Dividend Challenger Highlights: Week Of July 12


Introduction

The Dividend Champions list is a monthly compilation of companies which have consistently increased their annual dividend payouts, and the latest edition may be found here. However, since this list is only produced once per month, the data in it can quickly get out of date. Furthermore, with close to 800 companies on the list, the sheer amount of data can quickly become overwhelming. In this weekly series, I highlight recent and upcoming dividend related activity for companies holding Challenger (5-9 years) status.

In the data presented below, Yield is forward annualized and Years reflects the up-to-date streak, including dividends declared since the last edition of the Dividend Champions list.

Dividend Changes

In the past week, the following companies on the Challengers list declared dividends which changed from their previous payouts.

Increases:

None

Decreases:

None

Last Chance to Buy

These companies have ex-dividend dates approaching. The following tables indicate the last day you can buy these stocks in order to be eligible for the upcoming dividend. Tables are sorted alphabetically by symbol.

Monday, Jul. 13 (Ex-Div 7/14)

Company

Symbol

Pay Date

Payout

Price

Yield

Years

AbbVie Inc.

(ABBV)

8/14

1.18

96.83

4.87%

8

Abbott Laboratories

(ABT)

8/17

0.36

93.04

1.55%

7

City Holding Co.

(CHCO)

7/31

0.57

61.61

3.70%

8

Tuesday, Jul. 14 (Ex-Div 7/15)

Company

Symbol

Pay Date

Payout

Price

Yield

Years

Alamo Group Inc.

(ALG)

7/29

0.13

98.29

0.53%

6

Owens Corning Inc.

(OC)

8/7

0.24

55.31

1.74%

7

Watsco Inc.

(WSO)

7/31

1.775

184.09

3.86%

7

Wednesday, Jul. 15 (Ex-Div 7/16)

Company

Symbol

Pay Date

Payout

Price

Yield

Years

Saul Centers Inc.

(BFS)

7/31

0.53

30.72

6.90%

6

GEO Group Inc.

(GEO)

7/24

0.48

11.86

16.19%

8

Pathfinder Bancorp, Inc.

(PBHC)

8/14

0.06

9.91

2.42%

5

PNC Financial Services Group Inc.

(PNC)

8/5

1.15

101.6

4.53%

9

Zoetis Inc.

(ZTS)

9/1

0.2

137.1

0.58%

8

Thursday Jul 16 (Ex-Div 7/17)

Company

Symbol

Pay Date

Payout

Price

Yield

Years

Main Street Capital Corp.

(MAIN)

8/14

0.205

29.26

8.41%

9

Friday, Jul. 17 (Ex-Div 7/20)

None

Money on the Way

The following companies have dividend pay dates in the upcoming week (Tuesday through the following Monday). Check if you want your DRIPs to reinvest at these yields…or take the cash and go have a steak dinner!

Company

Symbol

Pay Date

Payout

Yield

Arbor Realty Trust Inc.

(ABR)

7/15

0.3

15.1%

AvalonBay Communities Inc.

(AVB)

7/15

1.59

4.2%

CareTrust REIT Inc.

(CTRE)

7/15

0.25

6.0%

Culp Inc.

(CULP)

7/17

0.105

4.4%

EastGroup Properties Inc.

(EGP)

7/15

0.75

2.5%

Encompass Health Corp.

(EHC)

7/15

0.28

1.8%

First Bancorp Inc.

(FNLC)

7/20

0.31

6.2%

First Industrial Realty Trust Inc.

(FR)

7/20

0.25

2.6%

Fulton Financial Corp.

(FULT)

7/15

0.13

5.3%

Glacier Bancorp Inc.

(GBCI)

7/16

0.29

3.5%

Guaranty Federal Bancshares

(GFED)

7/17

0.15

3.9%

Great Southern Bancorp Inc.

(GSBC)

7/14

0.34

3.7%

Horizon Bancorp

(HBNC)

7/17

0.12

5.1%

Intuit Inc.

(INTU)

7/20

0.53

0.7%

Kimball International Inc.

(KBAL)

7/15

0.09

3.3%

Main Street Capital Corp.

(MAIN)

7/15

0.205

8.4%

Mondelez International Inc.

(MDLZ)

7/14

0.285

2.2%

Mackinac Financial Corp.

(MFNC)

7/20

0.14

5.9%

MGM Growth Properties LLC

(MGP)

7/15

0.4875

7.4%

Medical Properties Trust Inc.

(MPW)

7/16

0.27

6.1%

Packaging Corp of America

(PKG)

7/15

0.79

3.2%

Rexford Industrial Realty Inc.

(REXR)

7/15

0.215

2.1%

Raymond James Financial Inc.

(RJF)

7/15

0.37

2.1%

Shoe Carnival Inc.

(SCVL)

7/20

0.09

1.4%

SL Green Realty Corp.

(SLG)

7/15

0.295

7.4%

STORE Capital Corp.

(STOR)

7/15

0.35

6.3%

State Street Corp.

(STT)

7/16

0.52

3.2%

Terreno Realty Corp.

(TRNO)

7/14

0.27

2.0%

U.S. Bancorp

(USB)

7/15

0.42

4.6%

Willis Towers Watson plc

(WLTW)

7/15

0.68

1.3%

Conclusion

I hope you found this article useful. Please let me know if you have any ideas for improving the format or data included in this series.

Looking for more in depth analysis of high quality dividend stocks? Check out the Dividend Kings marketplace service!

Disclosure: I am/we are long ABBV, GEO. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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Dividend Stock Purchase: Lanny’s June 2020 Summary


There’s no sleep for the investor on the road to financial freedom. Dividend stock purchase activity was much better in June than May, as the stock market provided better opportunities. We were able to add triple-digit dividend income, increasing our passive income source this past month.

Dividend stock purchase and dividend income: Path to financial freedom

Investing consistently in dividend income stocks allows you to create and build another income source. Dividend income is our primary vehicle on the road to financial freedom, which you can see through my dividend portfolio, which continues to build and build. Further, I have written about every stock purchase and month of dividend income since we started this site, plenty of dividend history for you, the reader.

How do I make dividend stock purchases and screen for dividend stocks? I usually put the stocks through our Dividend Diplomat Stock Screener and trade on Ally Bank’s investment platform (one of our Financial Freedom Products).

Purchasing dividend stocks takes capital or money. How do I build the capital to make these stock purchases? I save anywhere from 60-85% of my take-home pay and strongly believe financial freedom does not happen by hitting a home run on an investment. Nothing matters more than your savings rate on your journey to financial freedom, plain and simple. Therefore, I work my butt off to make sure expenses remain in-check and that my savings rate is meeting our investment and financial independence goals. Then, you rinse and repeat.

Dividend stock purchase activity

My dividend stock portfolio was burnt by dividend cuts and lost over $800+ in forward dividend income. Therefore, I was ready to get back to basics and acquire more shares in the best quality dividend stocks out there.

Since May was a very dry/less active month, I was ready to make June count. I was eager more than ever to make moves to financial freedom, adding passive income in the form of dividend income. Who doesn’t love this income stream?! I know, there is bias, but the cycle of a dividend stock is a beautiful thing. However, I digress. Time to see the dividend stock purchases below.

Pfizer (NYSE:PFE)

Pfizer is a beast in the pharmaceutical industry. Yes, I’ll say it – they produce Viagra, which is what everyone knows them for. However, recently, they are known for something far superior at this time. That is – Pfizer has been working on a coronavirus vaccine, which (surprisingly) actually hasn’t caused their stock price to change much.

Pfizer has also been a dividend investor dream over the last 10 years. See the statistics below from the Dividend Diplomat Stock Screener:

  1. Price to Earnings: 8 analysts are projecting $3.09 in earnings for 2021. Therefore, at an average dividend stock purchase price of $34.44, that equates to a P/E ratio of approximately 11.14. This is significantly lower than the S&P 500 Index P/E ratio of 22.73.

  2. Payout Ratio: Pfizer pays $1.52 in dividends per year, per share. PFE’s earnings projection is at $3.09. Therefore, this equates to a dividend payout ratio of 49%. This dividend payout ratio is in the perfect range we like to see, between 40% and 60%. Again, this shows that they continue to reinvest earnings into their business to grow those earnings. However, they also like to send almost 50% of their earnings back to shareholders.

  3. Dividend Growth: Pfizer is going on 10 years of dividend increases. It’s okay that they aren’t quite at the dividend aristocrat status, but you have to start somewhere. Further, their dividend growth rate is typically in 6.00% to 7.00%, far outpacing inflation. In fact, Pfizer’s dividend increase typically is 2x the national inflation rate. See the lovely chart below, if you don’t believe it.

In total, my dividend stock purchase of Pfizer totaled $551.00, acquiring 16 total shares. This added $24.32 in forward dividend income. My Pfizer position is at ~144 shares and I would like to reach 150 shares, at the right price and valuations.

Dividend stock Purchase Summary (Plus the ~$500 and Less)

Now that most of us here in the U.S. have the ability to trade, my stock purchases can be smaller than usual. The brokerages really have paved the way to making it “easier” or at least, less costly, for investors. Thank you Robinhood, Charles Schwab, E-Trade, you name it. I easily have saved hundreds of dollars this year alone in trading fees.

Given that, I don’t want to dive into so much detail on smaller purchases. Therefore, the remaining dividend stock purchases will be reflected in a screenshot below, from the brokerage that I use – Ally Investing.

Here are the screenshots from my June Dividend Stock purchases.

Taxable Account:

Roth IRA: No purchases in the Roth IRA for June.

No new positions were added to my dividend portfolio. Due to the global pandemic, it’s definitely easier to buy dividend aristocrats, especially those stocks that are set to do very well during this time period. In this video, we talk about insurance and technology being strong industries, with Aflac (NYSE:AFL) and Cisco (NASDAQ:CSCO) showing signs of undervaluation as a dividend stock.

In total, I deployed a total amount of $1,574.85 and added $60.36 to our forward dividend income, equating to an average dividend yield of 3.83%.

My Wife’s Dividend Stock Purchase summary

My wife has accounts where we also make dividend stock purchases. Though we are married, we are still running two separate, individual, taxable accounts. All is good, especially because we use the same platform, but just haven’t wanted to deal with the administrative tasks of combining. In actuality, I don’t think it’s even possible to combine on the retirement-based accounts.

During June, we definitely started to add more capital to my wife’s dividend investing account. The dividend income added from Dividend Aristocrats, including two of our top 5 foundation dividend stocks for your portfolio are in the mix.

Taxable Account:

Roth IRA: No retirement stock purchases for the month of June

We continued to add to Consolidated Edison (NYSE:ED) and Johnson & Johnson (NYSE:JNJ), two massive dividend aristocrats. Further, the largest single move we made was Tyson Foods (NYSE:TSN), as with factories shutting down, this caused a decline in the stock price. Lastly, Unilever (NYSE:UL) has remained around the same price for some time, so we continued to beef up that position for the portfolio.

Lastly, we added a few shares to Walgreens (NASDAQ:WBA), another dividend aristocrat that showed signs of undervaluation, not to mention the 2.2% dividend increase we received. My wife’s portfolio is typically full of safe and sound dividend investments, and since we’ve been together, her portfolio has been blossoming into an extremely significant part of our family’s finances.

In total, $2,237.04 was put into investments, producing $71.78 in dividend income going forward. This is an average dividend yield of 3.21%.

Summary & Conclusion

June was a significantly different story than May. July has already started with a bang, and the dividend purchases have been aplenty. Combined, my wife and I invested $3,811.89 for June and added $132.14 to our forward dividend income total (3.47% yield overall).

I will maintain my main message. Stick to the strategy that works for you, but review if there is anything that may impact your strategy going forward. You are in control and the emotion button is hard to turn off. Persevere and stay consistent, if you are able to. Time to lock in and stay ready for further opportunities. This was one step closer to financial freedom and I hope to continue making strides. Lastly, my dividend portfolio has been updated to reflect all dividend stock purchases above (outside of my wife’s).

I am continually looking at my July dividend stock watch list and always keeping an eye on the stocks on Bert’s list of expected dividend increases this month. It is all about the road to financial freedom and I cannot wait to have that crossover point. That crossover point where the passive income from dividends overcomes the total expenses in a given month.

I know I’ve said it many times, but each and every month we do make inches towards the financial freedom goal. We will get there and we are very excited you have joined us on the journey – whether you are on your own, learning from ours and simply are entertained by the articles.

Thank you for stopping by, good luck and happy investing out there!

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Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.





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Banco Sabadell: Dividend Expectations For The Next Few Years Have Been Cut (OTCMKTS:BNDSF)


Introduction

About a year ago, I wrote an article on Banco Sabadell (OTCPK:BNDSF) (OTCPK:BNDSY) wherein I discussed the bank’s dividend plans and the impact on its capital ratios. I mentioned that although I understood why Sabadell wanted to resume dividend payments, I also emphasized that the bank’s attempts to rebuild the balance sheet were still necessary, and if a materially adverse scenario (as defined by the European Banking Association) were to occur, the bank would see its capital ratios drop below the required minimum. I dare to say the COVID-19 pandemic could very well be the adverse economic scenario Sabadell should be fearing and in this article I’ll have a closer look at the Spanish bank.

Source: Yahoo Finance

Banco Sabadell does have a secondary listing in the US, but the OTC listing isn’t very liquid and I would recommend to only trade in Banco Sabadell through the Bolsa de Madrid stock exchange to take advantage of the superior liquidity. The ticker symbol in Spain is SAB, and the current share price is 0.316 EUR (as of the closing bell on Wednesday). Keep in mind there are 5.6 billion shares outstanding, resulting in a market capitalization of 1.77B EUR at this point.

Banco Sabadell was profitable in Q1 despite already recording COVID-19 losses

I was positively surprised when I noticed Sabadell had posted a net income of 94M EUR as I had expected the bank to show worse results as COVID-19 was having a big impact on the European economies in general, but even more so on the Spanish economy which went in lockdown for several months (and just reopened).

Source: quarterly report

In the first quarter of 2020, the bank generated a net interest income of 884M EUR, a 1.8% decrease compared to the first quarter of last year, and this was partially offset by a 1.9% increase in the banking fee and commission income which increased by 6M EUR to 349M EUR. This caused the total core revenue to come in at 1.23B EUR, roughly flat compared to Q1 2019 when the banking revenue came in at 1.24B EUR.

Source: Q1 Report

The performance was further boosted by a net trading income (and exchange differences) which pushed the total gross operating income 3.6% higher to 1.37B EUR. On top of that, Sabadell was able to reduce its operating expenses (higher staff expenses were mitigated by lower other general expenses). Ultimately this resulted in a pre-provisions income of 593M EUR, an 8.4% increase compared to Q1 2019. So far, so good, and this is a very remarkable result.

Subsequent to that pre-provision income, Sabadell needed to record a loan loss provision in anticipation of the fallout caused by the COVID-19 pandemic. The bank elected to record provisions to the tune of 400M EUR, of which 213M EUR were specifically COVID-19 related. These provisions caused the pre-tax income to drop to 141M EUR and after paying taxes the net income in Q1 was approximately 94M EUR or 1.7 cents per share. Despite this, the bank’s share price started to slide and is now trading at just over 30 cents or less than 5 times the annualized earnings based on Q1.

What can we expect in the second quarter?

That being said, simply annualizing the Q1 income is cutting a corner and not the best thing to do.

What surprised me the most after analyzing the Q1 results was the net trading income and exchange differences which more than doubled compared to Q1 2019. According to the footnotes to the quarterly report, the majority of this gain was related to the sales in the ALCO portfolio, a fixed income portfolio. It sounds like Sabadell took advantage of the low interest rates (and bonds trading at a premium to par) to monetize some of those bonds.

Source: company presentation

This could prove to be a golden move: On the one hand, the bank has boosted its liquidity ahead of the COVID-19 pandemic. Additionally, the sale has boosted the profits, and excluding those sales, Sabadell’s net income probably would have been closer to zero and would have had a negative impact on the capital ratios.

This also results in an increased level of uncertainty for the second quarter. Sabadell hasn’t provided too many details on how the trading income was realized, and whereas most financial institutions reported a loss (or neutral result) in Q1, Sabadell’s profit was an outlier. However, this also means that whereas other financials can be expected to make up some of the lost ground in Q2, Sabadell’s trading income in Q2 may not increase as strongly as its competitors as the bank outperformed in Q1.

Source: company presentation

Secondly, I will keep an eye on the loan-loss related provisions. While it’s commendable to see 400M EUR in loan loss provisions, it’s important to realize the COVID-19 related provisions were just 213M EUR. Given the loan book of Sabadell has a total size of in excess of 176B EUR (including debt securities), the Q1 loan loss provision represents just 0.12% of the total loan book and this may be a bit low so I would expect Sabadell to keep its loan loss provisions at an elevated level.

That being said, the bank will have gathered much more information on the status of its loan book during Q2 and I’m looking forward to seeing a status update when Sabadell reports its Q2 results.

The impact on the dividend

In the previous article (published in April 2019), I commented that I understood Sabadell’s desire to pay a decent dividend as that’s an important element to lure in income-oriented investors. At that point, the average analyst estimates were calling for an EPS of 0.15 EUR in 2020, and considering Sabadell was aiming to apply a 50% payout ratio, one could reasonably have expected a 7.5 cent dividend yield which would have been a dividend yield of almost 8% as the bank was trading at 97 cents per share.

But then COVID-19 happened and not only can we now completely throw the 0.15 EUR EPS out of the window, it’s unlikely that level will even be obtained in 2021 or 2022. For the record, the current average analyst estimates are aiming for an EPS of 0.02 EUR and 0.06 EUR in respectively 2021 and 2022, a substantial drop from just one year ago.

This has two important consequences. First of all, the dividend expectations of 0.075 EUR per share from last year should now no longer be relied upon. Recent buyers can still hope for a 2-4 cent dividend over the FY 2021 result (which would still be a 6-12% dividend yield based on the current share price) but anyone who bought closer to the 1 EUR range will have to be satisfied with a low single digit dividend payment per share for the foreseeable future.

Investment thesis

Seeing the dividend expectations for the next few years completely disappear is a tough view and Sabadell will likely need several years to rebuild the balance sheet to make sure the CET1 ratio continues to exceed the regulatory minimum even during severe external economic shocks.

Value investors could become more interested in Sabadell considering as of the end of Q1 the bank had a book value of 2.33 EUR per share and a tangible book value of 1.88 EUR per share which is only a minor consolation prize at this point. I have a tiny position in Sabadell at this point as some of the put options I wrote last year expired out of the money. I’m becoming very interested in Sabadell at these levels but I’m waiting for the Q2 results to see how Sabadell is dealing with COVID-19 and what its expectations are for future loan losses. The CET1 ratio still exceeds 12% so the balance sheet can handle additional loan loss provisions, but I will scrutinize the next set of results as Sabadell appears to be more speculative than other Eurozone banks.

Consider joining European Small-Cap Ideas to gain exclusive access to actionable research on appealing Europe-focused investment opportunities, and to the real-time chat function to discuss ideas with similar-minded investors!

NEW at ESCI: A dedicated EUROPEAN REIT PORTFOLIO!

Disclosure: I am/we are long BNDSF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I will be looking to average down in Banco Sabadell





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Dividend Changes: June 27-July 3, 2020


This article was co-produced with James Marino Sr. of Portfolio Insight.

We monitor dividend increases for stocks using Dividend Radar, a weekly automatically generated spreadsheet listing stocks with dividend streaks of five years or more. The Dividend Radar spreadsheet separates stocks into categories based on the length of the streak: Champions (25+ years), Contenders (10- 24 years), and Challengers (5-9 years).

Last week, one company in Dividend Radar declared a dividend increase, and one announced a dividend cut.

The table below presents a summary of the dividend increase.

The table is sorted into sections for Champions, Contenders, and Challengers, and then by the percentage increase, %Incr. Dividends are annualized and in US$, unless otherwise indicated. Yield is the new dividend yield for the market close Price on the date listed. Yrs are years of consecutive dividend increases, while 5-yr DGR is the compound annual growth rate of the dividend over a 5-year period. Some companies increase their dividends more than once a year, so the last column (1-yr DGR) indicates the percentage increase from the year-ago dividend.

Source: Created by the authors from data in Dividend Radar

The following company description is the author’s summary of a company description sourced from finviz.

Bank OZK (OZK)

Founded in 1981 and headquartered in Little Rock, Arkansas, OZK provides deposit services, loan products, mortgage lending, treasury management services, and trust and wealth management services. OZK serves businesses, individuals, and non-profit and governmental entities in Arkansas, Georgia, North and South Carolina, Texas, Florida, Alabama, New York, and California.

  • On July 1, OZK declared a quarterly dividend of 27.25¢ per share.
  • This is an increase of 0.9% from the prior dividend of 27¢.
  • Payable July 20, to shareholders of record on July 13; ex-div: July 10.

Please note that we’re not recommending any of these stocks. Readers should do their own research on these companies before buying shares.

Below, we’re including charts from FAST Graphs for this week’s dividend raiser, OZK.

In the chart, the black line represents the share price, and the blue line represents the calculated P/E multiple at which the market has tended to value the stock over time. The orange line is the primary valuation reference line. It is based on one of three valuation formulas depending on the earnings growth rate achieved over the time frame in question. (The Adjusted Earnings Growth Rate represents the slope of the orange line in the chart).

Source: FAST Graphs

OZK’s price line [black] is below the primary valuation line [orange] and below the stock’s normal P/E ratio [blue]. The stock is trading at a discount to fair value. An investment in OZK in January 2010 would have returned 13.8% on an annualized basis (with dividends included).

Dividend Cuts and Suspensions

Following requests from readers, we’ve added this section to our weekly article series. Please note that we’re only covering dividend cuts and suspensions announced by companies in Dividend Radar’s spreadsheet.

Simon Property Group, Inc. (SPG)

  • On June 29, SPG declared a quarterly dividend of $1.30 per share.
  • This is a decrease of 38.1% from the prior dividend of $2.10.
  • Payable July 24, to shareholders of record on July 10; ex-div: July 9.

Upcoming Ex-Dividend Dates

Here is a summary of available ex-dividend dates for the next two weeks. You must own a stock before its ex-dividend date to be eligible to receive the next dividend. The table is divided into sections by Ex-Div Date and sorted by Ticker for each date. Please note that Payout is the dollar amount payable per share or unit on the Pay Date.

Summary of Upcoming Ex-Dividend Dates: July 6-19, 2020

Company (Ticker)

Yrs

Price

(3.Jul)

Yield

5-Yr

DGR

Pay-

out

Pay

Date

Monday, 6 July (Ex-Div Date 07/06)

Bank of South Carolina Corporation (BKSC)

10

$16.79

3.81%

8.3%

0.16

07/31

Dollar General Corporation (DG)

6

$189.48

0.76%

24.6%

0.36

07/21

Erie Indemnity Company (ERIE)

30

$190.23

2.03%

7.2%

0.965

07/21

The First Bancorp, Inc. (FNLC)

8

$21.67

5.72%

7.4%

0.31

07/20

Glacier Bancorp, Inc. (GBCI)

9

$34.24

3.39%

10.3%

0.29

07/16

Guaranty Federal Bancshares, Inc. (GFED)

6

$15.05

3.99%

22.9%

0.15

07/17

John Wiley & Sons, Inc. (JW.A)

27

$37.64

3.64%

9.4%

0.34

07/22

John Wiley & Sons, Inc. (JW.B)

21

$38.21

3.58%

9.4%

0.34

07/22

Preferred Bank (PFBC)

6

$40.44

2.97%

30.3%

0.3

07/21

Tuesday, 7 July (Ex-Div Date 07/07)

Quest Diagnostics Incorporated (DGX)

10

$116.04

1.93%

9.4%

0.56

07/22

Roper Technologies, Inc. (ROP)

27

$391.17

0.52%

16.7%

0.5125

07/22

Riverview Bancorp, Inc. (RVSB)

6

$5.23

3.82%

75.9%

0.05

07/22

Wednesday, 8 July (Ex-Div Date 07/08)

CVB Financial Corp. (CVBF)

7

$17.96

4.01%

17.6%

0.18

07/23

The First of Long Island Corporation (FLIC)

24

$15.47

4.65%

7.1%

0.18

07/20

Johnson Outdoors Inc. (JOUT)

7

$90.75

0.75%

16.7%

0.17

07/23

Kadant Inc. (KAI)

8

$100.50

0.96%

8.5%

0.24

08/06

Mastercard Incorporated (MA)

9

$302.42

0.53%

22.0%

0.4

08/07

Thursday, 9 July (Ex-Div Date 07/09)

Brady Corporation (BRC)

35

$45.69

1.90%

1.7%

0.2175

07/31

Culp, Inc. (CULP)

8

$9.16

4.59%

12.3%

0.105

07/17

Gentex Corporation (GNTX)

10

$25.98

1.85%

7.8%

0.12

07/22

Intuit Inc. (INTU)

9

$305.30

0.69%

17.0%

0.53

07/20

Lincoln National Corporation (LNC)

11

$34.61

4.62%

16.4%

0.4

08/01

Masco Corporation (MAS)

7

$50.14

1.08%

14.2%

0.135

08/10

NetApp, Inc. (NTAP)

7

$43.55

4.41%

23.8%

0.48

07/29

OGE Energy Corp. (OGE)

15

$30.63

5.06%

9.4%

0.3875

07/30

Parke Bancorp, Inc. (PKBK)

6

$14.47

4.42%

33.0%

0.16

07/24

Simon Property Group, Inc. (SPG)

10

$64.94

12.94%

9.5%

1.3

07/24

AT&T Inc. (T)

36

$30.08

6.91%

2.1%

0.52

08/03

UDR, Inc. (UDR)

11

$38.57

3.73%

5.6%

0.36

07/31

Verizon Communications Inc. (VZ)

16

$54.79

4.49%

2.4%

0.62

08/03

Friday, 10 July (Ex-Div Date 07/10)

Hormel Foods Corporation (HRL)

54

$48.08

1.93%

14.5%

0.2325

08/17

Bank OZK (OZK)

24

$23.00

4.70%

14.9%

0.2725

07/20

Universal Corporation (UVV)

49

$41.45

7.43%

8.1%

0.77

08/03

Monday, 13 July (Ex-Div Date 07/13)

Apogee Enterprises, Inc. (APOG)

9

$22.70

3.30%

11.5%

0.1875

07/29

MSC Industrial Direct Co., Inc. (MSM)

18

$73.10

4.10%

14.4%

0.75

07/28

Tuesday, 14 July (Ex-Div Date 07/14)

AbbVie Inc. (ABBV)

8

$98.88

4.77%

19.6%

1.18

08/14

Abbott Laboratories (ABT)

7

$92.23

1.56%

8.1%

0.36

08/15

American Financial Group, Inc. (AFG)

15

$59.60

3.02%

12.5%

0.45

07/27

Franklin Resources, Inc. (BEN)

40

$20.38

5.30%

7.0%

0.27

07/27

Camden National Corporation (CAC)

8

$33.97

3.89%

10.6%

0.33

07/31

City Holding Company (CHCO)

10

$62.30

3.66%

6.7%

0.57

07/31

Mid-America Apartment Communities, Inc. (MAA)

11

$117.53

3.40%

5.5%

1

07/31

Oracle Corporation (ORCL)

11

$55.94

1.72%

13.5%

0.24

07/28

RGC Resources, Inc. (RGCO)

20

$24.79

2.82%

6.2%

0.175

08/01

Trinity Industries, Inc. (TRN)

10

$20.89

3.64%

12.5%

0.19

07/31

VSE Corporation (VSEC)

17

$30.21

1.19%

12.5%

0.09

07/29

Wednesday, 15 July (Ex-Div Date 07/15)

Accenture plc (ACN)

16

$215.72

1.48%

3.3%

0.8

08/14

Alamo Group Inc. (ALG)

6

$101.82

0.51%

10.8%

0.13

07/29

IDEX Corporation (IEX)

11

$157.89

1.27%

11.5%

0.5

07/31

Owens Corning (OC)

7

$54.06

1.78%

7.2%

0.24

08/07

RPM International Inc. (RPM)

46

$74.88

1.92%

7.0%

0.36

07/31

Watsco, Inc. (WSO)

7

$179.69

3.95%

20.4%

1.775

07/31

Watsco, Inc. (WSO.B)

7

$178.40

3.98%

20.4%

1.775

07/31

Thursday, 16 July (Ex-Div Date 07/16)

Saul Centers, Inc. (BFS)

6

$32.44

6.54%

5.4%

0.53

07/31

Quaker Chemical Corporation (KWR)

13

$185.15

0.83%

5.1%

0.385

07/31

McGrath RentCorp (MGRC)

28

$52.91

3.18%

9.4%

0.42

07/31

Norwood Financial Corp. (NWFL)

20

$24.70

4.05%

4.0%

0.25

08/03

Pathfinder Bancorp, Inc. (PBHC)

5

$9.53

2.52%

20.0%

0.06

08/14

The PNC Financial Services Group, Inc. (PNC)

10

$102.15

4.50%

18.7%

1.15

08/05

WD-40 Company (WDFC)

11

$197.01

1.36%

12.2%

0.67

07/31

Zoetis Inc. (ZTS)

8

$137.66

0.58%

18.6%

0.2

09/01

Friday, 17 July (Ex-Div Date 07/17)

Caterpillar Inc. (CAT)

27

$127.72

3.23%

8.0%

1.03

08/20

Colgate-Palmolive Company (CL)

57

$73.28

2.40%

3.5%

0.44

08/14

Graco Inc. (GGG)

23

$48.51

1.44%

11.8%

0.175

08/05

Main Street Capital Corporation (MAIN)

10

$30.70

8.01%

3.7%

0.205

08/14

With so many stocks going ex-dividend in the next two weeks, we can use added value metrics in Dividend Radar to highlight interesting candidates.

We screen for stocks trading In the Margin of Safety or At Fair Value with positive 3-year trailing total returns (3-yr TTR).

Source: Created by the authors from data in Dividend Radar

Next, we like to look for stocks whose 1-yr TTR is greater than their 3-yr TTR (colored green in the table). Three stocks pass these screens: ABBV, MAS, and MSM.

Since ABBV is In the Margin of Safety, let’s consider it.

Dividend Challenger ABBV is a world-wide, research-based biopharmaceutical company that develops and markets products to treat a variety of conditions, including rheumatoid arthritis, hepatitis C, and HIV. ABBV offers an attractive yield of 4.77% and an impressive 5-yr DGR of about 20%. The stock has a quality rating of 16 (Rating: Decent).

ABBV’s dividend growth is well-supported by the company’s earnings growth and prospects for future earnings growth:

Source: Portfolio Insight

Last week, the stock received bullish coverage by three different authors on Seeking Alpha:

Thanks for reading and happy investing!

Disclosure: I am/we are long ABBV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.





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The 24 Safest Dividend Aristocrats Retirees Can Buy In July


(Source: imgflip)

It’s an exciting but also frightening time for income investors.

S&P 500 Valuation Matrix

Year EPS Consensus YOY Growth Forward PE Blended PE Overvaluation (Forward PE) Overvaluation (Blended PE)
2020 $125.11 -23% 25.0 21.8 53% 28%
2021 $163.43 30% 19.2 22.1 17% 30%
2022 $186.58 13% 16.8 18.0 3% 6%

(Sources: F.A.S.T Graphs, FactSet Research, Brian Gilmartin, Reuters’/Refinitiv/Lipper Financial)

The sharp rally in stocks over the last two months has resulted in the highest valuations in 19 years.

Year Upside Potential By End of That Year Consensus CAGR Return Potential By End of That Year

Probability-Weighted Return (CAGR)

2020 -31.3% -52.9% -40.0%
2021 -9.3% -6.3% -4.8%
2022 6.2% 2.4% 1.8%
2025 34.7% 5.6% 4.2%

(Sources: F.A.S.T Graphs, FactSet Research, Dividend Kings Investment Calculator)

That doesn’t mean that a correction or market crash is necessarily imminent, merely that future returns are likely to be much lower than the market’s historical 7% to 9% CAGR return.

The reason that market timing is all but impossible, whether you are a professional using supercomputer driven algorithms programmed by PhDs, or a retail investor, is that it can take up to six years for fundamentals to drive the majority of market returns.

Market timing has been proven a fool’s errand by countless studies, spanning decades, and measuring investor returns across various countries.

But the point is that today’s market is expensive, by nearly any valuation metric you choose to look at.

(Source: F.A.S.T Graphs, FactSet Research)

The 5-year consensus return potential from analysts is for 5.6% CAGR total returns from the S&P 500 over the next five years.

S&P 500 Mid-Range Probability-Weighted Calculator

S&P 500
5-Year Consensus Annualized Total Return Potential 5.57%
Conservative Margin Of Error Adjusted Annualized Total Return Potential 2.84%
Bullish Margin Of Error Adjusted Annualized Total Return Potential 8.41%
Conservative Probability-Weighted Expected Annualized Total Return 1.70%
Bullish Probability-Weighted Expected Annualized Total Return 6.73%
Mid-Range Probability-Weighted Expected Annualized Total Return Potential 4.22%

(Source: Dividend Kings Investment Tool)

Applying the historical margins of error on both the Gordon Dividend Growth Model (what most analysts use) and the 20% to 40% historical probability that analysts are wrong about their margin of error adjusted consensus growth range, the market is likely to deliver 1.7% to 6.7% CAGR total returns. The mid-range probability-weighted expected return is 4.2%.

That’s about 1/3 of what we’ve seen over the past decade and about half the historical norm.

Outside of weaker future returns, income investors relying on steadily rising dividends to fund retirement, today’s unprecedented medical/economic crisis has another reason to fret.

(Source: Moon Capital Management, NBER, Multipl.com)

While normal recessions don’t result in significant dividend cuts, a median of just 1.2% and 0.5% in the modern era excluding the Financial Crisis, this is no normal recession.

Health experts estimate this pandemic won’t end until early to mid-2022, and social distancing will likely be with us for two years.

During periods of crisis, as we’re facing now, dividend cuts can range from 24% to 55%, and analyst estimates for 2020’s dividend cuts range from 13% to 25%.

Worse yet is what the dividend futures market is estimating.

(Source: S&P)

From 2019’s record the dividend futures market on May 5th was estimating a 23% cut in dividends for the broader market through 2021. Thousands of investors hedging millions of dollars are estimating it will take until 2027 for the S&P 500 to hit a new dividend record.

Now it’s always possible the dividend futures market is wrong, but retired income investors who rely on reliable passive income to fund expenses shouldn’t have to risk their standards of living to find out.

The Dividend Aristocrats & Champions: The Most Reliable Income Generators On Earth

  • Dividend Aristocrat: S&P 500 company with 25+ year dividend growth streak (index set by S&P)
  • Dividend Champion: Any company with a 25+ year dividend growth streak
  • Dividend King: any company with a 50+ year dividend growth streak

The dividend aristocrats and champions are the bluest of blue-chips and the most reliable income generators on earth.

Dividend Kings’ tracks all of them in our 439 company Master List and Research Terminal and within a week will have separate lists for

  • Dividend Aristocrats
  • Dividend Kings
  • Dividend Champions
  • 11/11 quality Super SWANs (5/5 dividend safety, 3/3 wide-moat businesses, 3/3 management quality/dividend corporate culture, i.e. as close to perfect dividend stocks as exist on Wall Street)

I am now also tracking all 111 dividend champions (which include all aristocrats and kings) in the DK Master List, through Seeking Alpha notifications, and a new Morningstar model portfolio.

The reason for this is that when these companies go on sale, they represent some of the highest probability/lowest risk blue-chip income investments you can make.

Dividend Champions By Sector

(Source: Morningstar)

The one issue with owning all of the dividend champions is that would result in significant overexposure to industrials, which make up 26% of the champions and almost 28% of the official aristocrats.

NOBL Sector Holdings

(Source: Morningstar)

I personally recommend not owning more than 20% exposure to any particular sector and capping industry exposure to 15% with individual caps at 7% or less.

However, there is no denying the quality of the dividend champions.

Fundamental Stats On 111 Dividend Champions

  • Average quality score: 9.5/11 Blue-chip quality vs. 9.6 average dividend aristocrat
  • Average dividend safety score: 4.5/5 very safe vs. 4.5 average dividend aristocrat (about 2.5% dividend cut risk in this recession)
  • Average FCF payout ratio: 53% vs. 61% industry safety guideline
  • Average debt/capital: 38% vs. 53% industry safety guideline vs. 37% S&P 500
  • Average yield: 2.7% vs. 1.9% S&P 500 and 2.3% aristocrats
  • Average discount to fair value: -8% vs. 28% overvalued S&P 500
  • Average dividend growth streak: 40.4 years vs. 41.8 aristocrats, 20+ Graham Standard of Excellence
  • Average 5-year dividend growth rate: 7.6% CAGR vs. 8.3% CAGR average aristocrat
  • Average long-term analyst growth consensus: 7.8% CAGR vs. 6.4% CAGR S&P 500
  • Average forward P/E: 21.5 vs. 21.8 S&P 500
  • Average earnings yield: 4.7% vs. 4.6%% S&P 500
  • Average PEG ratio: 3.33 vs. 3.06 historical vs. 2.56 S&P 500
  • Average return on capital: 84% (83% Industry Percentile, High Quality/Wide Moat according to Joel Greenblatt)
  • Average 13-year median ROC: 92% (relatively stable moat/quality)
  • Average 5-year ROC trend: +2% CAGR (relatively stable moat/quality)
  • Average S&P credit rating: A- vs. A- average aristocrat (5% 30-year bankruptcy risk)
  • Average annual volatility: 23.3% vs. 22.5% average aristocrat (and 26% average Master List stock)
  • Average Market Cap: $45 billion large-cap
  • Average 5-year total return potential: 2.7% yield + 7.8% CAGR long-term growth -1.7 % CAGR valuation boost = 8.8% CAGR (6% to 12% CAGR with 30% margin of error)
  • Probability weighted expected average 5-year total return: 2% to 11% CAGR vs. 2% to 7% S&P 500
  • Mid-Range Probability-Weighted Expected 5-Year Total Return: 6.7% CAGR vs. 4.2% S&P 500 (58% more than S&P 500)

Just buying all of the dividend champions would likely be an OK decision.

To see why let’s walk these fundamental stats through the Dividend Kings Investment Tool.

Dividend Champions Decision Matrix

Goal Dividend Champions Why Score
Valuation Hold 8% overvalued 2/4
Preservation Of Capital Excellent A- credit rating, 2.5% 30-year bankruptcy risk 7/7
Return Of Capital Good 16.6% of capital returned over the next 5 year via dividends vs 11.2% S&P 500 7/10
Return On Capital Very Good 6.7% PWR vs 4.2% S&P 500 8/10
Relative Investment Score 77%
Letter Grade

C+ (above-market-average)

S&P

73% = C (market-average)

(Source: Dividend Kings Investment Tool)

Compared to the lower-yielding, slower growing, and far more overvalued S&P 500, buying all 111 dividend champions (which includes all aristocrats and kings) is a potentially above-average idea.

However, as my fellow Dividend King co-Founder Chuck Carnevale is frequently reminding us “it’s a market of stocks, not a stock market.”

So here are the safest dividend champions, aristocrats and kings retirees can buy in July, from both a valuation and fundamental risk perspective.

The 24 Safest Dividend Aristocrats, Kings & Champions Retirees Can Buy In July

As always I begin each screen by excluding any companies that are overvalued. Valuation risk is the form of risk that Chuck Carnevale is most fanatical about, calling it “the easiest unnecessary mistake investors can avoid.”

The 111 dividend champions range between 38% undervalued (potentially strong buy) to 145% overvalued (sell/trim).

Removing everything that’s overvalued leaves 51 names trading at reasonable to attractive valuations.

Three of those are eliminated because they are 6/11 quality, and one of those is on the DK “sell” list, due to the consensus of all analyst long-term consensus estimates being negative.

This gives us 48 dividend champions, aristocrats, and kings from which we can choose.

But just because a dividend champion is not overvalued, and has a 25+ year dividend growth streak, doesn’t mean that it’s necessarily safe for retirees and other conservative income investors to buy in this recession.

Safety Score Out of 5 Approximate Dividend Cut Risk (Average Recession) Approximate Dividend Cut Risk This Recession
1 (unsafe) over 4% over 24%
2 (below average) over 2% over 12%
3 (average) 2% 8% to 12%
4 (above-average) 1% 4% to 6%
5 (very safe) 0.5% 2% to 3%

So let’s eliminate anything without a 4+/5 dividend safety score, indicating 6% or less risk of a dividend cut in this recession.

  • eliminates 6 names leaving us with 42 companies

Next, we have to remember that not every dividend champion, aristocrat, and king is necessarily a blue-chip.

There are several definitions of “blue-chip” including this one from the Oxford Dictionary.

denoting companies or their shares considered to be a reliable investment, though less secure than gilt-edged (risk-free treasuries) stock.”

Here is Investopedia’s definition.

A blue-chip is a nationally recognized, well-established, and financially sound company.

Blue chips generally sell high-quality, widely accepted products and services.

Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.” – Investopedia

I have a very specific definition of blue-chip, which has nothing to do with size but rather dividend and balance sheet safety and overall quality.

Quality Score Meaning Margin Of Safety Potentially Good Buy Strong Buy Very Strong Buy Ultra-Value Buy
3 Very High Bankruptcy Risk NA (avoid) NA (avoid) NA (avoid) NA (avoid)
4 Very Poor NA (avoid) NA (avoid) NA (avoid) NA (avoid)
5 Poor NA (avoid) NA (avoid) NA (avoid) NA (avoid)
6 Below-Average (speculative) 35% 45% 55% 65%
7 Average 25% to 30% 35% to 40% 45% to 50% 55% to 60%
8 Above-Average 20% to 25% 30% to 35% 40% to 45% 50% to 55%
9 Blue-Chip 15% to 20% 25% to 30% 35% to 40% 45% to 50%
10 SWAN (a higher caliber of Blue-Chip) 10% to 15% 20% to 25% 30% to 35% 40% to 45%
11 Super SWAN (as close to perfect companies as exist) 5% to 10% 15% to 20% 25% to 30% 35% to 40%

So let’s now eliminate anything that isn’t a blue-chip quality company. This leaves us with 30 stocks.

It’s also important to remember that even blue-chips, including dividend aristocrats, can suffer hardship and even go bankrupt.

Failed Dividend Aristocrats 2007 to 2017

(Source: Ploutos) MO is still a dividend king when adjusted for spin-offs

From 2007 to 2017 28 dividend aristocrats cut their dividends, losing their status. Former aristocrats K-Mart and Win-Dixie eventually went bankrupt and their shares became worthless.

Thus next I’ll remove anything that’s designated “speculative” on the DK Master List. Speculative can refer to any quality of company that is facing high short-term business uncertainty.

It means that, regardless of overall quality, we recommend a 2.5% or less position size in your portfolio.

If you own more than that, it becomes a “personal hold” for you.

There are six speculative companies left in our screen and eliminating them leaves us with 24 companies.

All of these companies have investment-grade credit ratings, or implied credit ratings meaning the bond market is willing to lend to them at long-term rates consistent with BBB or better-rated companies.

So here are the 24 safest blue-chip quality dividend champions, aristocrats and kings you can buy in July, sorted by longest to shortest dividend growth streak.

  1. 3M (MMM): 10/11 quality SWAN dividend king with a 62-year dividend growth streak
  2. Coca-Cola (KO): 10/11 quality SWAN king with 58-year dividend growth streak
  3. Altria (MO): 9/11 quality blue-chip king with 50-year dividend growth streak
  4. National Fuel Gas (NFG): 9/11 quality blue-chip king with 50-year dividend growth streak
  5. W. W. Grainger (GWW): 9/11 quality blue-chip aristocrat with 48-year dividend growth streak
  6. Gorman-Rupp (GRC): 9/11 quality blue-chip dividend champion with 48-year dividend growth streak
  7. Nucor (NUE): 10/11 quality SWAN aristocrat with 47-year dividend growth streak
  8. Pepsi (PEP): 10/11 quality SWAN aristocrat with 47-year dividend growth streak
  9. Consolidated Edison (ED): 9/11 quality blue-chip aristocrat with 46-year dividend growth streak
  10. Archer-Daniels-Midland (ADM): 9/11 quality blue-chip aristocrat with 45-year dividend growth streak
  11. Carlisle Companies (CSL): 11/11 Super SWAN quality champion with 43-year dividend growth streak
  12. Aflac (AFL): 9/11 quality blue-chip aristocrat with 38-year dividend growth streak
  13. UGI Corp (UGI): 9/11 quality blue-chip champion with 33-year dividend growth streak
  14. Donaldson Company (DCI): 9/11 quality blue-chip champion with 33-year dividend growth streak
  15. General Dynamics (GD): 11/11 quality Super SWAN aristocrat with 29-year dividend growth streak
  16. MDU Resources (MDU): 9/11 quality blue-chip champion with 29-year dividend growth streak
  17. McGrath Rentcorp (MGRC): 9/11 quality blue-chip champion with 29-year dividend growth streak
  18. SEI Investments (SEIC): 11/11 quality Super SWAN champion with 29-year dividend growth streak
  19. UMB Financial (UMBF): 9/11 quality blue-chip champion with 28-year dividend growth streak
  20. Franklin Electric (FELE): 9/11 quality blue-chip champion with 28-year dividend growth streak
  21. John Wiley & Sons (JW.B): 9/11 quality blue-chip champion with 27-year dividend growth streak
  22. Chubb Limited (CB): 9/11 quality blue-chip aristocrat with 27-year dividend growth streak
  23. Arrow Financial (AROW): 9/11 quality blue-chip champion with 27-year dividend growth streak
  24. Essex Property Trust (ESS): 9/11 quality blue-chip aristocrat with 26-year dividend growth streak

Now it’s important to note that these 24 reasonable to attractively priced dividend champions, aristocrats and kings are highly concentrated in a few sectors.

  • 33% industrial
  • 21% finance
  • 17% utility
  • 17% consumer staples
  • 4% REIT
  • 4% basic materials

While champions are overrepresented by industrials, if you bought these 24 companies in equal amounts then you’d be especially exposed to cyclical industrials.

However, let’s take a look at what an equally weighted portfolio of these 24 companies would look like, to see their fundamental quality and safety.

Fundamental Stats On These 24 Dividend Champions

  • Average quality score: 9.4/11 Blue-chip quality vs. 9.6 average dividend aristocrat
  • Average dividend safety score: 4.8/5 very safe vs. 4.5 average dividend aristocrat (about 2.5% dividend cut risk in this recession)
  • Average FCF payout ratio: 44% vs. 63% industry safety guideline
  • Average debt/capital: 36% vs. 46% industry safety guideline vs. 37% S&P 500
  • Average yield: 3.2% vs. 1.9% S&P 500 and 2.3% aristocrats
  • Average discount to fair value: 15% vs. 28% overvalued S&P 500
  • Average dividend growth streak: 38.6 years vs. 41.8 aristocrats, 20+ Graham Standard of Excellence
  • Average 5-year dividend growth rate: 6.6% CAGR vs. 8.3% CAGR average aristocrat
  • Average long-term analyst growth consensus: 8.0% CAGR vs. 6.4% CAGR S&P 500
  • Average forward P/E: 15.9 vs. 21.8 S&P 500
  • Average earnings yield: 6.3% vs. 4.6%% S&P 500
  • Average PEG ratio: 2.29 vs. 2.69 historical vs. 2.56 S&P 500
  • Average return on capital: 95% (80% Industry Percentile, High Quality/Wide Moat according to Joel Greenblatt)
  • Average 13-year median ROC: 94% (relatively stable moat/quality)
  • Average 5-year ROC trend: +0% CAGR (relatively stable moat/quality )
  • Average S&P credit rating: A- vs. A- average aristocrat (5% 30-year bankruptcy risk)
  • Average annual volatility: 23.6% vs. 22.5% average aristocrat (and 26% average Master List stock)
  • Average Market Cap: $33 billion large-cap
  • Average 5-year total return potential: 3.2% yield + 8.0% CAGR long-term growth + 3.4% CAGR valuation boost = 14.6% CAGR (10% to 19% CAGR with 30% margin of error)
  • Probability weighted expected average 5-year total return: 4% to 18% CAGR vs. 2% to 7% S&P 500
  • Mid-Range Probability-Weighted Expected 5-Year Total Return: 11.1% CAGR vs. 4.2% S&P 500 (162% more than S&P 500)

There is no question that these 24 champions represent wonderful companies at attractive prices. That can be seen by their qualitative as well as objective quality metrics such as safety and quality scores, credit ratings, dividend growth streaks, and returns on capital.

Buying these 24 champions, due to superior valuation and yield, would be expected to earn nearly 7% CAGR superior long-term returns compared to buying all 111 champions.

Here’s what happens when we run these stats through the Dividend Kings Investment Decision Tool.

I now personally never buy a company without first seeing how it scores in this new tool.

These 24 Dividend Champions Decision Matrix

Goal These 24 Dividend Champions Why Score
Valuation Potentially Good Buy 15% undervalued 4/4
Preservation Of Capital Excellent A- credit rating, 2.5% 30-year bankruptcy risk 7/7
Return Of Capital Excellent 19.8% of capital returned over the next 5 year via dividends vs 11.2% S&P 500 9/10
Return On Capital Very Good 11.1% PWR vs 4.2% S&P 500 10/10
Relative Investment Score 97%
Letter Grade A (excellent)
S&P

73% = C (market-average)

(Source: Dividend Kings Investment Decision Tool)

These 24 champions score a 97% A excellent rating indicating they represent very strong potential buying candidates for conservative income growth investors.

Want further proof that these 24 reasonably to attractively priced blue-chip champions are excellent companies? Over the very long-term, the market is never wrong about a company.

As Ben Graham explained, over the long-term (10+ years) the market always correctly “weighs the substance of a company.

Safe Dividend Champions Since January 1996 (Annual Rebalancing)

(Source: Portfolio Visualizer)

The market has weighed the substance of these companies over the last 23.5 years and deemed them to be of exceptional quality and safety, resulting in far better absolute and volatility-adjusted returns.

Note that the 12.5% CAGR total returns over the last 23.5 years are similar to the 11.4% CAGR mid-range probability-weighted expected returns of this portfolio.

In other words, while “past performance does not guarantee future results”, using the best available long-term consensus growth data we have today, there is a high probability that these 24 companies will deliver similar long-term returns as in the past.

7 Proven Ways To Beat The Market Over Time

(Source: Ploutos) data as of June

This isn’t surprising since this 24 safe champion portfolio combines 4/7 smart beta strategies: low volatility, dividend growth, equal weighting, and quality.

BUT no 100% stock portfolio is “safe” if your definition of “safe” is “can’t fall a lot during market downturns.”

(Source: Portfolio Visualizer)

In most market declines this portfolio outperformed the broader market…by falling a lot less.

During the Great Recession, it fell just 37% vs the S&P 500’s 50% (including dividends) and recovered record highs 29 months earlier.

BUT it still fell 37% during the Great Recession and was underwater for 2.5 years.

(Source: Lance Roberts, Dalbar)

Any investor who wasn’t able to stomach that volatility, or merely retirees with improper asset allocation, could have suffered permanent and unnecessary losses.

Proper asset allocation is the cornerstone of prudent risk-management. And risk-management is ultimately what most determines whether you retire in splendor, comfort, or don’t retire at all.

Converting These 24 Safe Champions Into A Sleep Well At Night Bunker Retirement Portfolio

In order to turn these 24 safe champions into a true SWAN bunker retirement portfolio that can withstand anything the economy/pandemic or market can throw at it, we must do a few things.

  • Dilute down the 24 champions by 40% in order to reduce industrial exposure to 20% sector risk cap guideline.
  • Add a prudent amount of cash/bonds to minimize the risk of becoming a forced seller in any future bear market (for either financial or emotional reasons).

Since 1945 in 92% of years when stocks fall, bonds are stable or appreciate in value.

For the 8% of times when both stocks and bonds decline (in stagflationary periods) that’s were stable cash helps to pay expenses (along with dividends, SS and private pensions) thus avoiding forced seller losses.

(Source: UBS)

The asset allocation that’s right for you will depend on your personal risk profile. Here are how various mixes of stocks and bonds have done in bear markets since WWII.

Long-Duration US Treasuries Are Historically The Best Passive Hedging Strategy In Recessions

(Source: Duke University)

Long bonds are NOT about generating income, in our low rate world.

They are a recession hedge and since 1985 the best passive strategy, with the best returns in downturns and the strongest long-term returns across the economic cycle.

Even in the modern low-rate era, which is likely to continue for the foreseeable future, long bonds will likely serve the same recessionary heading role as in the past.

Think about bonds in terms of protection, not yield. The stock market becomes more important when rates are on the floor but that doesn’t mean you can forsake bonds or cash altogether…

In a negative interest rate world, you have to change the way you think about bonds. Bonds have always acted as a shock absorber to stock market declines but this becomes even more important when the yield is more or less taken out of the equation.

Bonds can provide dry powder to rebalance into the stock market or pay for current expenses when the stock market inevitably goes through a nasty downturn. Bonds keep you in business even if they don’t provide high returns as they have in the past.” – Ben Carlson (emphasis original)

So here is how I convert this 24 safe champions highly industrial concentrated portfolio into a SWAN bunker retirement portfolio.

  • Add 40% VIG (blue-chip dividend growth ETF) to the equity portion of the portfolio (dilutes industrial exposure to 20%)
  • Add 15% BIL (1-3 month US Treasuries) = cash equivalent
  • Add 15% SPTL (long-duration US treasuries) = recession/correction hedge

This creates a portfolio that looks like this.

  • 42% equally invested in these 24 safe champions (1.75% each)
  • 28% VIG
  • 15% cash
  • 15% long-bonds

Note that I chose BIL and SPTL not because they are the best ETFs for cash/long bond purposes, but only because they existed during the Great Recession.

Selecting them allows us to backtest this balanced safe champion portfolio during the worst market crash since the Great Depression.

Balanced Safe Champions Portfolio Since January 2008

(Source: Portfolio Visualizer)

Remember that over 10+ years 90% of total returns are a function of fundamentals, not sentiment.

In other words, 12 years of objectively superior absolute and volatility-adjusted total returns are a 90% a function of portfolio design and company quality…not luck.

So let’s consider the peak declines of this balanced safe champion retirement portfolio, which is 10% more stock weighted than the standard 60/40 stock/bond balanced portfolio.

(Source: Portfolio Visualizer)

Note that despite being 70% stocks, and thus less conservative than a 60/40 balanced portfolio

  • this balanced safe champion portfolio fell slightly less during the March crash (12.1% vs 12.3 60/40 vs 34% S&P 500)
  • it fell 3.3% less during the Great Recession
  • Great Recession recovery to new highs was 11 months shorter
  • Zero non-recessionary corrections in the last 12 years

Given the 12 years of market data, I can say with 90% confidence that these objectively superior results are not the result of luck, but rather

  • superior portfolio construction
  • including prudent asset allocation
  • superior quality companies in the equity portfolio (both individual names and VIG’s blue-chip dividend growth focus)

THIS is what I mean by a “diversified and prudently risk-managed portfolio”.

“Safety” has nothing to do with volatility but rather 100% to do with dividend reliability across the economic cycle and the soundness of a company’s balance sheet.

But don’t just take my word for it, here’s Warren Buffett, the greatest long-term investor of all time, explaining his views on the nature of volatility and risk.

Volatility is not a measure of risk….Risk comes from the nature of certain kinds of businesses.

It can be risky to be in some businesses just by the simple economics of the type of business you’re in, and it comes from not knowing what you’re doing.

And if you understand the economics of the business in which you are engaged, and you know the people with whom you’re doing business, and you know the price you pay is sensible, you don’t run any real risk.” Warren Buffett (emphasis added)

Bottom Line: Quality Blue-Chips, Even Aristocrats & Champions, Are Always On Sale

We live in a dangerous world for income investors.

  • the broader market is extremely overvalued historically (some economists even consider it a bubble)
  • the pandemic risks are rising and likely to last two years
  • economic risks are high and likely to rise in the coming months
  • corporate earnings expectations have resumed falling at an accelerating rate
  • business uncertainty (likely to weigh on capex investment) is at all-time highs

But just because we face an unprecedented amount of uncertainty and high short-term correction risk, doesn’t mean that retirees and other conservative income investors can’t still safely buy quality companies at reasonable to attractive valuations.

No matter what the broader market is doing, something great is always on sale.

Right now MMM, KO, MO, NFG, GWW, NUE, GRC, PEP, ED, ADM, CSL, UGI, DCI, MDU, MGRC, SEIC, UMBF, FELE, CB, AROW, JW.B, and ESS, represent the safest dividend aristocrats, kings and champions retirees can buy.

That’s both from a fundamental and dividend safety perspective, as well as minimizing long-term valuation risk.

My goal with all these articles is the same as what I do at Dividend Kings.

To provide reasonable and prudent actionable ideas, while teaching the foundational sound long-term investing approaches that have historically helped investors achieve their financial goals.

Gamblers pray for luck, prudent long-term income investors, utilizing sound and disciplined risk management, create their own.

(Source: AZ quotes)

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Disclosure: I am/we are long MMM, MO, CSL, UGI, MDU, CB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Dividend Kings owns MMM, MO, PEP, CSL, UGI, GD, MDU, SEIC, and CB in our portfolios.





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