It's tempting to think of a company's past performance as a reliable barometer of its future. By that logic, a firm that's raised its dividends for more than 25 years should arguably continue to do so. Which is why there's always a great deal of interest around DrIP's annual list of dividend champions, somewhere around 100 companies that consistently increased dividends over the past 25 consecutive years.
Considering all the hits the market have taken these past few decades, it's a pretty impressive feat, inspiring a fair amount of confidence that the trend will only continue. But beware of putting too much stock in antiquity -- past performance is no guarantee of future results.
For evidence, look no further than the start of our current ongoing recession: in 2008, 62 companies out of the S&P 500 slashed dividends; in 2009, another 90 followed suit. Bank of America (BAC) alone did away with $37 billion in dividends in 2008. Other companies have opted to suspend payouts altogether until their financial health improves.
So how do you minimize the risk of investing in a dividend champion that's about to end its winning streak? You may want to do focus on the dividend winners that have historically seen solid profitability. Because the more profitable a company, the greater its capacity to stay true to its dividend target -- well, at least in theory. Lest we forget, history doesn't always repeat itself.
To create the list, we started with a universe of dividend champions, and then narrowed it down by only focusing only on those that have been more profitable than their competitors over the last five years.
To measure profitability, we analyzed gross margin, a metric of how efficiently each dollar of revenue is used to cover the costs of goods sold, and net profit margin, a ratio measuring how much profit is made for every $1 generated in revenue or sales. (Click here to access free interactive tools to analyze these ideas.)
Profitability data sourced from Reuters. The list has been sorted alphabetically.
|
Company
|
Dividend Yield
|
Gross Margin (5-Year Avg.)
|
Net Profit Margin (5-Year Avg.)
|
| Abbott Laboratories (NYSE: ABT ) |
3.52%
|
55.96% vs. industry average at 48.83% |
14.56% vs. industry average at 13.51% |
| CR Bard (NYSE: BCR ) |
0.84%
|
61.44% vs. industry average at 47.51% |
17.78% vs. industry average at 7.19% |
| Colgate-Palmolive (NYSE: CL ) |
2.75%
|
56.99% vs. industry average at 51.45% |
13.14% vs. industry average at 8.71% |
| Johnson & Johnson (NYSE: JNJ ) |
3.36%
|
71.17% vs. industry average at 48.83% |
19.58% vs. industry average at 13.51% |
| Coca-Cola (NYSE: KO ) |
2.81%
|
64.58% vs. industry average at 49.11% |
20.69% vs. industry average at 5.88% |
| Medtronic (NYSE: MDT ) |
2.53%
|
75.19% vs. industry average at 47.51% |
18.74% vs. industry average at 7.19% |
| The McGraw-Hill Companies (NYSE: MHP ) |
2.48%
|
61.27% vs. industry average at 46.07% |
13.79% vs. industry average at 10.44% |
| Wesco Financial (NYSE: WSC ) |
0.45%
|
62.06% vs. industry average at 11.71% |
16.91% vs. industry average at 5.09% |
Interactive Chart: Press Play to see how analyst opinion has changed on all these companies over the past two years.
Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.
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