This is part III of the dividend champion series. In Part II we looked at five companies that consecutively increased their dividends for 40-43 years. The single most important criteria to make it to this list was the ability to consecutively increase dividends for 45 years or more. All but very select few companies can lay claim to such a title. Out of a possible five stars, all the companies listed below would be assigned five starts for their incredibly stellar record of making timely dividend payments.
In addition, the following filters were also applied in creating this list.
- Market cap of $ 4billion or higher.
- Paying dividends for 50 or more years.
- Consecutive dividend increases for 40 or more years.
- Revenue of $3 billion or higher
- Operating cash flow of $ 260 million or more.
With the exception of Cincinnati Financial (CINF), all the other players have OCFs in the multibillion-dollar range. OCF is generally a better metric than earnings per share because a company can show positive net earnings and still not be able to properly service its debt; the cash flow is what pays the bills.
Enterprise values and free levered free cash flow rates were also provided. EV is a combination of the market cap, debt, minority interests, preferred shares less total cash and cash equivalents. This provides a better picture because it is a more accurate representation of a company’s value in contrast to simply looking at the Market cap. Free levered cash flow rates provide investors with a better picture of the company's ability to generate cash in contrast to EPS.
Earnings can be manipulated through the use of accounting gimmicks but it's much harder to fake cash flow. Levered free cash flow is the amount of cash available to stock holders after interest payments on debt are made. A company with a small amount of debt will only have to spend a modest amount of money on interest payments, which in turn means that there is more money to send to shareholders in the form of dividends and vice versa.
Our top picks from the list are Coca-Cola (KO) and Colgate Palmolive (CL); they both have strong quarterly revenue growth (yoy) rates of 45% and 11.2% respectively, but more importantly both have been paying dividends for over 100 years.
Two other noteworthy dividend payers are Intel Corp (INTC) and Microsoft Corporation (MSFT). INTC has a yield of 3.5%, has been paying dividends since 1992, has increased dividends for seven years in a row, a five-year dividend growth rate of 14.63%, a manageable payout ratio of 33%, a 5 year dividend average of 2.9% and a total return for the past 3 years of 76%.
MSFT has a yield of 3.1%, increased dividends for five years in a row, has manageable payout ratio of 24%, a five year dividend growth average of 13.09%, a five-year dividend yield average of 2.00% and a total return of 40.81% for the past 3 years. INTC and MSFT would receive a total of 3.5 stars out of a possible five.
| Stock | Yield | Market cap | Forward PE | EBITDA (ttm) | Quarterly revenue growth | Operating margins | Revenue | Cash flow | Consecutive Dividend Increases |
KO | 2.8% | 152B | 12.3 | 12B | 45% | 22% | 46B | 9.11B | 48 |
JNJ | 3.5% | 174B | 12 | 19.4B | 6.8% | 25.4% | 65.4B | 14.67B | 48 |
CL | 2.5% | 44B | 16 | 4.29B | 11.2% | 23.4% | 16.25B | 3.02B | 48 |
LOW | 2% | 30B | 13 | 5.27B | 2.3% | 7.5% | 49B | 3.91B | 49 |
CINF | 5.4% | 4.85B | 20 | 267M | -11.9 | 5.76% | 3.78B | 262M | 50 |
B= billion, M= Million.
The Coca-Cola Company (KO)
It has enterprise value of $164 billion and price/sales value of 3.3. It has a stunning revenue growth (yoy) of 45% and hefty ROE of 41.31%; stunning because one does not usually expect to see such figures from a company with such a large market cap. KO also has a very decent five-year dividend growth rate of 8.69%, a quarterly earning's growth rate of (yoy) 8.10%, a total return of 61% for the past three years, and has been paying dividends since 1893. It has a levered free cash flow rate of $5.33 billion.
- ROE 41.31%
- Return on assets 9.73%
- Total debt $18.36B
- 200 day moving average $ 67.52
- Book value $22.54
- Dividend yield 5 year Average 2.80%
- Dividend rate $1.88
- Payout ratio 34%
- Dividend growth rate 5 year average 8.69%
- Paying dividends since 1893
- Total return last 3 years 61%
- Total return last 5 year 53%
Johnson & Johnson (JNJ)
It has enterprise value of $160 billion and price/sales value of 2.69. It has a revenue growth (yoy) of 6.8%, a five-year dividend growth rate of 12.75%, a quarterly earning's growth rate of (yoy) -6.2%, a total return of 22% for the past three years, and has been paying dividends since 1944. It has a levered free cash flow rate of $10.74 billion.
- ROE 19.18%
- Return on assets 9.75%
- Total debt $18.36B
- 200 day moving average $ 64.64
- Book value $22.54
- Dividend yield 5 year Average 3.10%
- Dividend rate $2.28
- Payout ratio 54%
- Dividend growth rate 5 year average 9.13%
- Paying dividends since 1944
- Total return last 3 years 22%
- Total return last 5 year 11.6%
Colgate-Palmolive Co (CL)
It has enterprise value of $47 billion and price/sales value of 2.65. It has a revenue growth (yoy) of 11.2%, a five-year dividend growth rate of 12.75%, a quarterly earning's growth rate of (yoy) 3.9% a total return of 62% for the past three years, and has been paying dividends since 1895. It has a levered free cash flow rate of $2.5 billion.
- ROE 90.27%
- Return on assets 20.8%
- Total debt $6.62B
- 200 day moving average $ 88.21
- Book value $5.48
- Dividend yield 5 year Average 2.3%
- Dividend rate $2.31
- Payout ratio 45%
- Dividend growth rate 5 year average 12..75%
- Paying dividends since 1895
- Total return last 3 years 62%
- Total return last 5 year 51%
Lowe's Companies Inc. (LOW)
It has enterprise value of $36 billion and price/sales value of 0.63. It has a revenue growth (yoy) of 2.3%, a very strong five-year dividend growth rate of 29.65%, a total return of 18% for the past three years, and has been paying dividends since 1961. It has a levered free cash flow rate of $2.29 billion.
- ROE 10.10%
- Return on assets 6.76%
- Total debt $6.62
- 200 day moving average $ 21.71
- Book value $13.34
- Dividend yield 5 year Average 1.50%
- Dividend rate $0.56
- Payout ratio 36%
- Dividend growth rate 5 year average 29.65%
- Paying dividends since 1961
- Total return last 3 years 18%
- Total return last 5 year -12%
Cincinnati Financial Corp. (CINF)
It has enterprise value of $5.3 billion and price/sales value of 1.26. It has a revenue growth (yoy) of -11.9%, a very decent five-year dividend growth rate of 4.16%, a total return of 13% for the past three years, and has been paying dividends since 1954. It has a levered free cash flow rate of - $4.5 million and an attractive price/book value of 1.00.
- ROE 3.23%
- Return on assets 0.89%
- Total debt $894M
- 200 day moving average $ 27.83
- Book value $29.54
- Dividend yield 5 year Average 5.00%
- Dividend rate $1.61
- Payout ratio 163%
- Dividend growth rate 5 year average 4.16%
- Paying dividends since 1954
- Total return last 3 years 13%
- Total return last 5 year 19%
Conclusion
The markets are currently very choppy, and the current pattern is projecting a volatile ride until about the 23rd of this month. After that the markets are expected to mount a pretty strong rally, as the dollar is projected to pull back and consolidate before building up steam for another strong leg up. Potentially the strength in the dollar could surprise everyone next year. As a result, it would make sense to wait until the 23rd or so of the month before deploying new funds into the above plays. The above-mentioned 5 companies are dividend champions with superb long-term payment histories; this is an achievement that all but a select few companies can lay claim too.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Do not treat this as a buying list. It is very important that you check the finer details in each of the mentioned plays before investing any capital in them.
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