One misconception about stocks is that each company’s shares fall into one of two categories, Growth or Value. But the truth is that the best stocks exhibit both characteristics, specifically because of the fact that it is Growth that creates Value.
One place we see this is in comparing the growth rates for earnings and dividends.
A primary reason people buy stocks is that they expect earnings to rise, which encourages appreciation in the stock’s price…and dividends can’t grow unless earnings do, since dividends are a payment of a portion of earnings to shareholders.[ad#Google Adsense 336×280-IA]With this in mind, I compared the 5-year earnings and dividend growth rates by the Champions, Contenders, and Challengers, along with analysts’ estimates for earnings growth rates over the next five years, as well as the companies’ latest percentage dividend increase, and required a minimum of 10% growth on all counts.
I also required at least a 2% dividend yield.
Only five companies qualified, and they are listed below.
(Note that all references to Champions mean companies that have paid higher dividends for at least 25 straight years; Contenders have streaks of 10-24 years; Challengers have streaks of 5-9 years. “CCC” refers to the universe of Champions, Contenders, and Challengers.)
No.Yrs=Consecutive years of higher dividends; MR=Most Recent; EGR=Earnings Growth Rate; DGR=Dividend Growth Rate
In general, these are companies that have established a good pattern of dividend increases, but are not yet Dividend Champions, which are bound to experience slowing growth after a quarter-century of higher earnings and dividends. They come from a variety of industries, each with its own strengths and weaknesses.
Cracker Barrel Old Country Stores (CBRL) operates 622 locations in 42 states that combine home-style cooking and adjacent gift shops that offer cookware, ceramics, figurines, rocking chairs, and other gift items, as well as coffee, syrups, preserves, and other food items.
Deere & Company (DE) was founded in 1837 and is the global leader in the manufacture of agriculture and turf equipment, as well as providing construction and forestry equipment, along with financing the sale or lease of its products.
Evercore Partners (EVR) is an independent investment banking advisory firm specializing in mergers, acquisitions, and leveraged buyouts, as well as providing investment management services to institutional investors and employee benefit plans.
John Wiley & Sons (JW-A) was established in 1807 and provides educational material in textbook and digital form to schools, libraries, researchers, engineers, and trade organizations. Wiley is expected to announce its 20th straight year of dividend increases in the next few weeks.
Nu Skin Enterprises (NUS) was founded in 1984 and is headquartered in Provo, Utah. It distributes anti-aging personal care products, nutritional supplements, and weight management products under the Nu Skin and Pharmanex brands worldwide.
These companies range in market capitalization from $1.15 billion (EVR) to $33.52 billion (DE). Here’s how they’ve done over the past five years:
— David Fish[ad#leeb-article]
Disclosure: Author owns shares of DE.