Top 7 Dividend Champions To Buy Now

Income investors are always on the hunt for high-quality dividend stocks. There are many ways to measure high-quality stocks. One way for investors to find great dividend stocks is to focus on those with the longest histories of raising dividends.

Investors are likely familiar with the Dividend Aristocrats, a group of 65 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. Meanwhile, investors should also familiarize themselves with the Dividend Champions, which have also raised their dividends for at least 25 years in a row.

While their length of dividend increases is the same, leading to some overlap, there are also some important differences between the Dividend Aristocrats and Dividend Champions. As a result, the Dividend Champions list is much more expansive. There are many high-quality Dividend Champions that are not included on the Dividend Aristocrats list.

Overview of Dividend Champions

The requirement to become a Dividend Champion is simple: 25+ years of consecutive annual dividend increases. The Dividend Aristocrats have the same requirement when it comes to number of years, but with a few additional requirements.

To be a Dividend Aristocrat, a company must also be included in the S&P 500 Index, must have a float-adjusted market cap of at least $3 billion, and must have an average daily value traded of at least $5 million. These added requirements preclude many companies that possess a sufficient track record of annual dividend increases but do not qualify based on market cap or liquidity reasons.

As a result, while there is some overlap between the Dividend Aristocrats and the Dividend Champions, there are also many Dividend Champions that are not Dividend Aristocrats. Income investors might want to consider these stocks due to their impressive histories of annual dividend increases, so we have compiled them in the downloadable spreadsheet above.

In addition, we have ranked the top 7 Dividend Champions according to total expected annual returns over the next five years. Our top 7 Dividend Champions right now are ranked below.

The Top 7 Dividend Champions To Buy Right Now

The following 7 stocks represent Dividend Champions with at least 25 consecutive years of dividend increases, but they also have durable competitive advantages, long-term growth potential, and high expected total returns. Stocks have been ranked by expected total annual return over the next five years, from lowest to highest.

Top Dividend Champion #7: Old Republic International (ORI)

  • 5-year expected returns: 12.3%

Old Republic was founded back in 1907, and the past 113 years have not always been easy. However, the company has persevered and today, it markets, underwrites and provides risk management services for a variety of general and title insurances. It generates over $6 billion in annual revenue.

Source: Investor Presentation

Old Republic reported third-quarter earnings on October 22nd, with results coming in easily ahead of expectations on both the top and bottom lines. Core earnings-per-share, which excludes investment gains and losses, came to $0.62 in Q3, up from $0.51 in the year-ago period, and blowing past estimates of just $0.43. Strength came from both of the company’s core insurance segments.

Total revenue was up from $1.77 billion in the year-ago period to $1.88 billion in Q3. Net investment income was down -5.6% year-over-year to $106 million as the company’s investment base continues to grow, but lower yields offset that growth. The combined ratio came to 92% against 94.4% in the same period last year, improving margins and profitability. Book value came to $20.39 at the end of the quarter, up from $19.68 at the end of June.

We expect 4% annual EPS growth over the next five years. This rate of growth will be possible as the company looks to continue its low to mid-single-digit growth in premiums, strong investment income, as well as lower losses, with recent results supporting this.

Additional caution is warranted for this year given the extreme uncertainty surrounding the COVID-19 pandemic, but long-term holders should find value in Old Republic’s earnings streams and growth prospects. The dividend will likely continue to grow at a relatively slow pace as dividend increases in the past decade have been very small. On December 18th, the company declared a special dividend of $1.00 per share.

Old Republic operates in a tremendously competitive field, making advantages hard to come by. However, it sets itself apart with its strong premiums against claims, which is the product of prudent underwriting. We note that Old Republic is thriving in a tough environment in 2020.

Based on expected earnings-per-share of $1.95 for the current fiscal year, ORI stock trades for a price-to-earnings ratio of 9.5, compared with our fair value estimate of 12.5. An expanding P/E multiple will boost shareholder returns over the next five years. Combined with 4% expected EPS growth and the 4.4% dividend yield, total returns are expected to reach 12.3% per year.

Top Dividend Champion #6: AT&T Inc. (T)

  • 5-year expected returns: 12.4%

AT&T is the largest communications company in the world, operating in three distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses); WarnerMedia (including Turner, HBO, Warner Bros. and the Xandr advertising platform); and AT&T Latin America (offering pay-TV and wireless service to 11 countries).

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Disclosure: Sure Dividend is published as an information service. It includes opinions as to buying, selling and holding various stocks and other securities.

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