Happy holiday week to everyone! It’s time for another addition of my CCC rankings by 10-year YOC.
Sorry I was busy last month and wasn’t able to get this update out in time. With higher markets and some volatility, there have been some changes to the lists.
What I Did
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.
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.
Why I Did It
The purpose of this screening process will be to identify 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.
How I Did It
This last screen dropped the list of Champions, Contenders and Challengers to 15(-1), 33(-18) and 38(-3) 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.
The Challenger’s list added a few new companies. Additional companies now include AVX, CCE and NOV to name a few. I also left SNP on the list since they were close to making the cut.
I like this list as an additional watch list. I know I posted recently a Watch list of 50 companies that I’m interested in owning at some point if the price is right. It’s more of a static list that I’ll change as I see fit. The thing is that I’m already around my target portfolio size of 40, so the majority of my purchases will be of existing positions. I did add a 10-year YOC column based off the 5-year CAGR to my portfolio and watch list though.