Wednesday, November 13, 2013

Dividend Champions and Dividend Machines - four good values

Seeking Alpha published a terrific article that provided an extensive review of dividend champions at sound valuations.   The article is very thorough and I read it with interest.  I always like to compare my dividend machine strategy with other professionals.  My post looks at the four companies these two strategies have in common.  Here is the link to the Seeking Alpha article.

Difference between Dividend champions and Dividend Machines

Dividend champions have increased the dividend for 25 years.   My dividend machines have increased the dividend for more than 5 years (7 years in 2013.)

Dividend machines have to pay at least three percent and in 2013 we want closer to four percent.  Dividend champions do not have to meet that hurdle.

Four Stocks common to both strategies:  KMB, MCD, SYY, CVX

Of the many stocks profiled in the Seeking Alpha article, I found four that meet the four criteria I use to call a stock a dividend machine.   Incidentally, the author, Chuck Carnevale states he is long all four of these stocks. 

I have been trying to make sense of my historical data on these four stocks and Mr. Carnevale nailed it. Of the four stocks we both agree that KMB is pricey, MCD and SYY fully valued, and CVX a potential buy. 

Let’s look at each company’s dividend machine fundamentals; the data are presented in the tables below.  I have grouped McDonald’s (MCD) and Sysco (SYY) together as they are considered fairly valued; then Kimberly Clark (KMB) which is overpriced and Chevron (CVX) which seems to be the best value.

Dividend Machine Fundamentals of MCD & SYY

Kimberly Clark (KMB), considered a bit pricey at the time I conceived this article, broached the three percent dividend yield minimum today when it closed above $108.   I guess we were right; KMB’s dividend machine fundamentals are presented below along with Chevron (CVX.)  

Dividend Machine Fundamentals of KMB & CVX

My take is that when you can acquire stocks like KMB and CVX with yields greater than three percent do it because their dividend increase potential makes them better investments for income investors than a slow growth four percent yielding stock.

The Money Madam