Top 10 Dividend Champions: Price-to-Earnings

Dividend Champions: Price-to-Earnings

2020 is on our doorstep; a new year with new opportunities.  It’s time to consider how to put money to work going forward.  Thus far we’ve explored possibilities by segmenting the Top 10 Dividend Champions according to the following value investing characteristics:

• Price-to-Book
• 10-year Dividend Growth Rate
• Dividend Yield
• Sector

These factors fall within the framework of Benjamin Graham’s Value Investing philosophy, the tenets of which are outlined in his book Security Analysis and made famous by his student, Warren Buffett.

In line with Ben's Value Investing philosophy I’ve pulled the Top 10 Dividend Champions by lowest Price-to-Earnings (P/E) ratio as of December 2, 2019.  These ratios are based on the trailing twelve months (TTM) earnings for the firms shown.

Dividend Champion	P/E (TTM)
NACCO Industries	7.45
Nucor Corp.	9.59
Old Republic International	10.07
Franklin Resources	11.70
Enterprise Bancorp Inc.	11.77
Tanger Factory Outlet Centers	12.08
First Financial Corp.	12.12
Community Trust Banc.	12.41
Albemarle Corp.	12.60
National Fuel Gas	12.83

As a Dividend Farmer I prefer metrics involving facts versus guesses.  Investors using forward projections or earnings forecasts are comparing a given price (fact) with forecasts (guesses) about future performance.  Comparing factual performance (TTM) to actual price strikes me as a better approach because it reduces risk inherent in guessing.

From a value standpoint, paying for a dollar of earnings with a minimum number of dollars makes sense.  Other variables being equal, the time to recover the investment (payback period) is shorter with a low P/E.  Paying a smaller multiple of earnings for the privilege of ownership is desirable as long as other value factors are also appropriate.

With this said, the usual caveat is in place.  Don’t pour money into an investment because it appeared in a Top 10 list.  Conduct your due diligence.  Keep learning.  Make yourself a better, more knowledgeable investor.  Success is likely to follow.

Thoughts presented are those of the author, who is not a financial professional. Perspectives are not investment advice, but offered for the purpose of discussion and information. For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Dividend Champions: Price-to-Book

I consider several factors when selecting an investment for the Dividend Farm. It’s not just a function of building a Top 10 list and grabbing something from it. Dividend Yield affects my portfolio’s cash stream so it’s one of many variables I review. Sector or industry is important for diversification and risk mitigation. Dividend Growth Rate is a factor I consider, but it doesn’t carry as much weight as others.

One variable I pay attention to is the Price-to-Book (P/B) ratio. If price is what you pay and value is what you get, how is value determined? 

Finding the book value of a company is one way to go about it.  Book value is a firm’s total assets less its intangible assets and liabilities per Investopedia. Dividing this figure by the number of shares outstanding results in book value per share. Comparing book value per share to the current price per share of the stock results in the Price-to-Book ratio indicating to me how much value I may receive for the money paid out. 

Am I paying more or less per share for a company than I might receive if it were liquidated and the net proceeds distributed?  I’ll hesitate to buy a stock if the P/B is in excess of 2:1 in most cases. I don’t like to pay more than $2 for every $1 I receive in value unless there are other favorable factors that can mitigate the risk associated with a high P/B ratio.

Below are the Top 10 Dividend Champions based on the Price-to-Book ratio as of December 2, 2019.  If you’re interested in any of these firms you can find updated P/B figures through your broker or in many cases via Yahoo! Finance.

Dividend Champion	P/B
Telephone & Data Sys.	0.59
People's United Financial	0.94
Universal Corp.	1.01
First Financial Corp.	1.04
Helmerich & Payne Inc.	1.07
United Bankshares Inc.	1.15
NACCO Industries	1.16
Old Republic International	1.17
Weyco Group Inc.	1.17
Chubb Limited	1.26

Do not select a stock based on the P/B value of a firm alone any more than picking a stock based solely on one of the other Top 10 lists.  As discussed above, many factors should be included in your analysis to mitigate risk and ensure you’re investing rather than speculating.  This is why it’s important to keep learning.  If you do that while compounding your dividends you can expect your investing savvy, portfolio size, and dividend cash flow to flourish.

Thoughts presented are those of the author, who is not a financial professional. Perspectives are not investment advice, but offered for the purpose of discussion and information. For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Dividend Champions: 10-year Dividend Growth Rate

The two previous posts highlighted Top 10 Dividend Champions by Sector and Yield. Below you’ll find the Top 10 Dividend Champions based on their 10-Year Dividend Growth Rate (DGR).

Dividend Champions are firms that have increased their dividend payments annually for at least 25 years. Those in the table below have generated the largest percentage rate of growth in their dividend payments over the past 10 years. Due to ties the list includes 12 firms rather than 10. Dividend Farmers might consider it a Christmas bonus. There’s one each for the 12 Days of Christmas.

Champion	10-Year DGR %
Helmerich & Payne Inc.	31.0
Ross Stores Inc.	25.2
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
Walgreens Boots Alliance Inc.	15.0

You could view the table above as an initial screen for your DIY investment research and analysis. The Dividend Farming Company Scorecards are summaries I develop while exploring possible investments for The Farm. I compare several of a firm’s business metrics against defined benchmarks and those of alternative investments. That way I get a feel for a firm’s performance against a standard as well as its performance relative to other firms I’m considering.

The caveat about simply picking from a Top 10 list still applies. Good investors are always learning. Start with a screen like the one above and dig in. Find out about a firm’s performance across established financial metrics, industry position, and dividend history. Read about Benjamin Graham’s or Warren Buffett’s work to find out how master Value Investors selected stock. Above all, keep learning. You’ll become a savvy investor before you know it. You’ll see remarkable progress in your Dividend Farming harvest and a big smile on your future self.

Thoughts presented are those of the author, who is not a financial professional. Perspectives are not investment advice, but offered for the purpose of discussion and information. For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.    

Top 10 Dividend Champions by Yield

There are 138 Dividend Champions growing their dividends annually for 25 or more years. The last post outlined the Top 10 Dividend Champions by sector. Below are the Top 10 Champions based on dividend yield as of December 2, 2019, drawn from DRIPinvesting.org.

Dividend Champion	Dividend Yield (%)	Years Growing Dividends
Tanger Factory Outlet Centers	9.33	26
Helmerich & Payne Inc.	7.18	46
Altria Group Inc.	6.76	50
Meredith Corp.	6.56	26
Universal Corp.	5.82	48
AT&T Inc.	5.46	35
Mercury General Corp.	5.14	33
Exxon Mobil Corp.	5.11	37
Urstadt Biddle Properties	4.51	25
People’s United Financial	4.30	27

Averaging more than 35 years of dividend growth and a mean current yield of 6.02%, these Champions have produced nice cash flow for investors. The inflation rate in October, noted in an earlier Tweet, was below 2% in which case these dividend growers are comfortably ahead of the curve. Given the 1-, 3-, and 5-year average dividend growth rates of 5.5%, 4.3%, and 5.8% respectively, this group may continue outpacing inflation for some time.

Whether a new or established Dividend Farmer, the Top 10 Dividend Champions by yield is a nice place to begin your exploration and analysis before making your next investment decision. Remember, there is more to investing than simply picking from the Top 10 in any category. However, we must all begin our DIY investment efforts somewhere, why not start with Dividend Champion sector or yield?

Thoughts presented are those of the author, who is not a financial professional. Perspectives are not investment advice, but offered for the purpose of discussion and information. For specific investment advice or assistance, please contact a registered investment advisor, licensed broker, or other financial professional.

Top 10 Dividend Champion Sectors

Thanksgiving is behind us. Christmas is just ahead with the new year following closely. There are many things for which to be thankful, and I am. As a Dividend Farmer, I appreciate the investment opportunities and rewards provided by dividend companies with long histories of payments and dividend growth.

The year is drawing to a close so I thought I’d post the Top 10 Dividend Champions by metric across a variety of benchmarks. The first post starts with the Top 10 Sectors for Dividend Champions based on the number of Champions within each. Data is gleaned from DRIPinvesting.org which is a great resource for dividend growth investors. I recommend bookmarking it for future reference and analysis. This is, after all, DIY investing.

Sector	Dividend Champions	Average Years Growing Dividends
Financials	35	33.4
Industrials	27	40.6
Consumer Staples	17	48.5
Utilities	15	42.8
Materials	12	38.4
Consumer Discretionary	8	46.8
Real Estate	7	31.1
Health Care	5	40.0
Energy	4	37.3
Information Technology	4	37.0

There are 138 Dividend Champions in total and 134 in the Top 10. Financials and Industrials account for just over 46% of the Top 10 shown above. It’s possible to overweight your portfolio with those two sectors if you’re not careful. Be aware of portfolio balance and diversity as you make your selections. Keeping an eye on Dividend Contenders as well as Champions is prudent to ensure you’re avoiding excess portfolio concentration and mitigating investment risk.

Although firms achieve Dividend Champion status once they’ve increased their dividend payments for 25 consecutive years, you’ll see there isn’t a sector averaging fewer years than 30 in the list. While past performance isn’t indicative of future results, it’s hard to argue with successful longevity. Firms producing long-term dividend growth warrant additional consideration in my investment decision making. Should they do the same for you?

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

Asset value, earning power, and dividend record

Investors look at a variety of factors when selecting a firm in which to put their money. There are financial statements and ratios too numerous to count as well as prices, values, trends, expectations, actions, hints, tips, and other variables.

After wading through Security Analysis, The Intelligent Investor, and Strategic Value Investing, I offer three items for consideration as a Dividend Farmer exploring investment options: Asset value, earning power, and dividend record.

Asset Value

The question of asset value seems simple enough. What are the assets held by a firm and what value do they possess? This begs the question, how do you define an asset and who establishes its value? From my perspective, assets are primarily physical in nature.

For instance, blue sky associated with a brand name, good will, or intellectual property is more difficult to value than physical plant, inventory, or available cash. The former are subjective and generally dependent upon the expected revenue stream generated over an indeterminate period using a discount value that may or may not be well grounded. The latter, however, appraise for spot sale through many tried and true methods allowing investors to establish a value range narrower than that of blue sky.

When assets are difficult to value and have a wide range of possibilities, investors must include a larger margin of safety within their investment analysis and decision-making. Investment risk mitigation is challenging when valuations vary widely. Howard Marks, co-founder of Oaktree Capital Management said:

“The key to success is in avoiding losers, not in searching for winners.”

Wide and subjective valuation ranges increase the odds of selecting a loser and reducing the chances of long-term investment success.

Earning Power

Earning power is more than a firm’s earnings, which may be fluid depending on accounting methods used and the period governing the earnings snapshot. Earning power includes the moat concept espoused by Warrant Buffett in which he looks for firms with strong market positions in industries having significant barriers to competitive entry. In other words, near monopolies can be good to own from an investment perspective since they offer pricing power as well as potentially long periods of stable cash flow generation given a lack of competitive pressure.

Earning power may be a function of management expertise, judgement, and ethical behavior as well. However, like the blue-sky discussion above, management skill can be difficult to assess without extensive study or exposure. This becomes challenging if management is relatively new or geographically distant.

Like good will, judging management skill is often a subjective task. Consequently, I emphasize other earning power attributes when I size up a possible investment. The more objective I make my decision process, the more I can mitigate risk and follow Marks’ guidance about avoiding losers.

Dividend Record

I'll admit I focus more on the Dividend Record of a firm than I do asset value and earning power, but don't do so to the excluding of the two. How long has the firm paid dividends? What is the yield? Are the dividend payments growing? If so, for how long?

I check out several metrics and other decision criteria when I invest in a firm; most of which are related to asset value and earning power. The Dividend Farming Scorecards offer a quick look at factors to consider.

If several metrics are off the mark or a few are seriously out of bounds, the dividend record takes a back seat. However, if they are close, firms with a long history of dividend payments and growth have an increased chance of selection. I view long records of dividend growth as an aggregated proxy for granular asset valuation and earning power metrics. This is because I believe it’s hard for firms to produce long-running, solid, growing dividend payments if asset valuations and earnings power aren’t sound and consistent.

Asset value, earning power, and dividend record are part of what Ben Graham and subsequently Warren Buffett termed intrinsic value. Intrinsic value is justified by facts rather than assumptions, theories, or trends. As a value investor, I work to base decisions on objective facts as much as possible. Avoiding subjectivity and emotional decision-making helps me manage the investment risk and increase my probability of success.

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

Compounding Dividends = Financial Power

I’ve posted multiple times about the power of compounding dividends.  Previous posts are below.

• Compounding Periods:  The more the merrier
• Average Growth vs Compound Growth
• Compound Growth
• 72 "Rules" - The Rule of 72
• Powerful Investment Growth with Compounding
• Would you Rather?

Dividend compounding offers extraordinary financial power if allowed to work over a period of time.  If the posts above aren’t sufficiently convincing, maybe the information below will be.

In many cases 1% doesn’t make a difference.  If I get 1% more cereal in a box from vendor A than I do from vendor B for the same price, I may not care.  Should one filling station charge 1% more for a gallon of gas than another, I’ll pay 2-3 cents more per gallon.  Not an inconvenience.

One percent can make a world of difference in your financial life, though.   The chart below demonstrates outcomes for dividend yields of 1% to 8% compounded quarterly for 20 years.  The beginning balance was $1,000.

In this chart, the only addition by an investor is the original $1,000.  Anything beyond that is due to the effects of compounding over time.  Excel’s FV function was used to determine the results.  Investopedia’s CAGR calculator offered a double-check.

The growth curve across the yields is impressive.  The important fact to note is that for each 1% increase in yield, the result was more than double that of its predecessor.  For instance, the tally at 2% is just more than 2x that of the 1% outcome.  That sounds logical given the fact that 2 is twice as great as 1.  However, the total at 5% is more than twice that of 4% as well, despite the fact that 5% is marginally greater than 4%.  The same holds true at 8% relative to the 7% outcome.

The importance of increasing portfolio yield by small amounts is adequately demonstrated.  What happens if the yield is held constant, but the compounding periods change?  The chart below shows that as well.

As with the first chart, Excel was used to generate the outcomes and double-checked using Investopedia’s CAGR calculator.

In this case, a 4% yield was used for a 10-year period vs 20 in the prior example.  $1,000 was the nest egg with which to start.  No additional funds were added by the investor.  The only variable changed was the number of compounding periods within the 10-year horizon. 

Notice the large jump when moving from quarterly compounding to monthly compounding.  Increasing the number of compounding periods within an investing time frame may be as powerful as increasing the length of the investing time frame.

In other words, investing in stocks paying dividends frequently is nearly the same as being gifted extra years in which to invest and keep ‘em compounding.

In a nutshell:

1) Each 1% increase in dividend yield can more than double the result over 20 years.  Therefore, increase the yield when possible.

2) Investing in dividend stocks paying monthly dividends is superior to stocks paying quarterly or less, other things being equal.  Consequently, look for solid stocks paying monthly dividends.

3) The longer the investing horizon, the greater the total growth.  Start investing early and keep at it.

 

If you find a Dividend Champion or Dividend Aristocrat consistently growing its dividend and do so early in your investing career, you may reap the benefits of all three points while doing little more than holding on and enjoying the ride.  If you can add to the investment pool as you go, things accelerate further.  That’s why compounding = financial power; the power to be financially free.

 

In the immortal words of one of history’s most intelligent men:

“Compound interest is the eighth wonder of the world.  He who understands it, earns it… he who doesn’t, pays it.” – Albert Einstein

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