Mary-Lynn Cesar, Kapitall: Are you an income investor? Dividend champions can lead to handsome rewards.
Everybody likes a champion, and investors are no different. Thanks to the DRiP Investing Resource Center, it’s easier to find worthwhile investments courtesy of the site’s list of dividend champions. Coined by the DRiP Investing Resource Center, the term “dividend champion" describes US companies that have offered and increased dividends over – at minimum – the past 25 consecutive years.
[Read more from Kapitall: Goodbye Quantitate Easing: Six Stocks for September]
While consistently rising dividends may sound appealing to investors, the reality of the situation can be less enticing. C.R. Bard Inc. (BRC) is the 39th oldest company of the 105 firms most recently listed as dividend champions, and during its 42 years of increasing dividends, C.R. Bard has only managed to reach a yield of 0.73%. For context, the average yield for all 105 companies is 2.70%. However, dividend champions with higher yields aren’t necessarily a better investment either. Companies with high yields can have difficulty sustaining such payments, an issue which can be further compounded by any accounting troubles.
Since dividend payouts come out of a company’s revenue, we decided to take a closer look at the accounting activity of the current dividend champions with high yields.
To begin, we constructed a universe comprised of stocks currently listed as dividend champions by DRiP Investing Resource Center. We whittled down our initial group by looking for companies with a dividend yield of 3% or greater.
Next we turned our attention to accounting, specifically focusing on companies’ sales trends. We screened for stocks experiencing faster growth in revenue than accounts receivable year-over-year, as well as stocks with accounts receivable comprising a smaller portion of current assets over the same time period. Accounts receivable is the portion of revenue not yet received, and since there is no guarantee that a company will actually get the money, the smaller the portion of revenue attributable to receivables, the healthier the company's revenue.
We were left with three stocks on our list.
Click on the image below to see sales data over time.
Do you think these companies can continue to pay their high dividends? Use this list as a starting point for your own analysis.1. American Water Company ( AWR): Provides water, electric, and contracted services in the United States. Market cap at $1.01B, most recent closing price at $26.46.
Revenue grew by 5.33% during the most recent quarter ($120.69M vs. $114.58M y/y). Accounts receivable grew by -7.46% during the same time period ($44.05M vs. $47.6M y/y). Receivables, as a percentage of current assets, decreased from 27.07% to 24.32% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30).American Water Company has been increasing its dividend for 59 years and currently offers a yield of 3.08%.
2. Piedmont Natural Gas Co. Inc. ( PNY): Distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. Market cap at $2.43B, most recent closing price at $32.75. Revenue grew by 1.13% during the most recent quarter ($162.94M vs. $161.12M y/y). Accounts receivable grew by -10.81% during the same time period ($158.29M vs. $177.47M y/y). Receivables, as a percentage of current assets, decreased from 61.38% to 57.22% during the most recent quarter (comparing 3 months ending 2013-07-31 to 3 months ending 2012-07-31). Piedmont Natural Gas has been increasing its dividend for 35 years and currently offers a yield of 3.84%.
3. Leggett & Platt, Incorporated ( LEG): Designs and produces a range of engineered components and products worldwide. Market cap at $4.41B, most recent closing price at $30.26. Revenue grew by 2.59% during the most recent quarter ($958.8M vs. $934.6M y/y). Accounts receivable grew by -0.82% during the same time period ($553M vs. $557.6M y/y). Receivables, as a percentage of current assets, decreased from 40.31% to 39.86% during the most recent quarter (comparing 3 months ending 2013-06-30 to 3 months ending 2012-06-30). Leggett & Platt has been increasing its dividend for 42 years and currently offers a yield of 4.15%. ( List compiled by Mary-Lynn Cesar. Accounting data sourced from Google Finance. Quarterly sales data sourced from Zacks Investment Research. Yield data sourced from DRiP Investing Resource Center. All other data sourced from Finviz.)