Another month has passed and it’s time for my monthly addition of the CCC rankings.
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 get started 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 “get started” tab.
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. To me this is like adding apples to oranges. 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
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 28(+4), 52(-3) and 132(+12) 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.
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:
For the Example Champions list above this removed LEG, MDT, NUE and WMT.
My Results
Champions
Contenders
On the Champions list, XOM and MO were dropped due to a jump in their prices. However, a new company was added, CSVI. I’ll admit, I don’t know much about CSVI but they just increased their dividend from .22 to .25, a 13.6% increase just last month.
From Etrade:
Computer Services, Inc. provides service and information technology solutions. The Company delivers core processing, managed services, mobile and Internet solutions, payments processing, print and electronic distribution and regulatory compliance solutions to financial institutions and corporate entities across the nation. In addition to core processing, the Company’s integrated banking solutions include check imaging; cash management; branch and merchant capture; mobile and Internet banking; print and mail, and online document delivery services; corporate intranets; secure Web hosting; e-messaging; teller and platform services; automated teller machine (ATM) and debit card service and support; payments solutions; risk assessment; network management; cloud-based managed services, and compliance software and services for regulatory compliance, homeland security and fraud prevention.
Then there’s the Contender’s list with usual names like BBL, CAT and LMT. There’s a few new names, CNQ, WMB, CMI and TXN to name a few. I’m very interested in CMI myself and they are high on my buy list right now. I think gas engines are going to be the future.
The Challenger’s list is again a giant list. A lot of the banks have had 5 years since the Great Recession and are back on this list. I may have to add an additional screen soon for the challengers. The list is so long, it’s hard to view all on one page. Keep in mind that these are the future contenders and champions. There’s some solid companies on this list and if you find the right ones you will be handsomely rewarded. For instance, take a look at the 5-year chart of MIC and the low P/E ratio. It may be worth researching further.
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
The analyst opinions on MIC are horrendous! What’s your take?