Dividend Champions, Contenders & Challangers Watchlist

This watchlist comprises the best dividend growth stocks from David Fish’s dividend growth investing categories, which includes companies that have raised their dividend payment for the following number of consecutive years:

1.) Champions – 25 or more
2.) Contenders – between 10-24
3.) Challengers – between 5-9

How I use the CCC watchlist

Notice the list of dividend growth stocks are sorted by dividend yield (highest to lowest) in the fifth column. Starting at the top I scan across each row (stock). If there are any red highlighted cells I skip that stock and move down to the next row, until I find a stock without any red cells for further investigation. Red cells indicate that my minimum criteria has not been met. Yellow highlighted cells indicate warnings that are approaching the red limit, which I need to investigate deeper.

Watchlist Screening Criteria

Listed below are descriptions for each column on the watch list (starting at the first column on the left). There are nine first level criterion indicated in italics that need to be met before I proceed to investigate the company in further detail.

Company Info

Sector and Ticker are informational only.  For page spacing reasons I had to abbreviate the sector names. Companies are divided into the following 10 industry sectors:

  1. CDisc = Consumer Discretionary
  2. CStap = Consumer Staples
  3. Energy = Energy
  4. Fin = Financial
  5. HC = Healthcare
  6. Ind = Industrial
  7. Mat = Materials
  8. REIT = Real Estate Investment Trusts
  9. Tech = Technology
  10. Util = Utilities

Strength

# Years Div Increase Dividend distributions for 5 or more consecutive years.

Economic Moat Company has at least a Narrow (Narr) competitive advantage rating. Naturally a Wide moat is preferred, but a narrow moat is acceptable. Companies with no form of competitive advantage are marked as ‘None’ are highlighted with a yellow warning for more investigation.

Growth Potential

Yield Company must yield a minimum of 2.50% at time of purchase.

5 Year Div Growth 5-year dividend growth rate must be greater than 5.00%.

5 Year Est Growth Rate Company cannot have a future estimated growth rate less than 3.00%.

Sustainability

Dividend Payout Ratio No payout ratios above 90% (red flag) and a yellow warning of payout ratios between 75% to 90% for further investigation. My limits are high since payout ratio’s have to be evaluated on the individual stock and industry it’s in. For example, many companies are required to payout the majority of earning in dividends (utilities, REIT’s MLP’s, tobacco). The lower the payout ratio the better, since it leaves room for consistent dividend growth.

Debt to Equity The ratio of shareholder equity to debt to finance a company. The lower the ratio (less debt) the better. Typically a ratio of 1 or less is acceptable. From 1 to 1.6 is a yellow warning. A debt-to-equity greater than 1.6 is a red flag warning.

Credit Score Is an evaluation of the credit quality or worthiness of the company’s debt (bonds). A BBB rating is a yellow warning and BBB- or lower is a red flag. Also, if the rating is unavailable (N/A) a yellow warning is displayed for further investigation.

Price

Current Price, and % Change are informational

Valuation & Timing

Fair Value The current fair value price rating (credit: Morningstar.com)

% Fair Value This is the percent difference that a stocks current price is either below (undervalued) or above (overvalued) its fair value price estimate.

52 Week Low, and 52 Week High are informational.

% L/H Range This column lists the stocks current price as a percentage within its 52 week low and high range. When the stock price is within 15% of its 52 week low this indicator will turn green. I prefer to purchase stock when it is close to its 52 week low. However, this is not a required criteria.

P/E In most cases I prefer a price to earning ratio below 22. A yellow warning is triggered between 22-25. Ideally I want to purchase fair to under-valued companies when their price/earning ratio is below 22. However, not all companies and the industries they compete in fall into similar price/earning ranges, so I have some flexibility to investigate. Basically this criteria lowers my risk of purchasing over-valued companies.

Score

Quality this is the total point score for the eight columns under the strength, growth and sustainability categories which represents an overall quality analysis score for each company. Each of the eight areas can receive up to 10 points for a maximum of 80 total points. The higher the score the better. Points are awarded based on the following:

Area 10 Points 8 Points 5 Points 3 Points 1 Point
Years Dividend Increased 25+ 24-20 19-15 14-10 9-5
Economic Moat Wide Narrow
Yield 4.5%+ 4.49%-4.0% 3.99%-3.5% 3.49%-3.0% 2.99%-2.5%
5 Year Dividend Growth Rate 15%+ 14.9%-12.5% 12.4%-10% 9.9%-7.5% 7.4%-5%
5 Year Estimated Growth Rate  15%+  14.9%-12.5%  12.4%-10% 9.9%-7.5%  7.4%-5%
Dividend Payout Ratio <=35  36-45 46-55 56-65 66-75
Debt to Equity  0-0.25 0.26-0.5 0.51-0.75 0.76-1.0 1.1-1.6
Credit Score/Quality  AAA AA+, AA, AA- A+, A, A- BBB+ BBB


Timing
this is the total point score for the two columns under the Valuation and Timing category which represents combined current fair value and the 52 week low/high range market timing score for each company. Each of the two areas can receive up to 10 points for a maximum of 20 total points. The higher the score the better. Points are awarded based on the following:

Area 10 Points 8 Points 5 Points 3 Points 1 Point
 % Discount to Fair Value  <= -20%  -19% to -15% -14% to -10% -9% to -5% -4% to 0
 % 52 Week Low to High Price Range  <= 10%  11% – 20% 21% – 30% 31% – 40% 41% – 50%

Dividend Growth Type is where I have grouped dividend growth stocks into the following three growth rate types:

  1. Low (L) – Dividend growth rate between 5-7%, these are typically your older ‘cash cow’ blue chip type of companies with higher current yields that are good core holdings for stable long-term sources of income.
  2. Medium (M) – Dividend growth rate between 8-11%, youngish companies still growing but not as fast as the High dividend growth companies.
  3. High (H) – Dividend growth rates of 12% or more. These are young high growth companies typically with low dividend payout ratios with low current dividend yields, that are able to increase their dividend payments at a high percentage rate, but will not be able to sustain the high rate.

Similar to diversifying across industry sectors I like to have a good mix of all three dividend growth stock types to improve my dividend growth rate while reducing risk.

After I find a company that meets the basic entry criteria on my watch list I then analyze the company in more depth. I find out more about its financial stability, and review its historical trends to make sure it is a company that I feel good about owning.

*Disclaimer: Information is provided “as is” and solely for informational purposes, not for trading purposes or advice. Sources may not always provide data. Quotes may be delayed up to 20 minutes.

Column Sources

Heading Source
Sector Google Finance
Ticker Dividend Geek
# of Years Dividend Increase David Fish, Dividend Champions Spreadsheet
Competitive Advantage Morningstar.com
Yield Yahoo Finance
5 Year Dividend Growth Gurufocus.com
5 Year Estimated Growth Rate Yahoo Finance
Dividend Payout % Google Finance
Price Google Finance
% Change Google Finance
Fair Value Morningstar.com
% Fair Value Formula: (Current Value / Fair Value)-1
52 Week Low Google Finance
52 Week High Google Finance
% > Low Formula: (Price-52 Week Low)/52 Week Low
P/E Google Finance

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