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

Last month, in the first article in this new series, we compared yields to dividend growth rates of the 113 Dividend Champions – companies that have raised their dividends 25 or years or more.

We discovered that while the old cliché that high-yielding stocks are slow growers is usually true – and vice-versa – we did pinpoint a couple of stocks that seemed to combine robust yields with faster growth rates. Click here to see the full article.

This month, we are going to take the top 100 yielding stocks from the full Dividend Champions document (CCC) – which contains stocks that have delivered dividend increases for 5 straight years or more – and see how safe their dividends are.

The common perception is that high-yielding stocks are inherently risky.

For an example, a stock’s yield might be high because of a steep sudden drop in price, which may reflect a market perception that the business itself is in trouble.

The market may be thinking that the business problem (whatever it is) will force the company to cut its dividend. Such a dividend would be “unsafe.”

To measure dividend safety, I will utilize the work of Simply Safe Dividends (SSD). Brian Bollinger, who created SSD, uses proprietary models and factors to rate the safety of dividends from various kinds of companies.

Brian boils his calculations down to a 0-100 scoring scale, and he rates stocks like this:

We’ll use the same scale to rate the top 100 yielding stocks in the CCC and find out whether all high-yield stocks are risky.

The periodic table below is easy to read. Dividend Safety grades are across the top, yields are down the side.

What’s in the cells are stock tickers. So the placement of each ticker tells you the stock’s yield range as well as its dividend safety.

One thing I noticed when I gathered these high-yield stocks is that most of them are REITs (real estate investment trusts), MLPs (master limited partnerships), or BDCs (business development companies). So I put “-R” or “-M” or “-B” after those tickers to help you easily to see which ones they are. The distributions from those types of companies are not “qualified dividends” under the tax code.

After the table, we’ll explore a few stocks of interest.

Periodic Table of Dividend Champions, Contenders, and Challengers –
100 Highest Yielders vs. Dividend Safety

Tickers not rated by SSD: IMASF, APLO.

The stocks highlighted in yellow are ones that I own in either my Dividend Growth Portfolio (DGP) or Dividend Growth “ETF” at Motif Investing (DGETF). As you can see, all are in the green “safe” dividend safety categories. They are ordered in the table below according to Dividend Safety Grade (highest to lowest).

Stocks I Own

As we look at the periodic table, I think that there is a weak correlation between yield and dividend safety. No stock with a yield >6% makes it into the two highest categories of dividend safety. That said, highly rated stocks for dividend safety can be found at every yield range in the table.

Some notes on individual stocks:

Qualcomm (QCOM): The yield information was taken from the CCC document, which was updated at the end of October. Since then, a potential takeover bid has been announced by Broadcom (AVGO) that caused QCOM’s price to shoot up by almost 13% and its yield to fall proportionately. Its projected yield as of this writing is down to 3.7% because of the price increase.

Realty Income (O), National Retail Properties (NNN), Simon Property Group (SPG), Tanger Factory Outlets (SKT), Target (TGT), Macy’s (M) and some of the other REITs are all in the brick-and-mortar retail sector. That sector has been under pressure lately as many investors worry about the impact of online retailing (especially Amazon) on the long-term viability of physical stores, malls, and outlets. The pricing pressure has caused prices to fall and yields to rise.

All of the companies marked “-M” are master limited partnerships in the energy business, which has gotten socked around the last couple of years as the result of the gyrating price of oil. That said, several still maintain solid dividend safety ratings, including Magellan Midstream Partners (MMP, with a 17-year streak of increasing distributions) and Holly Energy Partners (HEP, 13 years).

You might want to take special caution when researching retailing and energy stocks, keeping aware of the macro factors that are affecting their industries.

I have written several Dividend Growth Stock of the Month articles about the high yielding CCC stocks depicted in the periodic table. Please consult these articles for more information:

AT&T (T) – June 22, 2017
Simon Property Group (SPG) – May 24, 2017
Verizon (VZ) – September 20, 2016
Qualcomm (QCOM) – July 11, 2016
Southern (SO) – May 3, 2016
Ventas (VTR) – April 8, 2016

— Dave Van Knapp


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.