Wednesday, 20 August 2008

MDA Companies with the Longest Records of Dividend Growth, Summer 2008 Update

In the previous post, I started an overview of the most recent changes in Mergent's Dividend Achievers, a quarterly publication which tracks a list of North American companies which have regularly increased their annual dividends for at least ten consecutive years.

In this post, I update the list of MDA leaders in terms of the longest history of uninterrupted dividend growth, which I first published here based on the Winter 2008 edition of Mergent’s Dividend Achievers.

Why are we interested in learning what companies have the longest dividend payout and growth history? The reasoning is simple – if the company has paid and has increased dividends for a sufficiently long period, then it is very unlikely that it will discontinue this policy in the future. It all has to do with reputation and expectations. The management of such companies will try to do anything in order to keep the dividend payouts and annual dividend increases alive. No matter how bad the economic environment is and no matter how small these dividend increases are, we can anticipate with a very high degree of certainty that each year the members of the Mergent’s longest dividend growers list will increase their annual dividends again and again and again…

Here is the updated list based on the Summer 2008 edition of MDA:

A few brief comments on the reported results:

First, we can see that the same companies populate the top of this list. It looks like I accidentally forgot to include NWN in the previous edition. I also expanded the list a little bit to include all companies with the history of dividend growth over 40 years. Other than that – the same names, only one extra year of dividend growth is under their belts.

Second, the average numbers at the bottom of the table show that the companies with a long history of dividend growth are on average ranked marginally higher in terms of their shorter-term total returns, which means that they are performing marginally better amid tough economic times than companies with a shorter history of dividend growth. In other words, a better performance during 1 last year than over 3 and 5 years coincides with the continuing correction in the equity markets, which means that the best dividend growers are doing relatively better when other stocks go down. Note that the rank numbers represent ranking among all members of the MDA list.

Third, if we look at where these companies are currently standing within the 52-week price range and compare it with performance of large indexes (Dow and S&P500), we see that they are on average close to the middle of the range as opposed to the teen percentiles for Dow and SPX.

Fourth, the average P/E ratio of these companies is quite high, which can be explained by two factors: (1) lower earnings due to the recent economic downturn and (2) stock prices that are quite resilient to the continuing correction.

Fifth, the industrial sector representation is pretty good in this top 31 list, which means that everybody can pick a company or two for his/her long-term portfolio.

Finally, dividend yields on average are far from being breathtaking, but a few companies have very decent 5+% dividend yields.

Disclaimer: The information presented in this post does not constitute an investment advice. DYODD when making an investment/trading decision on any of these companies. As of August 20, 2008, I own some of the stocks directly discussed in this post.

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