Updated April 19, 2021 by Bob Ciura
We continue to focus heavily on high quality dividend stocks. There are many for measuring the quality of a dividend stock. One way is by the length of a company’s dividend history. In general, stocks that have increased their dividends for several years in a row have shown that they are committed to rewarding investors with ever-increasing dividends.
A lesser-known group of dividend growth stocks is the list of dividend challengers who have raised their dividends for at least five straight years.
While 5 years isn’t the longest history of dividend growth, it does show a history of returning cash to shareholders with dividends. It also represents a company with a profitable business model, lasting competitive advantage and positive growth prospects.
With that in mind, we’ve created a downloadable list of 278 dividend challengers. You can download your free copy of the Dividend Challenger List along with relevant financial metrics such as price / earnings ratios, dividend yields and payout ratios by clicking the link below:
Investors are likely familiar with the Dividend Aristocrats, a group of 65 stocks in the S&P 500 Index with more than 25 consecutive years of dividend increases. Dividend growth investors should also familiarize themselves with the dividend challengers, who may be dividend aristocrats.
This article provides an overview of dividend challengers and the reasons why investors should consider quality dividend growth stocks. For more information on dividend stocks in our coverage universe, please refer to the Sure Analysis Research Database.
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Dividend Challenger Overview
The requirement to become a dividend challenger is simple: 5-9 consecutive years of dividend growth. This isn’t exactly a high hurdle, but it separates dividend growth stocks from the companies that have kept their dividends stable for many years. This is a subtle but important difference.
Companies that don’t increase their dividends every year often can’t because the underlying business is struggling. While there are no proven precursors to a dividend cut, a potential red flag is when a stock freezes its dividend, especially if that stock previously had a long track record of increasing its annual dividend payout.
When business conditions deteriorate, corporate sales and earnings per share often decline. This can happen for a number of reasons, including a recession, escalating competition, or possibly an unexpected event such as a geopolitical conflict or natural disaster. In any case, as sales and earnings per share decline, a company is unlikely to be able to increase its dividend.
Depending on how things go from here, the company in question can potentially revert to dividend growth if its fundamentals improve. If conditions worsen, the next step could be a dividend cut or suspension. Freezing the dividend was the first step in the process, which is why investors should be careful if a dividend growth stock runs for more than a year without increasing its payout.
Example of a high quality dividend challenger: Intel Corporation (INTC)
Intel is the largest semiconductor company in the US with a market capitalization of over $ 200 billion, making it a mega-cap stock. Intel has increased its dividend for 7 years in a row.
On 1/ 21/ 2021, Intel reported on the results of the fourth quarter and the full year. Revenue declined 1% to $ 20 billion in the fourth quarter, while earnings per share declined 10% year over year.
Source: Investor Presentation
The PC-centric business ended a strong 2020 with revenue growing 9% to $ 10.9 billion in the fourth quarter. The volume of PC units increased 33%, resulting in record sales for the company. Intel’s Internet of Things segment revenue declined 16%, while Mobileye revenue rose 39% to a new quarterly record.
For the year, sales and earnings per share increased by 8% and 5% respectively, making 2020 another year of growth despite the difficult economic conditions. The data– –centrBusiness was down 11% Quarter, but grew 9% for the year. Free cash register fThe year low rose 25% to $ 21.1 billion. Analysts expect EPS for 2021 to drop 9.3% to $ 4.48.
Intel has a current dividend yield of 2.2%. This is well above the S&P 500’s average yield of ~ 1.5%.
The various lists of stocks by length of dividend history are a good resource for investors focused on high quality dividend stocks. In order for a company to increase its dividend for at least 5 years, it must have lasting competitive advantages, the ability to produce consistent profits even in recessions, and a shareholder-friendly management team dedicated to returning cash to investors. They also have long-term growth potential and the ability to grow their dividends in the future.
If you’re interested in finding quality dividend growth stocks that are suitable for long-term investing, the following Sure Dividend databases will help:
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