Five Top Dividend Achievers

Karin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Cash dividends are a great indicator of a company’s financial strength. They cannot be manipulated, like earnings can, to show value where none exists. Cold hard cash distributed to shareholders, increasing on a steady basis year after year, is one fabulous way to tell that your company is rock-solid. A company struggling with mismanagement or revenue issues cannot hide behind a dividend for very long; mistakes will out, and the dividend will suffer.

So a decade or more of consistently paying and raising dividends is one very good way of choosing companies in which to invest your hard-earned money. A decade means that these companies made it through the turbulent 2008-2009 recession without having to reduce their payouts, a notable achievement indeed.

The Dividend Achievers Index, originated by Moody’s and now maintained by Mergent, is designed to track the performance of companies that have increased their regular dividend payments for the last ten or more years.

In the past few months, while I have been building my own Dividend Portfolio, I have reviewed dozens of companies, a number of which are included in the Dividend Achievers list. In this article, I will examine five that I have not previously analyzed.

I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories. The hard thresholds that I utilize are a 10-year dividend paying history and a 3% minimum yield. A company that obtains an 18-20 point rating generally is an automatic choice for the portfolio. One scoring 15-17 merits further consideration and watching for a change in dividend metrics, and anything scoring a 14 or below is rejected.

The top companies of the Dividend Achievers Index, in terms of market cap and weighting in the index, are IBM (rejected for low yield of 1.6%), Procter & Gamble, Chevron (recently reviewed and rejected), Johnson & Johnson (recently reviewed and rejected), Exxon Mobil, AT&T (recently reviewed and rejected), Coca-Cola, Wal-Mart (recently reviewed and rejected), PepsiCo, McDonald’s (recently reviewed and rejected), and United Technologies.

The first company is Procter & Gamble (NYSE: PG). It is currently trading at $75 per share and yields 3.1%. The company has been paying and raising dividends consistently for 59 years, and its 5-year DGR is 9.9%. Its PE is 17.0, and its twelve-month total return is 18.2%. The payout ratio is 51%. The company is currently trading at its 52-week high and is up 19% from last year.

The 23 analysts who cover the company rate the stock a 2.2 (1.0 = Strong Buy, 5.0 = Sell). It has six Strong Buys, six Buys, and 11 Holds. They have set a one-year target price on the company of $77.65, a potential gain of 4%. Within the Motley Fool community, PG is a four-star CAPS pick, with 7,405 Bulls and 245 Bears (97% positive sentiment).

Procter & Gamble scores a 17 on my ratings system, which is almost high enough for inclusion in my Dividend Portfolio. I will continue to monitor its metrics for potential future addition.

Next is Exxon Mobil (NYSE: XOM), currently trading at $91 per share and yielding 2.5%. The company has been paying and raising dividends consistently for 30 years, and its 5-year DGR is 9.8%. Its PE is a low 9.7, and its twelve-month total return is 8.7%. The payout ratio is low at 23%; a higher ratio might bring the dividend yield up closer to my 3% threshold. The company is currently trading at just short of its 52-week high and is up 7% from last year.

The 22 analysts who cover the company rate the stock a 2.4 with four Strong Buys, five Buys, and 13 Holds. They have set a one-year target price on the company of $94.11. Within the Motley Fool community, XOM is a four-star CAPS pick, with 7,863 Bulls and 491 Bears (92% positive sentiment).

Exxon Mobil scores a 15 on my ratings system; I reject it for its low dividend yield, low future earnings growth, and low recent return.

Coca-Cola (NYSE: KO) is currently trading at $37 per share and yields 2.8%. The company has been paying and raising dividends consistently for 50 years, and its 5-year DGR is 8.5%. Its PE is 19.5, and its twelve-month total return is 12.8%. The payout ratio is average at 53%. The company is currently trading at 8% less than its 52-week high, which was reached in July, and is up 11% from last year.

The 18 analysts who cover the company rate the stock a 2.2 with five Strong Buys, six Buys, six Holds, and 1 Underperform. They have set a one-year target price on the company of $42.15, a potential increase of 13%. Within the Motley Fool community, KO is a five-star CAPS pick, with 6,357 Bulls and 312 Bears (95% positive sentiment).

Coca-Cola also scores a 15 on my ratings system; its yield is just a bit too low, and its other metrics, aside from the number of years, are only mediocre.

Next is PepsiCo (NYSE: PEP). It is currently trading at $73 per share and yields 30.%. The company has been paying and raising dividends consistently for 41 years. Its 5-year DGR is 18.4%, its PE is 19.4, and its twelve-month total return is 13.6%. The payout ratio is 57%. The company is currently trading at just below its 52-week high, and is up 11% from last year.

The 17 analysts who cover the company rate the stock a 2.2 with three Strong Buys, eight Buys, and six Holds. They have set a one-year target price on the company of $76.38, a potential gain of 5%. Within the Motley Fool community, PEP is a four-star CAPS pick, with 4,403 Bulls and 155 Bears (97% positive sentiment).

PepsiCo scores a 13 on my ratings system, which is far too low to be considered; its yield is too low, and its other metrics, aside from the number of years of dividend-paying history, are low.

The last company is United Technologies (NYSE: UTX), which is currently trading at $89 per share and yields 2.4%. The company has been paying and raising dividends consistently for 20 years, and its 5-year DGR is 11.7%. Its PE is 15.8, and its twelve-month total return is 17.7%. The payout ratio is low at 42%. The company is currently trading at its 52-week high and is up 15% from last year.

The 23 analysts who cover the company rate the stock a 2.0 with six Strong Buys, 12 Buys, and five Holds. They have set a one-year target price on the company of $95.95, which is a potential gain of 7%. Within the Motley Fool community, UTX is a four-star CAPS pick, with 1,154 Bulls and 61 Bears (96% positive sentiment).

United Technologies scores an 18 on my ratings system; this would ordinarily be high enough for automatic inclusion in my Dividend Portfolio, but its yield is below my 3% threshold. I will keep it on my “Watch Closely” list for a dip in price, or a hike in the dividend, which will bring it into range.

All of these are excellent companies in terms of dividend paying history, dividend growth history, and recent growth. They are all well-liked by analysts, and most are trading close to their 52-week highs. I think all of them would be excellent additions to a dividend portfolio.

 

 

 


khern0203 has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola, PepsiCo, and Procter & Gamble. The Motley Fool owns shares of PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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