Dividend Challengers watchlist

This watchlist comprises the best stocks from David Fish’s dividend challengers list. Dividend Challengers are companies that have raised their dividends between 5-9 consecutive years. For a list of quality companies that have raised their dividends between 10+ years see the Champions & Contenders Watchlist.

How I use the Dividend Geek watchlists

Notice the list of dividend growth stocks are sorted by dividend yield (highest to lowest) in the fifth column. Starting at the top I scan across each row (stock). If there are any red highlighted cells I skip that stock and move down to the next row, until I find a stock without any red cells for further investigation. Red cells indicate that my minimum criteria has not been met. Yellow highlighted cells indicate warnings that are approaching the red limit, which I need to investigate deeper.

Company Info

Sector and Ticker are informational only.

Strength

# Years Div Increase Companies that have increased dividend distributions between 5-9 consecutive years (Dividend Challengers).

Economic Moat Company has at least a Narrow competitive advantage rating. Naturally a Wide moat is preferred, but a narrow moat is acceptable. Companies with no form of competitive advantage (marked as none) are indicated with a yellow warning for more investigation.

Growth Potential

Yield Company must yield a minimum of 2.50% at time of purchase.

3 Year Div Growth 3-year dividend growth rate must be greater than 5.00%.

5 Year Est Growth Rate Company cannot have a future estimated growth rate less than 3.00%.

Sustainability

Dividend Payout Ratio No payout ratios above 90% (red flag) and a yellow warning of payout ratios between 75% to 90% for further investigation. My limits are high since payout ratio’s have to be evaluated on the individual stock and industry it’s in. For example, many companies are required to payout the majority of earning in dividends (utilities, REIT’s MLP’s, tobacco). The lower the payout ratio the better, since it leaves room for consistent dividend growth.

Debt to Equity The ratio of shareholder equity to debt to finance a company. The lower the ratio (less debt) the better. Typically a ratio of 1 or less is acceptable. From 1 to 1.6 is a yellow warning. A debt-to-equity greater than 1.6 is a red flag warning.

Credit Score Is an evaluation of the credit quality or worthiness of the company’s debt (bonds). A BBB rating is a yellow warning and BBB- or lower is a red flag. Also, if the rating is unavailable (N/A) a yellow warning is displayed for further investigation.

Price

Current Price, and % Change are informational

Valuation & Timing

Fair Value The current fair value price rating (credit: Morningstar.com)

% Fair Value This is the percent difference that a stocks current price is either below (undervalued) or above (overvalued) its fair value price estimate.

52 Week Low, and 52 Week High are informational.

% L/H Range This column lists the stocks current price as a percentage within its 52 week low and high range. When the stock price is within 15% of its 52 week low this indicator will turn green. I prefer to purchase stock when it is close to its 52 week low. However, this is not a required criteria.

P/E In most cases the price to earning ratio must be below 22. A yellow warning is triggered between 22-25. Ideally I want to purchase fair to under-valued companies when their price/earning ratio is below 22. However, not all companies and the industries they compete in fall into similar price/earning ranges, so I have some flexibility to investigate. Basically this criteria lowers my risk of purchasing over-valued companies.

Score

Quality this is the total point score for the eight columns under the strength, growth and sustainability categories which represents an overall quality analysis score for each company. Each of the eight areas can receive up to 10 points for a maximum of 80 total points. The higher the score the better. Points are awarded based on the following:

Timing this is the total point score for the two columns under the Valuation and Timing category which represents combined current fair value and the 52 week low/high range market timing score for each company. Each of the two areas can receive up to 10 points for a maximum of 20 total points. The higher the score the better. Points are awarded based on the following:

After I find a company that meets the basic entry criteria on my watch list I then analyze the company in more depth. I find out more about its financial stability, and review its historical trends to make sure it is a company that I feel good about owning long term.

*Disclaimer: Information is provided “as is” and solely for informational purposes, not for trading purposes or advice. Sources may not always provide data. Quotes may be delayed up to 20 minutes.

Column Sources