings per share payout ratio
•          Price to earnings ratio
•          Price to book

…and other metrics helpful in evaluating the firm’s fit to your portfolio and investing style.  In short, the CCC is a great filter to help you locate solid dividend stocks to investigate further.  The additional due diligence involves another handy dividend farming tool I’ll discuss in a future blog.

Until then, it doesn’t hurt to spend time sifting through the CCC list to get started as a Dividend Farmer.

The thoughts and opinions expressed here are those of the author, who is not a financial professional.  Opinions expressed here 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.