Small Signs of Growth

 | Oct 03, 2011 | 1:30 PM EDT  | Comments
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Stock quotes in this article:

ozrk

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banf

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umbf

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prsp

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mnro

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scl

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uvv

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mw

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aos

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csl

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lstr

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omi

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rbc

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sxt

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thg

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colm

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brc

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afsi

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sfg

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wabc

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abm

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jjsf

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ravn

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mdp

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lnn

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ipcc

This weekend showed proof positive that it's the little things in life that are the most meaningful, as silly as that may seem. Imagine my surprise when on a pre-Phillies-Cardinals playoff game, snack run (my Phils won that game, by the way; unfortunately, I can't say the same about last night) on Saturday I discovered that you can still buy an actual half gallon of ice cream in the grocery store. Now that's old school, as compared to the typical 1.5 quart downsizing garbage. I was psyched by this, which is crazy.

Another surprise I discovered over the weekend occurred when I ran a screen on small cap, dividend growth stocks -- on one of the few, non-deep value screens that I run occasionally. The results yielded many candidates.

I've long been intrigued by companies that raise their dividends year after year. I find this to be a potential sign of both company health and confident management. While earnings can be manipulated, dividends can't be. Companies cannot simply fake dividends; what you see is what you get, and dividends must be paid in cash. If a company stops paying them or cuts them, then the Street will react swiftly. Also, increasing them year in and year out only to give the appearance of financial stability is not a sustainable or winning strategy.

When running this screen, I am not concerned with the level of yield, and the companies must possess the following screening criteria:

  • Market cap between $500 million and $2 billion
  • Dividend increases in at least each of the past five years
  • Long-term, debt-to-equity ratios below 50%
  • Dividend payout ratios below 50% for the trailing 12 months, and last two fiscal years

This weekend, the screen produced 26 names, eight more than found and discussed in my last column for this particular screen. Only nine were holdovers from the last time, including several banks, such as Bank of the Ozarks (OZRK), BancFirst. (BANF), UMB Financial (UMBF) and Prosperity Bancshares (PRSP). Still on the list are Monro Muffler (MNRO), Stepan (SCL), Universal (UVV), Men's Wearhouse (MW) and A.O. Smith (AOS).

The 17 additions to the list include Carlisle Companies (CSL), Lansdstar System (LSTR), Owens and Minor (OMI), Regal Beloit (RBC), Sensient Technologies (SXT), Hanover Insurance Group (THG), Columbia Sportswear (COLM), Brady Corp (BRC), AmTrust Financial Services (AFSI), StanCorp Financial Group (SFG), WestAmerica Bancorp (WABC), ABM Industries (ABM), J&J Snackfoods (JJSF), Raven Industries (RAVN), Meredith (MDP), Lindsay (LNN) and Infinity Property and Casualty (IPCC).

The previous group that met the search criteria lost an average of 10.5% between the day my column ran (Jan. 28, 2011) and this past Friday. Even though that is disappointing, it is significantly better than the performance of the Russell 2000, which was down 16.9% during the same period. I had expected better results, but the concept is one worth tracking over the long-haul.

 

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