All About Interest

One man's journey to financial independence.

November 10-year YOC CCC Rankings

by 16 Comments


*photo courtesy of ESPN

Well it’s been since March that I actually posted an update using my ranking system of the CCC Sheets.  

The original article used the Jan. CCC sheets and can be found here.

I decided to take the CCC spreadsheet and rank the stocks based on their 10-year YOC.  If you are unfamiliar with what Yield-On-Cost is (YOC) then refer to my resources tab or see below for an example.  If you don’t know about David Fish’s Champion, Challenger and Contender (CCC) spreadsheet then you are doing yourself a disservice, the link is also on my resources tab.

Let’s say you purchased a stock at $10/share in 2013 that paid a 4% dividend or $0.40/share. In order to achieve a 10-year YOC of 10% that stock would need to pay out at least $1.00/share by 2023.

You may wonder why I care about a 10-year YOC instead of just the 1,3,5 and 10-year CAGR’s. The main factor that the CAGR leaves out is the starting dividend yield.  The starting dividend in combination with the dividend growth rate will greatly influence your returns.

There’s a variation of this screen used alot by members of the Seeking Alpha community and it’s coined the “Chowder Rule”.  This can also be found now on the CCC sheets.  The rule basically adds the starting yield with the dividend growth rate (5-year CAGR) and looks for it to be higher than a certain number.  While this can be a useful screen, there is still a discrepancy between dividend payers that have different growth rates but still arrive at the same number.  For instance, a 3% yielder with 5% growth would get the same grade (an 8) as a 5% yielder with 3% growth.  Holding a lower yielding stock with a higher growth rate will at some point provide higher returns assuming the growth rates don’t change.  My 10-year YOC would give this 3% and 5% yielder a 4.9 and 6.7 respectively.

The purpose of this screening process will be to identify unfamiliar companies that have a high expected dividend growth rate combined with a starting yield that would produce greater returns. These companies may be good candidates for further research.

The first step was to sort all stocks by their current dividend yield and eliminate any stocks not paying at least a 2% yield.  

Next I sorted all columns by TTM P/E and eliminated every stock with a TTM P/E over 18.  I do realize this eliminates a lot of REIT’s, MLP’s, and telecom stocks.  I’m ok with this since I’m not really targeting these stocks right now.  

Then I decided to eliminate any Champions with a 10-Year CAGR < 5%, followed by any Contenders with a 5-Year CAGR < 7 % and finally any Challengers with a 3-year CAGR < 7%.

This last screen dropped the list of Champions, Contenders and Challengers to 18, 35 and 28 respectively.

Next I took the latest CCC sheet and added some new columns to calculate a 10-year YOC using each stock’s 1,3, 5 and 10-year compound annual growth rate (CAGR). I will call these new metrics 10YOC1, 10YOC3, 10YOC5, and 10YOC10 for simplicity.

After sorting, I looked for any companies that had a 10YOC1, 10YOC3, 10YOC5 or 10YOC10 of 10% or higher. I applied this to the list of Champions, Contenders and Challengers. After applying this rule the lists dropped to 10, 34, and 26 companies respectively.
Next, I wanted to look to see if the DGR was increasing or decreasing. I highlighted in red the 10-year YOC’s of companies that were both reducing their rate of increases and still under 10%.

This is a previous example of how it looked:

Companies got credit for increasing their dividends at faster rates. For example: The 10YOC5 for AWR in the example above was 4.97 and did not get highlighted in red because its 10YOC5 was higher than its 10YOC10 of 4.09.
Next, I decided to remove any company that had a 10YOC1 in the red for Champions and a 10YOC1 or 10YOC3 in red for Contenders and Challengers.
For the Example Champions list above this removed LEG, MDT, NUE and WMT.
This elimination dropped the list sizes for the Champions, Contenders and Challengers to 5, 11 and 21 respectively.   
Here are the 37 candidates left that may be worthy to do further research on.

Champions

 (click to enlarge)


Contenders

 (click to enlarge)


Challengers

(click to enlarge)

The list I came up with in March had 45 candidates.  It’s not surprising that this number has dropped as the markets have gone up, which has caused starting yields to go down.
Coincidentally, MCD has made the list and I had already planned on adding a little more tomorrow with my weekly buys.  TGT is also one of the only 5 on the Champion list and I’ve recently increased my position there also.  I noticed DE made the Contender list and I’ve been watching it closely.  I’ve decided that I will invest in DE and CAT as both half positions instead of putting a full allocation into CAT.  Therefore I’ll start by adding some DE as part of this week’s purchases.
Keep in mind that this is just a starting point and I feel these companies need further research before making an investment.


Comments

    • Hi FFDividend,

      I’m glad you like the post. I’ll try to post these monthly since others seem to be interested. I just purchased a starter position in DE and will build that up if prices stay low.

      Take care

      Reply

    • Fast Weekly,

      It’s just one screen that I like to run and find helpful. I try to extract out some of the candidates with the highest dividend growth potential in the next 10 years. The problem is that past performance isn’t always the best indication of future projections.

      Thanks for stopping by!

      Reply

  3. I’ve got an analysis on DE coming out tomorrow and I like their prospects going forward. Seem to be a pretty shareholder friendly company. I like them more than CAT. If MCD and TGT weren’t such large portions of my portfolio I’d like to add as they are both excellent companies that continue to reward shareholders with higher dividends. I’ve been waiting for another one of these updates, has it really been since March?

    Reply

    • Hi PIP,

      I look forward to checking out your DE analysis. I agree that they look better than CAT at the moment in several metrics.

      Yes, It has been since March since I posted one of these screens. Actually some of the columns were switched around on the CCC sheets and it was a pain to do these so I quit for a while. However, it didn’t take me as long this time so I plan to keep posting these as long as anyone else finds them useful.

      Reply

  4. As I’ve said before, TCAP is the best BDC in the business and also has a low Beta. They are my next purchase.

    Reply

  5. I think investors should note that PM has been paying a dividend longer than six years before it split. The financials should still be investigated after the split, but it has more history.

    Awesome list. Engineer’s dream!

    Reply

    • Hi Wallet,

      You’re correct. PM was split off of Altria and I personally give them more credit than the six years they are listed at. I can sleep well holding PM knowing they will continue increasing dividends for a long time. I’m glad you like the list.

      Take care

      Reply

    • Hi Life In Center,

      I’m happy to have taught you something new. That’s what I like about different blogs sharing information; we can all learn from each other. Keep in mind, I’m not saying these companies are all a buy, this is just one screen that I sometimes use as a starting point for further DD.

      Best Wishes

      Reply

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