Company Description: Medtronic Inc.is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MDT is trading at a discount to 1.) and 3.) above. The stock is trading at a slight premium to its calculated fair value of $37.99. MDT did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

MDT earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1977 and has increased its dividend payments for 33 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

MDT earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as MDT has. If MDT grows its dividend at 9.4% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: MDT is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: Becton, Dickinson and Company (BDX) with a 2.1% yield, Baxter International Inc. (BAX) with a 2.4% yield and CR Bard Inc. (BCR) with a 0.7% yield.

Conclusion: MDT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks MDT as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $40.23 before MDT’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 33 years of consecutive dividend increases. At that price the stock would yield 2.24%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 9.2%. This dividend growth rate is slightly below the 9.2% used in this analysis, thus providing a small margin of safety. MDT has a risk rating of 1.00 which classifies it as a Low risk stock.

MDT owns a diversified portfolio with a strategy to develop products for a wide range of chronic diseases. Although it is exposed to the highly competitive areas of the medical equipment markets, MDT enjoys many competitive advantages including scale (operations and sales), product breadth and financial strength. The stock was a 5-Star buy back in September 2010 when it was last reviewed. It was trading in the low to med-30′s at that time. Since then, the price has seen a steady increase to where it is now trading at a slight premium to my fair value price of $37.99. I will continue to buy in moderation on dips and as my allocation allows. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in MDT (3.8% of my Income Portfolio). See a list of all my income holdings here.

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Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:

Company Description: Becton, Dickinson and Co provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a slight discount to its calculated fair value of $86.55. BDX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

BDX earned two Stars in this section for 1.) and 2.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 38 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

BDX earned a Star in this section for its NPV MMA Diff. of the $549. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 10.8% per year, it will take 8 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: Abbott Laboratories (ABT) with a 3.7% yield, Baxter International Inc. (BAX) with a 2.5% yield and Medtronic, Inc. (MDT) with a 2.4% yield.

Conclusion: BDX earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of four Stars. This quantitatively ranks BDX as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $85.23 before BDX’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 38 years of consecutive dividend increases. At that price the stock would yield 1.92%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.6%. This dividend growth rate is slightly below the 10.8% used in this analysis, thus providing only a minimal margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.

Operating in the competitive medical equipment market, BDX generally has enjoyed more favorable demand and pricing than others in the medical equipment industry. The company’s needle and surgical business has provided investors with robust returns for years. As a result of BDX’s innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $86.55. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). I held positions in ABT and MDT. See a list of all my income holdings here.

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In the U.S., the Securities and Exchange Commission (SEC) requires institutional investment managers who exercise investment discretion over $100 million or more in Section 13(f) securities to report their holdings on Form 13F with the SEC.  Because of this required filing we can analyze the holdings of Berkshire Hathaway (Warren Buffett’s holding company) or any other large institution. However, once the Form 13Fs are aggregated, we can see who the large shareholders are for any public company, including these high profile dividend growth companies:

Johnson & Johnson (JNJ) | Yield: 3.5%
- 62.44% Institutional Ownership (%)
- 20.20% Top 10 Institutions (%)
- 00.79% 5%/Insider Ownership (%)
- 4.9% State Street Global Advisors (US)
- 3.8% Vanguard Group, Inc.
- 3.3% BlackRock Institutional Trust Company, N.A.
- 1.6% Berkshire Hathaway Inc.
- 1.4% State Farm Insurance Companies

The Coca-Cola Company (KO) | Yield: 2.8%
- 62.87% Institutional Ownership (%)
- 29.60 Top 10 Institutions (%)
- 04.68% 5%/Insider Ownership (%)
- 8.6% Berkshire Hathaway Inc.
- 3.7% Vanguard Group, Inc.
- 3.6% State Street Global Advisors (US)
- 3.2% Fidelity Management & Research
- 3.1% BlackRock Institutional Trust Company, N.A.

Procter & Gamble Co. (PG) | Yield: 3.0%
- 57.01% Institutional Ownership (%)
- 20.00% Top 10 Institutions (%)
- 00.34% 5%/Insider Ownership (%)
- 3.9% State Street Global Advisors (US)
- 3.8% Vanguard Group, Inc.
- 3.5% BlackRock Institutional Trust Company, N.A.
- 2.7% Berkshire Hathaway Inc.
- 1.5% Fidelity Management & Research

For the above I used MSN MoneyCentral, but many other services provide the same information. Obviously, large index mutual funds, such as the Vanguard Group, Inc. and Fidelity, will hold significant positions in S&P 500 companies, and those in other indexes. Insurance companies, such as Berkshire Hathaway Inc. and State Farm, will always have large sums invested in equities. The above three popular dividend growth stocks are all held by Berkshire Hathaway Inc. (BRK.A). As you can see from BRK.A’s latest 13F on the SEC’s website, they are also holding these other dividend growth stocks:

- Becton Dickinson & Co. (BDX) | Yield: 2.0%
- ConocoPhillips (COP) | Yield: 3.3%
- Exxon Mobil Corp. (XOM) | Yield: 2.3%
- Lowes Companies Inc. (LOW) | Yield: 1.8%
- Wal-Mart Stores, Inc. (WMT) | Yield: 2.2%

Buffett is a renowned value investor. As such, BRK.A’s 13F is one of the most viewed each quarter when it is filed. Investors want to know what the Oracle has bought and sold. Many websites use this information to set up a Buffett Tracking Portfolio, along with other respected investors. There is a great deal of information freely available to investors. Sometimes we just need to detour from our familiar paths to discover it.

Full Disclosure: Long JNJ, KO, PG, WMT. See a list of all my income holdings here.

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The down side to this is that great values are harder to find. However, that is not to say they aren’t still out there. Of the 198 stocks I track, only 29 (15%) are trading below my calculated fair value, up from 7% this time last year. Here are some of the more interesting ones…

Becton, Dickinson and Co. (BDX) provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings.
Fair Value: $109.88 | Recent Price: $84.73 | Yield: 1.6%

Owens & Minor, Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Fair Value: $35.94 | Recent Price: $29.56 | Yield: 2.4%

Wal-Mart Stores, Inc. (WMT) is the largest retailer in North America. The company operates retail stores in various formats worldwide. It operates through three segments: Wal-Mart Stores, Sam’s Club, and International.
Fair Value: $63.69 | Recent Price: $54.56 | Yield: 2.2%

Abbott Laboratories (ABT) is a diversified life science company and is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics.
Fair Value: $55.43 | Recent Price: $47.82 | Yield: 3.6%

Colgate-Palmolive (CL) is a major consumer products company that markets oral, personal and household care, and pet nutrition products in more than 200 countries and territories.
Fair Value: $91.57 | Recent Price: $79.79 | Yield: 2.5%

Johnson & Johnson (JNJ) is a leader in the pharmaceutical, medical device and consumer products industries.
Fair Value: $70.24 | Recent Price: $62.82 | Yield: 3.4%

Walgreen Company (WAG) is the largest U.S. retail drug chain in terms of revenues, this company operates more than 8,000 drug stores throughout the U.S. and Puerto Rico.
Fair Value: $43.77 | Recent Price: $39.32 | Yield: 1.50%

Medtronic Inc. (MDT) is a global medical device manufacturer with leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management, and other medical markets.
Fair Value: $41.34 | Recent Price: $37.41 | Yield: 2.4%

Harleysville Group Inc. (HGIC) underwrites a broad array of personal and commercial coverages. These insurance coverages are marketed primarily in the Eastern and Midwestern United States.
Fair Value: $41.10 | Recent Price: $37.39 | Yield: 3.6%

Microsoft Corporation (MSFT) is the world’s largest software company, develops PC software, including the Windows operating system and the Office application suite.
Fair Value: $28.55 | Recent Price: $27.98 | Yield: 2.3%

I calculate Fair Value weighing The Mid-2 Price and the NPV MMA Price. The wieght depends on where we are in the cycle. Currently it is weighted as 25% Mid-2 price + 75% NPV MMA price. The Mid-2 Price considers four fair value calculations, Avg. High Yield Price, 20-Year DCF Price, Avg. P/E Price and Graham Number, the highest and lowest fair values are excluded and the remaining two calculations are averaged to calculate the Mid-2 price. The NPV MMA Price is where the NPV MMA value equals the NPV MMA target.

Needless to say, we need to consider a lot more than just valuation when making a stock purchase. As dividend growth investors, I would argue that dividend fundamentals are more important than valuation. As long-term buy and hold investors, we can over-come paying too much for a great stock with time. However, time is unlikely to help a fairly valued stock with poor dividend fundamentals.

Full Disclosure: Long OMI, WMT, ABT, CL, JNJ, MDT, HGIC. See a list of all my income holdings here.

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Below are several dividend stocks that did not miss their opportunity increase cash dividends:

Donaldson Co. (DCI) operates as a worldwide manufacturer of filtration systems and replacement parts. November 19th the company increased its quarterly dividend 4% to $0.13/share. The dividend is payable December 17, 2010, to shareholders of record as of December 6, 2010. The ex-dividend date is December 2, 2010. DCI is a Dividend Achiever and has raised its dividend for 24 consecutive years. The yield based on the new payout is 1%.

South Jersey Industries (SJI) is an energy services holding company that provides energy related products and services. November 22nd the company raised its quarterly dividend 10.6% to $0.365/share. The dividend is payable December 29, 2010 to shareholders of record at the close of business December 10, 2010. The ex-dividend date is December 8, 2010. SJI is a Dividend Achiever and has raised its dividend for 11 consecutive years. The yield based on the new payout is 2.9%.

York Water (YORW) impounds, purifies and distributes water in York County and Adams County, Pennsylvania. November 22nd the company increased quarterly dividend 2.3% to $0.131/share. The dividend is payable January 14, 2011 to shareholders as of record date December 31, 2010. The ex-dividend date is December 29, 2010. The yield based on the new payout is 3.3%.

Hormel Foods (HRL) is a leading processor of branded, convenience meat products (primarily pork) for the consumer market. November 22nd the company raised its quarterly dividend to $0.25/share. The quarterly dividend is payable Feb. 15, 2011, to stockholders of record at the close of business on Jan. 23, 2011. The yield based on the new payout is 2.1%.

Becton, Dickinson & Co. (BDX) provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs and other settings. November 23rd the company increased quarterly dividend 10.8% to $0.41/share. The dividend will be payable on December 31, 2010 to holders of record on December 10, 2010. The ex-dividend date is December 8, 2010. BDX is a Dividend Aristocrat and has raised its dividend for 37 consecutive years. The yield based on the new payout is 2.1%.

Ship Finance Int’l (SFL) owns an international fleet of crude oil tankers, which are leased under long-term, fixed-price charters. November 23rd the company raised its quarterly dividend 2.9% to $0.36/share. The dividend is payable on or about December 30, 2010 to shareholders of record as of December 8, 2010. The ex-dividend date will be December 6, 2010. The yield based on the new payout is 6.2%.

RGC Resources (RGCO) distributes and sells natural gas in Virginia to residential, commercial and industrial users through underground mains and service lines. November 23rd increased quarterly dividend 3% to $0.36/share. The dividend will be paid on February 1, 2010 to shareholders of record on January 14, 2011. The ex-dividend date is January 12, 2010. The yield based on the new payout is 4.4%.

Guess? (GES) offers one of the world’s leading lifestyle collections of contemporary apparel and accessories for men, women and children, sold in multiple channels including wholesale, company-owned retail locations, e-commerce, and licensed stores. November 23rd the company raised increased its quarterly dividend to $0.20/share. The yield based on the new payout is 1.6%.

Raymond James (RJF) offers securities brokerage, investment banking, financial planning, banking and investment advisory and related financial services. November 23rd the company raises its quarterly dividend by 18% to $0.13/share. November 23rd the company raised its quarterly dividend by 18% to $0.13/share. The dividend is payable on Jan. 19 to shareholders of record on Jan. 3. The yield based on the new payout is 1.81%.

McCormick (MKC) manufactures, marketing and distribution of spices, herbs, seasonings, specialty foods and flavors to the entire food industry. November 23rd raised its quarterly dividend 8% from to $0.28/share. The dividend is payable on Jan. 14 to shareholders of record on Dec. 31. The ex-dividend date is Dec. 29. MKC is a Dividend Achiever and has raised its dividend for 24 consecutive years. The yield based on the new payout is 2.5%.

Oriental Financial (OFG) provides a range of financial products and services primarily in Puerto Rico and Florida. November 24th the company increased its quarterly dividend 25% to $0.05/share. The dividend is payable on Jan. 14 to shareholders of record on Dec. 31. The ex-dividend date is Dec. 29. The yield based on the new payout is 1.68%.

Abington Bancorp (ABBC) owns Abington Savings Bank, d/b/a Abington Bank, which provides various financial products and services in Pennsylvania. November 24th the company increased quarterly dividend 20% to $0.06/share. The dividend is payable on Dec. 21 to shareholders of record on Dec. 7. The ex-dividend date is Dec. 3. The yield based on the new payout is 2.02%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

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Linked here is a detailed quantitative analysis of Medtronic Inc. (MDT). Below are some highlights from the above linked analysis:

Company Description: Medtronic Inc. is a global medical device manufacturer has leadership positions in the pacemaker, defibrillator, orthopedic, diabetes management and other medical markets.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

MDT is trading at a discount to 1.) and 3.) above. The stock is trading at a 16.1% discount to its calculated fair value of $38.78. MDT earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

MDT earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. MDT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1977 and has increased its dividend payments for 33 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

MDT earned a Star in this section for its NPV MMA Diff. of the $1,106. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as this company. If MDT grows its dividend at 9.4% per year, it will take 4 years to equal a MMA yielding an estimated 20-year average rate of 3.71%. MDT earned a check for the Key Metric ‘Years to >MMA’ since its 4 years is less than the 5 year target.

Memberships and Competitors: MDT is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. MDT’s peer group includes: Bard C.R. (BCR) with a 0.9% yield, Baxter International (BAX) with a 2.6% yield and Becton Dickinson (BDX) with a 2.1% yield.

Conclusion: MDT earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks MDT as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $41.65 before MDT’s NPV MMA Differential increased to the $500 minimum that I look for in a stock with 33 years of consecutive dividend increases. At that price the stock would yield 2.16%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 7.0%. This dividend growth rate is well below the 9.4% used in this analysis, thus providing a margin of safety. MDT has a risk rating of 1.25 which classifies it as a low risk stock.

MDT owns a diversified portfolio with a strategy to develop products for a wide range of chronic diseases. Although it is exposed to the highly competitive areas of the medical equipment markets, MDT enjoys many competitive advantages including scale (operations and sales), product breadth and financial strength, with a free cash flow payout of 28% and debt to total capital of 39%. The company is well-positioned for future development in disease management. MDT is currently trading more than 15% below my fair value price of $38.78. This company has a lot of promise, as such, I will continue to evaluate it for a place in my portfolio. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in MDT (0.0% of my Income Portfolio). See a list of all my income holdings here.

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Revenue Growth

The top line drives the bottom line. You can only cut costs so far, for a business to grow and thrive it must find ways to grow sales. This can be done through acquisitions, expanding markets, developing new production or entering a new line of business. For a company to sustain a growing dividend over the long-term, it must find ways to continuously grow its business. For some companies it easier and less risky to cut costs and many will stop there.

Earnings Growth

Many companies have learned the hard way that growth for the sake of growth is not always a good thing. If growth is not managed effectively and efficiently, it will be detrimental to long-term viability of the business. Management must ensure growth projects are monitored, controlled and well-run to ensure a profit is generated. Many great ideas have failed as a result of poor execution. Sometimes competitors will watch and correct the execution problems and turn your failed growth idea into their success.

Cash Flow Growth

Revenue and earnings growth are good, but ultimately they must convert to increased cash flow to provide the means for sustained dividend growth. Having the cash on hand is not enough. There must be a commitment on management’s part to grow the dividend. Ideally, this commitment will eventually grow into a culture of dividend growth that the company takes great pride in.

Business Outlook

One of the most difficult things to judge are the future prospects of a company. Certain questions have to be answered. Is the company in a declining industry? Will it be able to reinvent itself in a way that will allow it to sustain growth? What external force could radically change the prospects of the company? These same questions are being asked by the company’s board, and they are equally hard for management to answer even with full access to insider information.

Below are ten companies with an average 10-year free cash flow growth rate exceeding their average 10-year dividend growth rate:

		Current	Average 10-yr Growth Rates
Company	Analysis	Yield	Dividend	Revenue	FCF
Abbott Labs (ABT)	Link	3.40%	9.01%	9.02%	14.38%
Becton, Dickinson (BDX)	Link	2.06%	15.22%	7.74%	31.25%
Cardinal Health (CAH)	Link	2.18%	25.90%	15.96%	138.39%
Colgate (CL)	Link	2.65%	11.42%	5.43%	15.42%
CenturyLink, Inc. (CTL)	-	7.97%	61.07%	13.92%	73.94%
J&J (JNJ)	Link	3.52%	13.52%	9.51%	14.99%
Procter & Gamble (PG)	Link	3.00%	11.16%	7.84%	20.92%
RPM International (RPM)	Link	4.40%	5.45%	7.25%	58.62%
AT&T, Inc. (T)	Link	6.33%	5.47%	12.51%	29.50%
Wal-Mart Stores (WMT)	Link	2.34%	18.93%	9.57%	33.71%

It is important to note that only three of the above stocks (ABT, RPM and T) have revenue growth in excess of dividend growth. Needless, to say before buying you must consider the future prospects for each company and determine if the growth rates are sustainable in the future. As with yield, dividend growth carries its own risk. If the rate is too high, the company will have a hard time maintaining it going forward. If the rate is too low, it will not keep up with inflation and the shareholder will lose purchasing power.

Full Disclosure: Long ABT, CL, CTL, JNJ, PG, T, WMT. See a list of all my income holdings here.

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Beta: A Measure of Volatility

Beta (β) is a quantitative measure of the volatility of a given security or portfolio relative to the overall market, usually the S&P 500. By definition, the market has a beta of 1.0 and securities are ranked according to how much they deviate from the market. Thus, securities with a beta above 1 are more volatile than the overall market, while those with a beta below 1 are less volatile. High-beta stocks are considered more risky, but provide a potential for higher returns. Low-beta stocks normally provide less risk and lower opportunities for capital gains.

Betas And Dividend Stocks

Dividend stocks tend to have low betas. That means during a market downturn, they tend to decline less than the total market. Hence, the term defensive stocks. It is also important to note that many defensive stocks are non-cyclical. Examples would include food, tobacco, oil, and utilities where demand is remains stable under difficult economic conditions.

Here are several dividend stocks with betas (as provided by Google Finance) less than 1.00:

Company	Analysis	Beta	% Yield
Cardinal (CAH)	Link	0.80	2.35
AT&T (T)	Link	0.68	6.83
Meridian (VIVO)	Link	0.63	3.63
Coca-Cola (KO)	Link	0.60	3.41
Becton, Dickinson (BDX)	Link	0.58	2.06
Procter & Gamble (PG)	Link	0.58	3.12
Johnson & Johnson (JNJ)	Link	0.57	3.54
Kimberly-Clark (KMB)	Link	0.48	4.29
Harleysville Group (HGIC)	Link	0.38	4.15
Wal-Mart (WMT)	Link	0.24	2.36
Abbott Laboratories (ABT)	Link	0.18	3.69

When the market turns up, low beta stocks normally won’t increase as fast as the market in total. However, as a long-term dividend investor, my goal is an ever-increase stream of dividend income, not to maximize capital appreciation.

Full Disclosure: Long ABT, HGIC, JNJ, KMB, KO, PG, T, WMT. See a list of all my income holdings here.

(Photo: Steve Woods)

Often when I write about a stock that is yielding 2%, 3% or even 4%, I get a question that goes something like, “Why would you buy that stock when there are better options like ‘Amalgamated Risk?’ Its currently yielding 7%, 8%, 9% or more?” With this statement the reader has possibly identified themselves as an income investor, and but definitely established the fact that they are not a dividend growth investor.

Tracking Yield On Cost

Yield-on-cost (YOC) is simply Current Annual Dividend dividend by Original Cost Per Share. YOC not a substitute for calculating an internal rate of return (IRR). The IRR calculation takes into account both capital appreciation and the timing of cash flows (purchases, sells and dividends). However, as a dividend growth investor, my primary focus is on dividend growth and since my desired holding period is forever, capital appreciation is little more than an interesting side note. YOC is much better suited for tracking dividend growth since it is individually tied to a stock and takes into account all the variations of growth rates over time, along with the timing of purchases. Also, it is useful when trying to explain to our income investor brethren why we chose the stock yielding 3% over ‘Amalgamated Risk’ at 8%.

Recently, I modified my D4L-Data model to include projections of YOC after 5, 10, 15 and 20 years. These projections are derived by growing the current yield using the dividend growth rate. As for the dividend growth rate, I use the minimum of the 1, 3, 5, 7 or 10 year compound annual growth rates; or 15% if in every consecutive 4-year period dividends grew on average in excess of 15%.

20 Dividend Stocks With A 20% Yield In 20 Years

Sorting the stocks in my D4L-Data model by their 20 Year YOC and throwing out some bad apples, we are left with these 20 stocks that are projected to have a 20% YOC in 20 years:

Lowe’s Companies (LOW) | Analysis
- Current Yield: 1.29%
- Dividend Growth: 15.0%
- 20 Year YOC: 21.12%

McGrath RentCorp (MGRC) | Analysis
- Current Yield: 3.32%
- Dividend Growth: 10.26%
- 20 Year YOC: 23.40%

Fastenal Company (FAST)
- Current Yield: 1.46%
- Dividend Growth: 15.00%
- 20 Year YOC: 23.94%

Colgate-Palmolive (CL) | Analysis
- Current Yield: 2.41%
- Dividend Growth: 12.48%
- 20 Year YOC: 25.34%

C.H. Robinson (CHRW)
- Current Yield: 1.61%
- Dividend Growth: 15.00%
- 20 Year YOC: 26.32%

Canadian National (CNI)
- Current Yield: 1.75%
- Dividend Growth: 15.00%
- 20 Year YOC: 28.69%

Walgreen Company (WAG) | Analysis
– Current Yield: 1.57%
- Dividend Growth: 15.72%
- 20 Year YOC: 29.14%

Raven Industries (RAVN) | Analysis
- Current Yield: 1.81%
- Dividend Growth: 15.00%
- 20 Year YOC: 29.65%

Eaton Vance (EV)
- Current Yield: 1.82%
- Dividend Growth: 15.00%
- 20 Year YOC: 29.72%

HCC Insurance (HCC)
- Current Yield: 1.91%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.30%

Becton, Dickinson (BDX) | Analysis
- Current Yield: 1.94%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.72%

IBM (IBM)
- Current Yield: 1.94%
- Dividend Growth: 15.00%
- 20 Year YOC: 31.72%

United Technologies Corp. (UTX) | Analysis
- Current Yield: 2.05%
- Dividend Growth: 15.00%
- 20 Year YOC: 33.63%

Praxair, Inc. (PX)
- Current Yield: 2.15%
- Dividend Growth: 15.00%
- 20 Year YOC: 35.17%

Owens & Minor (OMI)
- Current Yield: 2.25%
- Dividend Growth: 15.12%
- 20 Year YOC: 37.55%

Linear Technology (LLTC)
- Current Yield: 2.93%
- Dividend Growth: 15.00%
- 20 Year YOC: 47.94%

McDonald’s Corp. (MCD) | Analysis
- Current Yield: 3.12%
- Dividend Growth: 15.00%
- 20 Year YOC: 51.01%

Nucor Corporation (NUE) | Analysis
- Current Yield: 3.18%
- Dividend Growth: 15.00%
- 20 Year YOC: 52.00%

Cardinal Health, Inc. (CAH) | Analysis
- Current Yield: 2.02%
- Dividend Growth: 17.65%
- 20 Year YOC: 52.06%

Meridian Bioscien (VIVO) | Analysis
- Current Yield: 3.40%
- Dividend Growth: 15.00%
- 20 Year YOC: 55.67%

One key component of current yield is risk. If Treasuries (risk free) were paying 7%, 8% or 9%, many income investors and a significant number of dividend growth investors would divert a portion of their portfolios to them.

You will note that all the above stocks are yielding well under 4%. It is also important to note that I do not believe that all the above stocks will achieve their 20 year YOC. In much the same way high-yielding stocks often end up cutting their dividends, many of the above stocks will end up cutting their dividend growth rate. Put another way, there is risk associated low-yield high-dividend-growth stocks. However, for the high dividend growth stocks that perform well over the next 20 years, the rewards are potentially much higher than those of a high-yield, low growth stock.

Full Disclosure: Long CNI, UTX, MCD, NUE. See a list of all my income holdings here.

(Photo Credit)

Linked here is a detailed quantitative analysis of Becton, Dickinson and Co. (BDX). Below are some highlights from the above linked analysis:

Company Description: Becton, Dickinson and Co. provides a wide range of medical devices and diagnostic products used in hospitals, doctors’ offices, research labs, and other settings.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BDX is trading at a discount to 1.), 2.) and 3.) above. The stock is trading at a 9.6% discount to its calculated fair value of $83.39. BDX earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

BDX earned three Stars in this section for 1.), 2.) and 3.) above. A Star was earned since the Free Cash Flow payout ratio was less than 60% and there were no negative Free Cash Flows over the last 10 years. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. BDX earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2000-2003, 2001-2004, 2002-2005, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1926 and has increased its dividend payments for 37 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

BDX earned a Star in this section for its NPV MMA Diff. of the $2,133. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as BDX has. If BDX grows its dividend at 15.0% per year, it will take 6 years to equal a MMA yielding an estimated 20-year average rate of 3.98%.

Other: BDX is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index.

Conclusion: BDX earned one Star in the Fair Value section, earned three Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of five Stars. This quantitatively ranks BDX as a 5 Star-Strong Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $120.24 before BDX’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 37 years of consecutive dividend increases. At that price the stock would yield 1.23%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 10.8%. This dividend growth rate is less than the 15.0% used in this analysis, thus providing only a margin of safety. BDX has a risk rating of 1.00 which classifies it as a low risk stock.

In spite of the competitive landscape in the medical equipment market and reduced customer spending, BDX has seen product demand and favorable pricing in excess of industry averages. The company’s needle and surgical business has provided investors with robust returns for years. As a result of BDX’s innovation and judicial deployment of capital, its business continued to prosper during the economic downturn. The stock is favorably priced below my buy price of $83.39. However, I hesitate to buy with its yield below 2.0%. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BDX (0.0% of my Income Portfolio). See a list of all my income holdings here.