Mary Lynn Cesar, Kapitall: As February comes to an end, many companies are nearing their ex-dividend dates. Is now the time to invest in these undervalued dividend champions?
When it comes to our stock screens, dividend champions are among the most popular. "Dividend champion" is a term created by the DRiP Investing Resource Center, and it refers to US companies that have offered and increased dividends over, at minimum, the past 25 consecutive years.
[Read more from Kapitall: 5 Stocks Under 10 Dollars With High Levels of Free Cash Flow]
It's important to note that just because a company has consistently raised its dividend, doesn't mean the yield will be remarkably high. Diebold Inc (DBD), a business equipment manufacturer, has been a dividend champion for the longest period — an impressive 60 years. During that time, the company has raised its yield to 3.42%. Meanwhile, Universal Health Realty Trust's (UHT) dividend has increased to 5.9% in 27 years, a considerably shorter time. And then there's C.R. Bard Inc. (BCR), which has been a champion for 42 years and has only managed to increase its dividend to 0.65%.Nevertheless, since a company can cut or stop dividend payments whenever it wants, many investors view a long and consistent payment history as an encouraging sign of reliable income. That's why income investors are big fans of these stocks. Investing Ideas We decided to run a screen that would help us find the dividend champions that are going ex-dividend this week. An ex-dividend date is the date by which an investor must own stock in a company in order to receive a dividend payment. To begin, we created a list of stocks with ex-dividend dates between February 25 and February 28 as listed on TheStreet's dividend calendar. We then cross referenced that list with the current group of 104 dividend champions. After the ex-dividend date, stock prices tend to drop by the expected amount of the forthcoming dividend. This is why we we decided to narrow our screen's scope by looking for undervalued dividend champions as indicated by a low Price to Sales (P/S) ratio. A P/S ratio is a valuation metric that compares a stock’s price to what the company generates in revenue. When a company has a low P/S ratio, it means that its price is cheap in relation to its revenue. If a stock’s P/S is below 1, it can be considered undervalued. It's important to note that this ratio doesn’t factor in expenses or debt, and variation between industries is to be expected.
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