Updating My Dividend Champion Watch List for February 2013

I would venture to guess that most people that follow their finances and investments closely have a favorite account or investment account.  Mine would have to be my dividend investment account made up of companies that have raised their dividends every year for the past twenty-five years.  As such, every few months I update the watch list using various statistics outlined below.  I build the watch list then of course of a few months or so I’ll purchase lots of $500+ of companies that are close to their 52 week low. 

My Dividend Investment Portfolio

My dividend portfolio used to be made up of two parts: 

  • Three ETFs that do not have a fee to purchase and
  • Timed purchases of “the watch list” which is created using metrics to determine if a stock is undervalued

Part 1: Income Based ETFs in my Dividend Investment Portfolio

I used to invest in three ETFs monthly but decided that starting this year, 2013, I am going to drop this part of the portfolio.  I have a lot of that broad market exposure happening within my 401(k) and The Wife’s Roth IRA. 

Part II: February 2013 Dividend Champion Personal Stock Screener

The starting point for the watch list is the dividend champion list

My Dividend Investment Portfolio Screening Criteria

  1. They have to actually be on the Dividend Champion list – Updated monthly
  2. The stock has to have a Price to Earning that is lower than their industry average
  3. Their Operating Margin has to be in line with the particular stock’s industry average
  4. Dividend Yield should be above 2% (changes whenever I update the list depending how many stocks I have left after the first 3 steps)
  5. Price to Book Value Should be Reasonable (under 3)

You may notice that some of the stocks aren’t eliminated if they fail a metric test. This is because I don’t want to eliminate a stock that is within a range that eyeball since I am taking a snapshot.

Definitions of Metrics Used for my Dividend Investment Portfolio

All definitions are taken from Investopedia:

  • Dividend Champions are those dividend paying American companies that have increased their dividend for the past 25 years. Unlike the Dividend Aristocrat list they do not have to be part of the S&P500.
  • P/E is Price is “a valuation ratio of a company’s current share price compared to its per-share Earnings.”
  • Operating margin is “a measurement of what proportion of a company’s revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt.”
  • Dividend Yield a “Financial ratio that shows how much a company pays out in dividends each year relative to its share price. In the absence of any capital gains, the dividend yield is the return on investment for a stock. Dividend yield is calculated by dividing Annual Dividends per Share by Price Per Share”
  • Price to book is a ratio used to compare a stock’s market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter’s book value per share.

Dividend Champion Price to Earnings by Stock’s Industry

The first Stocks I their eliminated were those whose Price to Earnings Ratios were out of line with their industry average


Dividend Champion Operating Margin by Stock’s Industry

Next I eliminated those stocks whose operating margin was not better than its peers in the industry (or only marginally better).


Dividend Champion Dividend Yield

While I am not ‘chasing yields’ I am attempting to create a dividend portfolio, so the next elimination step was to remove any stocks with a dividend yield of less than 2%. As stated, this is a moving target depending on how many stocks I have left to choose from.


Dividend Aristocrat Price to Book

Lastly, I was looking for those stocks whose price to book value is low as to further evidence that it is undervalued.


Remaining Dividend Aristocrats to Build Part II of My Dividend Investment Portfolio

The remaining stocks that I will be investing for the next couple months are:

  • 1st Source Corp.    SRCE
  • 3M Company    MMM
  • AFLAC Inc.    AFL
  • Air Products & Chem.    APD
  • Atmos Energy    ATO
  • Bemis Company    BMS
  • Chevron Corp.    CVX
  • Chubb Corp.    CB
  • Commerce Bancshares    CBSH
  • Community Trust Banc.    CTBI
  • Consolidated Edison    ED
  • ExxonMobil Corp.    XOM
  • Illinois Tool Works    ITW
  • Leggett & Platt Inc.    LEG
  • Medtronic Inc.    MDT
  • Mercury General Corp.    MCY
  • MGE Energy Inc.    MGEE
  • National Fuel Gas    NFG
  • Northwest Natural Gas    NWN
  • Piedmont Natural Gas    PNY
  • Questar Corp.    STR
  • Sonoco Products Co.    SON
  • Sysco Corp.    SYY
  • Target Corp.    TGT
  • Vectren Corp.    VVC
  • VF Corp.    VFC
  • Walgreen Company    WAG
  • Wal-Mart Stores Inc.    WMT

I spend a lot of time on these portfolio updates, but I am not providing investment advice rather I want to hear what EVERYONE thinks about it!

3 Responses to Updating My Dividend Champion Watch List for February 2013

  1. Integrator says:

    That’s a long list of dividend candidates that you have!. Do you intend investing in all of them? I generally shoot for those offering a yield of greater than 2.5%, with dividend growth exceeding 10%. To me the dividend growth is the key in terms of building up a strong dividend stream. I also like deep moats as well. Sysco is a company that i’ve held in the past and is one I like. While not on your list above, CSX and ADP could be 2 companies that fit your criterion. I’ve also invested in Novartis and CME group recently as well.

    • Evan says:

      I don’t investment in all of them. What I do once or twice a month I’ll buy a $500 or so worth of a certain equity. I choose the equity when taking a look how far a candidate is away from their 52 week low and 52 week high

  2. Matt McComb says:

    I’d be wary of the insurance companies on that list, if I were you – they’re offering high yields now but that industry is heading for trouble.

    Most insurers don’t make much money, if any, on their underwriting. They make money on their float – the money that they raise in premiums and get to invest until they have to pay it out for claims (sorry if this is basic and you already know it, but bear with me for a moment).

    The problem is, interest rates have been low for some time now, and look to continue to be low for the immediate future. As those insurers roll over their investment portfolios from higher-interest bonds to lower-interest bonds, the rate they’ll earn on their float will drop, perhaps quite dramatically. Most insurers have float portfolios yielding 4-6%, but it’s awfully hard to get that these days without assuming an awful lot of risk. We could well see those yields drop in half over the next ~5 years or so.

    The moral of the story is, if you’re going to invest in insurers, look for companies that consistently turn a profit on their underwriting operations and aren’t wholly reliant on investment income.

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