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Our Top 40 Favorite Dividend Champions: Blue-Chip Dividend Growth Stocks Today’s Strong Option For Retirement Portfolios Part 2
By: Chuck Carnevale   Wednesday, May 23, 2012 10:53 AM
Symbols: ABT, AFL, APD, BDX, BMS, BRC, CLX, CSL, CTBI, DOV, EMR, EV, FUL, GPC, HP, ITW, JCI, JNJ, KMB, MCD, MCY, MDT, MHP, MKC, MMM, MO, MSA, NC, NDSN, ORI, PEP, PG, PNR, PPG, SCL, SON, SWK, SYY, T, TGT, TMP, WAG, XOM
But I also covet an above-average growth rate, both historically, and even more importantly, forecast to continue in the future.  The consistency of the company's operating results, regardless of growth rate, is also important.  And of course, there is the yield versus total return issue that many dividend growth investors enjoy debating about.  There are others, but these are the essential ones to me.

The important point that I am iterating here is that not all equities are the same, and also not all Dividend Champions are the same.  But most importantly, the differences between the individual companies can make all the difference in the world regarding whether or not they should be invested in.  Sometimes, the differences are temporary, for example, an overvaluation situation that may one day correct itself.  In other cases, a permanent deterioration of fundamentals may soon render a current Dividend Champion a dud, and end its streak of dividends.

Top 10 Dividend Champions For Yield

This first top 10 list is offered for dividend growth investors that are most focused on current yield.  My primary consideration here was a minimum current dividend yield of 3% (greater than the 30-year T-bond).  However, I also put a premium on consistency and safety based on the assumption that this investor may already be retired and living off the income of their dividend growth portfolio.  Finally, each of these companies had to be fairly valued, and some I would even consider significantly undervalued.  Therefore, this list is presented in order of highest dividend yields to lowest.

Top 10 Dividend Champions For Total Return

My next top 10 list focuses more on total return than current yield.  I offer this list for the dividend growth investor that may still be in the accumulation phase.  Although the primary emphasis here is on total return, how it will be accomplished can vary from one company to the next. In some cases, return is a function of above-average expected earnings growth. In other situations very low valuation may be the generator of future return. Or perhaps return will be driven by a combination of both.

Many companies in this group can be identified by the highest estimated five-year earnings growth rates.  Others in this group can best be identified by the lowest PE ratios relative to estimated earnings growth. The remainder will be represented by some combination of the above factors.

Top 10 Dividend Champions Bonus List

In addition to my top 10 favorite Dividend Champions for total return, and my top 10 Dividend Champions for yield, I will offer two additional lists of 10 each.  One I will call my bonus list containing companies that could theoretically make either of the top two favorite lists, total return or yield.  My second additional list I will call the honorable mention top 10. This list will contain an additional 10 Dividend Champions that were simply hard to exclude.  In other words, although they did not make a favorites list, they each represent solid and attractive candidates that the dividend growth investor might want to consider.

Actually, there are several companies on these lists that qualified for either or both of my favorites lists. For example, Aflac (AFL) and or Emerson Electric (EMR) could easily be on both lists. My point is that I feel the reader should give the same consideration to each of these names as they would the two top 10 lists.  To be clear, selecting the top 10 was difficult and therefore to a great extent subjective on my part.  My method was to simply run a F.A.S.T. Graphs™ on each Dividend Champion with above-average total return calculations. Then my lists were created by picking and choosing those companies that from my review looked best based on value, earnings and safety.

Top 10 Dividend Champions Honorable Mention

This final list of 10 Dividend Champions I have dubbed as honorable mention candidates.  As I suggested with the bonus list, I feel this group also contains attractive candidates for the prudent dividend growth investor to consider.

Summary and Conclusions

When I invest in stocks, I invest in the business not the market.  Therefore, I intend to be a shareholder of the business for a very long time. Consequently, I am rarely too concerned about current market volatility because I focus more on the business behind the stock.  It's important to remember that in truth you only get real information on the business four times a year, when the company's quarterly announcement is made.  Exceptions would be major announcements such as acquisitions, mergers or some other material events that could permanently affect the viability of the business.

As a result, there are only three reasons that would prompt my desire to sell a fine business:

1. If the valuation became too high thereby making the market risk too great to ignore. In this case I would sell and replace with another company offering better value.

2. If I felt that there was a permanent fundamental deterioration in the business prospects of the company.

3. If I came across an exceptional opportunity that was too good to pass over, then I might consider replacing what I perceived to be my current holding with the least potential with the new irresistible opportunity (it should be noted that this opportunity would have to be really extraordinary to cause me to consider such a move).

What I feel I've offered here is a list of 40 Dividend Champions that represent worthy candidates for consideration by the prudent dividend growth investor.  Some of the names I offered for their yield, and others I offered for their total return potential. Although I believe that each of the candidates on the various lists represent Dividend Champions that are reasonably priced today, they are not necessarily all cheap. In other words, some are fully valued, some are attractively valued, and some are downright cheap.  I leave it to the reader to conduct their own comprehensive due diligence on their own.

However, I do believe that these lists represent an efficient group of prescreened opportunities that are worthy of further consideration. There are other dividend candidates such as Johnson Controls (JCI) and Illinois Tool Works (ITW) that were covered in the previous article Part 1, that do not meet the standard of consecutive dividend increases. Accordingly, I do not consider this a comprehensive or complete list of all possible dividend growth opportunities, but I do consider them a great place to start looking.

Finally, this article is also offered as a follow up to my previous article 43 Dividend Champions On Sale: A Rare Opportunity

Both of these articles and their lists of Dividend Champions are offered as candidates for long-term ownership of the businesses behind the stocks. I have always held that long term is defined as at least a business cycle (3-5 Years Minimum). When I invest in a company, I buy earnings in a company today that I believe will grow into more earnings tomorrow. This is my expected source of greater dividends and capital appreciation from the capitalization of my greater earnings. Not from fickle Mr. Market behavior.

Disclosure:  Long MKC, JCI, ITW, SYY, JNJ, PG, PEP, GPC, MCD, ITW, MDT, AFL, MHP, ABT, MO, T, KMB, CLX, XOM, BCR at the time of writing.

Disclaimer:The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation.


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