Dave Van Knapp’s “Periodic Table of Dividend Growth Stocks” – October 2017 Edition

Do you remember Periodic Tables from chemistry class in high school? They were used to arrange the chemical elements into rows and columns with similar properties.

Notations in the table can be used to bring out more detail, as can colors.

Basically, with periodic tables, you are comparing and contrasting 2 variables. They comprise the rows and columns of the table.

Periodic tables are not limited to chemicals. I found one for candy, although it’s hard to tell what it shows.

I like to create periodic tables for dividend growth stocks. Their usefulness is to compare 2 characteristics that are important to investors. For example, you can compare:

• Yield to dividend growth rate
• Yield to dividend safety
• Dividend safety to credit ratings
• Yield to valuation

Besides the obvious benefit of allowing an easy way to compare 2 characteristics for each stock, another benefit is that periodic tables often turn up non-intuitive combinations.

For example, it is commonly assumed that stocks with high yields must have slow dividend growth rates and vice-versa. However, sometimes a stock will display both a good yield and a fast dividend growth rate. Such a stock may be a superior investment. Stocks like that pop out of the tables, because they appear as outliers where not many stocks are clustered.

I am happy to let you know that I have agreed to write a series of periodic-table articles for Daily Trade Alert. I mean to make them both fun and informative.

In this first such article, I am going to take Dividend Champion stocks – companies that have raised their dividends 25 years or more – and compare their yields to their dividend growth rates (DGR).

The table below should be self-explanatory. What’s in the cells are stock tickers. DGRs are measured over the 3-year period 2014-2016. After the table, we’ll focus on a few interesting takeaways from the table, and I’ll tell you what the colors mean.

Periodic Table of Dividend Champions – Yield vs. Dividend Growth Rate

Here’s what the background colors mean:

• Pink – Low yield combined with slow growth rates for such a low yield
• Yellow – Low yield but decent growth rate, or medium yield with low growth rate
• Green – High growth rate, high yield, or both medium

Obviously, the colors are meant to convey the desirability of a dividend growth investment. The colors reflect my own value judgements. Your preferences may vary.

I highlighted in dark yellow the stocks that I own in my Dividend Growth Portfolio. That’s a live portfolio now in its 10th year of existence. The portfolio is updated here every month. The Champions in it comprise 8 of the portfolio’s 21 stocks: Lowe’s (LOW), McDonald’s (MCD), Johnson & Johnson (JNJ), PepsiCo (PEP), Procter & Gamble (PG), Coca-Cola (KO), Chevron (CVX), and AT&T (T).

In the table, I boldfaced the tickers of 4 stocks for special mention. Let’s take a quick look at them.

McDonald’s (MCD) – McDonald’s current yield is comparatively low right now, because it has had a tremendous price run-up in the past year. Price and yield are inversely related.

It is probably overvalued at the moment. Also, MCD’s 3-year dividend growth rate was held back when it was experiencing business difficulties a few years ago. With its recent turnaround successes, MCD has been inching its annual dividend increase back up. The increase for 2017 was recently announced as 7.5%.

Altria (MO) – Altria is perpetually overvalued, in my opinion. However, not everybody agrees with me. In particular, Altria has had its price drop over the past several months, bringing it near 52-week lows and making it, in the opinion of many, a good deal.

For many, Altria’s yield around 4%, 48 consecutive years of dividend growth, 9% DGR, and price just 8% above its 52-week low make it a very attractive acquisition.

AT&T (T) – AT&T is a classic high-yield slow-growth stock, with a yield over 5% and annual dividend growth in the 2% range. However, note that with reinvestment of that high yield, total return jumps considerably. That is the role that AT&T plays in my Dividend Growth Portfolio. I use its massive dividends to buy other stocks.

Helmerich & Payne (HP) – HP is the obvious outlier in the table, with a high yield (5.4%) and high DGR (29% over 3 years). However, note that HP’s DGR in 2016 fell to 0.9% and its announced increase this year was just 1.8%. The reasons for that pronounced change in DGR would need to be investigated before committing any funds to HP.

I have written several Dividend Growth Stock of the Month articles about Dividend Champions since the beginning of 2016. You might want to consult these for more information:

Lowe’s – August 22, 2017
AT&T (T) – June 22, 2017
W.W. Grainger (GWW) – April 22, 2017
VF Corp. (VFC) – November 21, 2016
Wal-Mart (WMT) – March 16, 2016
PepsiCo (PEP) – February 18, 2016
ExxonMobil (XOM) – January 23, 2016

— Dave Van Knapp

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Disclaimer: As always, please do not take anything in this article or the linked articles as recommendations. Always do your own due diligence before investing in anything.