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Investing in the Dividend Champions

Written by Nickel - 12 Comments

Investing in the Dividend Champions

I’ve written in the past about the Dividend Aristocrats, which is a list of (currently) 42 companies from the S&P 500 index that have increased their dividends for at least the past 25 years straight.

These are arguably the bluest of the blue chips. The Dividend Aristocrats have outperformed the S&P 500 over the past 1, 3, 5, and 7 years (albeit very slightly at times) with a slightly lower standard deviation (i.e., lower volatility).

While researching the Dividend Aristocrats recently, I ran across another, somewhat larger list known as the Dividend Champions. The criteria for being included on this list, which is maintained by The DRiP Resource Center are somewhat broader than for the Dividend Aristocrats, but it still requires a minimum of 25 years worth increasing dividends.

As of 12/31/10, the list of Dividend Champions included 98 companies with an average of 38.7 consecutive years of dividend increases, and an average yield of 2.86%. If you’re curious about the list, you can download it here.

I wanted to give you a taste of what’s on the list, but 98 companies, is a huge list, so I decided to narrow it down. What follows is a list of 24 Dividend Champions that have a price-to-earnings ratio of less than 20, dividend yield of at least 2%, and payout ratio (dividend/earnings) of less than 0.50:

  • 3M Company (MMM)
  • AFLAC Inc. (AFL)
  • Air Products & Chem. (APD)
  • Archer Daniels Midland (ADM)
  • AT&T Inc. (T)
  • Chubb Corp. (CB)
  • Colgate-Palmolive Co. (CL)
  • Commerce Bancshares (CBSH)
  • ExxonMobil Corp. (XOM)
  • Hormel Foods Corp. (HRL)
  • Illinois Tool Works (ITW)
  • Johnson & Johnson (JNJ)
  • Lancaster Colony Corp. (LANC)
  • McCormick & Co. (MKC)
  • McGraw-Hill Companies (MHP)
  • Medtronic Inc. (MDT)
  • Pentair Inc. (PNR)
  • PepsiCo Inc. (PEP)
  • Questar Corp. (STR)
  • RLI Corp. (RLI)
  • Universal Corp. (UVV)
  • Valspar Corp. (VAL)
  • VF Corp. (VFC)
  • Wal-Mart Stores Inc. (WMT)

Note that I’m not recommending that you go out and start investing in these companies, but if you’re interested in dividend growth investing, this seems like a good place to start doing some research.

As for me, I’m still not 100% sold on the idea of dividend growth investing. Don’t get me wrong, I like the idea of building a stream of passive income in the form of a portfolio consisting of dividend paying stocks, but it sort of has a “flavor of the month” (or perhaps decade) feel to it right now.

What about you? Are you a dividend-centric investor? Why or why not?

Published on January 10th, 2011
Modified on January 14th, 2011 - 12 Comments
Filed under: Saving & Investing

About the author: is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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12 Responses to “Investing in the Dividend Champions”

  1. 1
    BG Says:

    It’s not a fad. Way back when, people primarily invested in the stock market for the dividend payments — share price was secondary.

    In the past, the average stock holding period was measured in years — today, the average is far less than 1-year. The High-Frequency (HF) traders you are competing against hold stocks for milliseconds.

    If a company doesn’t pay a dividend, then you are relying on the ‘greater fool theory’: meaning, you purchase stock in the hopes that you can sell it for more money (to a bigger fool) in the future.

    Purchasing stocks of rock-solid companies which have history of consistent dividends payments is a very wise strategy.

  2. 2
    Nickel Says:

    BG: I fully agree that dividend investing has been a popular strategy for a looong time. My main concern right now is that it’s getting a lot of play in the popular press, mostly due to exceptionally low bond yields. This has made it much more popular (and quite possible more volatile) than it has been in the past.

    As for the greater fool idea, I agree there, too – at least to a point. However, the alternative for me isn’t to buy dividend-less stocks. Rather, it would be something like the Vanguard Total Stock Market Index which yields around 1.4% and holds thousands of companies.

  3. 3
    Janet Says:

    It’s interesting to see Colgate on the list. They used to employ a lot of people in Kentucky and Indiana … but a lot of those jobs have now been shipped to China. I guess it’s working for them.

  4. 4
    Patrick Says:

    I have about 50% of all my investments in companies that pay a dividend and I have faired pretty good over the last ten years.

    I agree that right now some of these companies are better buys than bonds, but lawmakers could very well hurt investors more than any change in the bond market.

    ADM is on the list, ADM is a large Illinois company that is facing a tax increase from 4.8% to 7 and maybe even 8% as Illinois lawmakers are going to vote to raise both personal income and corporate tax rates.

    That is a 68% tax increase and considering that ADM pays out a steady dividend what do you think will happen when their $100 million tax bill turns into a $147 million tax bill? That $47 million has to come from somewhere and they will either raise their prices or slash dividend.

  5. 5
    JWizzle Says:

    I love dividend stocks. Some of my best investments have been in Canadian Oil Trusts that frequently push the limit to near/beyond the double digits.

    Of that list, I have a particular love for Chubb…excellent P/B value play.

  6. 6
    LifeAndMyFinances Says:

    Since the market seems like it’s just going to level out, I have become more interested in dividends. Even if their stock value stays consistant, there is still income from the dividends! I think it was a great option in the past, and it continues to be an excellent option today.

  7. 7
    Anthony Says:

    If you are interested in dividend stocks, you might consider dividends funds.

  8. 8
    Barry Says:

    For me, I see dividend investing as a compliment to index fund investing. While I do like and use index funds, I think if you are willing to put in the time and effort you can beat them, or at worst match their performance, since you are investing in almost identical portfolios anyway.

    The Vanguard Total Stock Market Index fund holds 3370 stocks. 15% of that is invested in the top 10 holdings, the largest being dividend giant Exxon Mobil. In fact, the first 100 or so stocks are blue chip, stable, dividend payers. Whether you know it or not, the majority of your investment is in these types of companies, which in turn will provide a majority of your gains.

    I do believe in index funds. But I guess I don’t see why owning 0.01% in MarineMax Inc. is supposed to make me feel safe.

  9. 9
    Nickel Says:

    Barry: Do you really think that the average investor could beat the market if they were just “willing to put in the time and effort”? And if you’re doing little more than matching what you can get from an index fund, then why bother? In that case, it’s not a complement, it’s redundant.

  10. 10
    BG Says:

    Nickel) I’m in the same camp as you. Primarily index funds. 75% of the companies in the S&P500 do pay dividends, so that index fund should be the core of most peoples portfolios.

  11. 11
    Steve Says:

    I believe the ETC for the Dividend Aristocrats is SDY. There is also DVY, which has been around longer that SDY. DVY apparently had a lot of financials and got hammered after the 2008 market drop. Morningstar really likes the Vanguard dividend ETF VIG which is based on a Wisdom Tree index. The yield for VIG is lower than that of SDY.

    Anyone have experience with any of these ETFs ?

  12. 12
    Barry Says:

    I think that relying solely on capital appreciation is a recipe for disaster. What if you needed money from your index fund during the recent recession? You would have lost out big time. Dividends provide a relatively safe income stream, even in tough times. They are a very important part of total returns, and a strong buffer against volatility.

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