Two New Screeners: Dividend Contenders and Challengers

We have expanded our dividend growth stock coverage to include Dividend Contenders, companies that have increased their dividends 10-24 years, and Dividend Challengers which have increased dividends between 5-9 years. The naming convention and original dividend growth stock investing classification was designed by David Fish in his CCC “Dividend Champions” spreadsheet, which is currently maintained by Justin Law.

Most dividend growth investors use this classification breakdown when screening for dividend growth stocks. The idea is that the longer the dividend increase streak the stronger the company as it has weathered and prevailed through more recessions, wars, government regulations, geo-political events, etc..  Also, it shows that the company has consistent growth, is well managed and that management is committed to generating value for its shareholders.

As a dividend growth investor I’m looking for these shareholder friendly companies that have a long track record of raising their dividend each year and the potential to continue to do so into the future. One of the key factors that enables companies to continue to growth their revenue, earnings and; in turn, dividends is if a company has competitive advantages or what Warren Buffett calls an economic moat.

Morningstar (MS) has an excellent economic moat rating system. Here is their definition of their moat rating system:

“The idea of an economic moat refers to how likely companies are to keep competitors at bay for an extended period. One of the keys to finding superior long-term investments is buying companies that will be able to stay one step ahead of their competitors, and it’s this characteristic–think of it as the strength and sustainability of a firm’s competitive advantage–that we’re trying to capture with the economic moat rating. One of the first things we do when we’re thinking about the size of a firm’s economic moat is look at the company’s historical financial performance. Companies that have generated returns on capital higher than their cost of capital for many years running are usually have a moat, especially if their returns on capital have been rising or are fairly stable. Of course, the past is a highly imperfect predictor of the future, so we look carefully at the source of a company’s excess economic profits before assigning a moat rating. For example, a competitive advantage created by a hot new technology usually isn’t very sustainable, because it won’t be too long until someone comes along and invents a better widget. Here are some of the attributes that can give companies economic moats: huge market share, low-cost producer, patents, copyrights, or governmental approvals and licenses, unique corporate culture, and high customer-switching costs.” -Morningstar

In order to improve the chances of selecting dividend growth stocks that will continue to raise their dividends into the future our Contenders and Challengers screeners only display companies with either a ‘Wide’ or ‘Narrow’ economic moat rating, or in other words some form of a competitive advantage.

Here is the full breakdown:

Contenders

Total Contenders (10 to 24 years) = 240
Wide Moat = 42 (18%)
Narrow Moat = 80 (33%)
No Moat (None) = 118 (49%)

Here are some notable undervalued wide moat dividend contenders for further research:

• Enbridge (ENB)
• Blackrock (BLK)
• Microsoft (MSFT)
• Nike (NKE)
• Magellan Midstream Partners (MMP)

Challengers

Total Challengers (5 to 9 years) = 511
Wide Moat = 39 (8%)
Narrow Moat = 145 (28%)
No Moat (None) = 327 (64%)

Here are some notable undervalued wide moat dividend challengers for further research:

• Gilead Sciences (GILD)
• Intel (INTC)
• Wells Fargo (WFC)
• Amgen (AMGN)
• State Street (STT)

Filed in: Dividend Growth Investing • Website Tools