Screening the Large Dividend Plays

 | Oct 07, 2011 | 10:30 AM EDT  | Comments
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Stock quotes in this article:

xom

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cop

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oxy

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mur

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wag

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low

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bby

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utx

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gd

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noc

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rtn

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itt

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trv

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cb

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afl

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hcc

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txn

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bokf

Although I focus mainly on small and micro-cap companies, they certainly aren't the only game in town. In fact, when it comes to dividend growth, the majority of candidates are the larger names.

Here, yield also plays a role. In my small search for small-cap dividend growers, I ignore the level of yield because some of the companies don't have a long operating history and still may be in a growth phase. As such, they don't tend to be high yielders. With the larger names, you can find the best of both worlds in growing dividends and decent yields.

With that in mind, I utilized the following criteria in my search:

•        Market caps greater than $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

•        Dividend yield of at least 2%

The search produced 32 names and, not surprisingly, oil is highly represented with ExxonMobil (XOM, 2.5% current yield), Conoco Phillips (COP, 4.1%), Occidental Petroleum (OXY, 2.4%), and Murphy Oil (MUR, 2.3%). Retail also made a nice showing with the likes of Walgreen (WAG, 2.7%), Lowe's (LOW, 2.8%), and Best Buy (BBY, 2.8%).

Aerospace and defense companies were also well represented with United Technologies (UTX, 2.8%), General Dynamics (GD, 3.3%), Northrop Grumman (NOC, 3.9%), Raytheon (RTN, 4.3%), and ITT Corp (ITT, 2.3%).  Insurance companies that made the cut included Travelers (TRV, 3.3%), Chubb (CB, 2.6%), AFLAC (AFL, 3.2%), American Financial Group (AFG, 2.2%), and HCC Insurance Holdings (HCC, 2.3%).

Raytheon and Conoco Phillips are the only names meeting the search criteria that yield more than 4%.  In terms of dividend growth, as measured by a 5-year compounded growth rate (CAGR), Texas Instruments (TXN, 2.4% yield, 34.8% CAGR), Lowe's (30.7% CAGR), BOK Financial (BOKF, 2.3%, 27% CAGR), Cardinal Health (CAH, 2.1%, 23.6% CAGR), Walgreen (22.7% CAGR), and  AFLAC (21% CAGR) were the leaders. For perspective, consider that a 14.4% 5-year CAGR implies a doubling of dividends over a five-year period.

Moving forward, especially in the current highly volatile market, it will be interesting to track how the 32 names perform. Given the average yield of about 2.8%, I would expect this group to have a smoother ride than the broader markets, but we'll see. 

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