All About Interest

One man's journey to financial independence.

July CCC Dividend Stock Rankings

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It’s time for another addition of my CCC rankings by 10-year YOC.

*I haven’t done one of these in a while and it feels good to start posting again.  I’m excited to see what changes there might be.

What I Did

I decided to take the CCC spreadsheet and rank the stocks based on their 10-year YOC.  If you are unfamiliar with what Yield-On-Cost is (YOC) then refer to my resources tab or see below for an example.  If you don’t know about David Fish’s Champion, Challenger and Contender (CCC) spreadsheet then you are doing yourself a disservice, the link is also on my resources tab.

Let’s say you purchased a stock at $10/share in 2013 that paid a 4% dividend or $0.40/share. In order to achieve a 10-year YOC of 10% that stock would need to pay out at least $1.00/share by 2023.

You may wonder why I care about a 10-year YOC instead of just the 1,3,5 and 10-year CAGR’s. The main factor that the CAGR leaves out is the starting dividend yield.  The starting dividend in combination with the dividend growth rate will greatly influence your returns.

There’s a variation of this screen used alot by members of the Seeking Alpha community and it’s coined the “Chowder Rule”.  This can also be found now on the CCC sheets.  The rule basically adds the starting yield with the dividend growth rate (5-year CAGR) and looks for it to be higher than a certain number.  While this can be a useful screen, there is still a discrepancy between dividend payers that have different growth rates but still arrive at the same number.  For instance, a 3% yielder with 5% growth would get the same grade (an 8) as a 5% yielder with 3% growth.  Holding a lower yielding stock with a higher growth rate will at some point provide higher returns assuming the growth rates don’t change.  My 10-year YOC would give this 3% and 5% yielder a 4.9 and 6.7 respectively.

Why I Did It

The purpose of this screening process will be to identify companies that have a high expected dividend growth rate combined with a starting yield that would produce greater returns. These companies may be good candidates for further research.

How I Did It

The first step was to sort all stocks by their current dividend yield and eliminate any stocks not paying at least a 2% yield.

Next I sorted all columns by TTM P/E and eliminated every stock with a TTM P/E over 20.  I do realize this eliminates a lot of REIT’s, MLP’s, and telecom stocks.  I’m ok with this since I’m not really targeting these stocks right now.  Then I decided to eliminate any Champions with a 10-Year CAGR < 5%, followed by any Contenders with a 5-Year CAGR < 7 % and finally any Challengers with a 3-year CAGR < 7%.  This screen eliminates a lot of slow growing companies like utilities.

This last screen dropped the list of Champions, Contenders and Challengers to 24(+1), 55(+1) and 120(+57) respectively.

Next I took the latest CCC sheet and added some new columns to calculate a 10-year YOC using each stock’s 1,3, 5 and 10-year compound annual growth rate (CAGR). I will call these new metrics 10YOC1, 10YOC3, 10YOC5, and 10YOC10 for simplicity.

After sorting, I looked for any companies that had a 10YOC1, 10YOC3, 10YOC5 or 10YOC10 of 10% or higher. I applied this to the list of Champions, Contenders and Challengers.

Next, I wanted to look to see if the DGR was increasing or decreasing. I highlighted in red the 10-year YOC’s of companies that were both reducing their rate of increases and still under 10%.

This is a previous example of how it looked:

Companies got credit for increasing their dividends at faster rates. For example: The 10YOC5 for AWR in the example above was 4.97 and did not get highlighted in red because its 10YOC5 was higher than its 10YOC10 of 4.09.

 

Next, I decided to remove any company that had a 10YOC1 in the red for Champions and a 10YOC1 or 10YOC3 in red for Contenders and Challengers.

 

For the Example Champions list above this removed LEG, MDT, NUE and WMT.
This new round of elimination dropped the list sizes for the Champions, Contenders and Challengers to 8(+3), 20(-4) and 75(+34) respectively.

My Results

 

Here are the 103(+33) candidates left that may be worthy to do further research on:

 

 If any of the below images are too small, right click and open in a new tab.  

Championschampions_july

  

Contenderscontenders_july

 

Challengerschallengers_july

There’s a lot of changes since I last ran this screen.

 

On the Champions list, ADM, DOV and TROW on now on here.  I’ve noticed a lot of DG investors picking up TROW fairly recently.  The oil giants XOM and CVX were close to making the list along with Parker Hannifin (PH), a maker of industrial equipment with a lot of clients in the aerospace and climate control industry.

 

Then there’s the Contender’s list with usual names like BBL.  BBL is close to making the list and has been here a while.  I own CAT, BBL and LMT on this list.  MSFT , IBM and QCOM would be of further interest to me for more exposure to the technology sector.

 

The Challenger’s list is giant now adding more than 30 new names!  Most of these new names are from the financial sector as it’s just been over 5 years since the Great Recession.  There’s lots to take a look at here.  A small food processing company, AMNF, caught my eye.  They have a low market cap but low debt and have been increasing their dividend.  I may do some additional research.

Keep in mind that this is just a starting point and I feel these companies need further research before making an investment.You can find previous months by following my CCC Rankings label.

*photo courtesy of ESPN

Comments

  2. Welcome back, AAI — I missed these CCC rankings articles of yours!

    HP, TROW, MO, CVX and XOM in you Champions list are DivGro holdings. I’m looking at potentially adding ADM, though I want the stock price to drop more before doing so.

    In the Contenders, I’m long GPS, QCOM, ACE, MSFT, IBM, CAT and BBL.

    Take care!
    FerdiS
    FerdiS recently posted…Quarterly Review, Q2-2015My Profile

    • FerdiS,

      Thanks! I’m glad you find this useful. I think it’s fun and interesting to see what changes each month.

      You’ve certainly got some solid holdings there. Yeah, I’d like to own ADM but it took off a little. I’d also like to pick up some HP at some point, I know these drillers are going to come back eventually. If I pick up a tech stock, QCOM or IBM will be at the top of the list.

      Thanks for stopping by!

    • Hi DivHut,

      No Problem, I’m glad it’s useful. I like those two stocks also and want to own them at some point. It’s hard to own every solid stock out there. Lower oil and gas prices are having some major effects on a lot of companies. The oil services area should be the first to recover when the price of oil comes back up. It’s not a matter of if but when.

      Thanks for stopping by!

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