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Our Universe

Have you looked at The Compounding Dividends Investable Universe yet?

It contains over 800 stocks in 3 categories:

• Dividend Growth Stocks: Stable companies that raise their dividends every year

• High-Yield Stocks: Companies that return a lot of capital as dividends

• Cannibal Stocks: Companies that heavily buy back their own shares

This is the list of companies that we’ll build the Compounding Dividends Portfolio from.

Selecting stocks is all about starting with good companies and saying “no” to all but the best.

Here’s a great example of how you should think about filtering out stocks:

The Challenge

Creating a Buy-Hold-Sell list of 750 companies is a huge undertaking!

The Investable Universe is massive, how do you start?

I knew that analyzing and valuing each individual stock was too inefficient.

So I looked for a way to use the available data to efficiently create the list.

How the Buy-Hold-Sell List Works

The comparison of the current Dividend Yield to the Historical Yield and the Reverse Dividend Discount Model were easy to implement with a spreadsheet.

The Earnings Growth Model was the problem.

I tried several ways to make this work, but ultimately I wasn’t getting results I was happy with.

So it was replaced with one of Peter Lynch’s favorite metrics.

If you don’t know Peter Lynch, he is one of the most successful mutual fund managers ever.

He managed the Fidelity Magellan Fund for 13 years and returned more than 29% per year.

Introducing the PEG ratio

Peter Lynch often used the Price/Earnings to Growth or PEG ratio to value stocks.

Here’s the formula:

PEG Ratio = P/E ratio / Earnings Growth Rate 

You can pay a higher P/E multiple for stocks that are growing earnings faster.

Here are the PE ratios you could have paid in 1973 to achieve a 7% return per year in 2019.

You could have paid more than 200 times earnings for Lindt, Altria and L’Oréal!

The beauty of the PEG ratio is that it takes this into account.

It also works very well for our Cannibal companies who are growing EPS through both the growth of the company and buybacks.

The spreadsheet uses the current P/E ratio, dividend by the consensus analysts’ EPS growth rate for the next 3 to 5 years.

Here’s how to interpret it:

• PEG < 1: Indicates possible undervaluation - these are colored green in the list

• PEG 1-2: The stock is fairly valued - these are yellow

• PEG >2: The stock is overvalued - these are red

One caution

If the projected growth is negative - like with Abbott Labs, the PEG ratio will show up as negative - this should not be taken as an indication of undervaluation.

Dividend Yield

This method should be familiar to you - we compare the current Dividend Yield to the Historical Average.

In this case, we’re using the average of the past 5 years.

The Over/Undervaluation column shows you the difference between them.

• A positive number in green indicates undervaluation.

• A negative red number indicates overvaluation.

Reverse Dividend Discount Model

Finally, we have the Reverse Dividend Discount Model.

The Reverse DDM tells us how much dividend growth is priced into the stock.

We can then compare that with the historical Dividend Growth Rate

Here’s the formula:

Expected growth = Required return – (DPS next year / Current share price)

In this view we have:

• The current Dividend Per Share

• The 5-year average Dividend Growth Rate

• The consensus growth rate of the dividend for the next year

• The calculated forward dividend

• The stock price

• The Expected Growth calculated by the Reverse DDM

• The Over or Undervaluation based on the Reverse DDM growth rate and the historical growth rate

The Final List

The entire Investable Universe contains more than 800 stocks.

The Buy-Hold-Sell list was updated after the market close on Friday.

As of today, 354 of them have a ‘Buy’ rating.

Are you ready to find out what they are?

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Welcome to this week’s 🔒 exclusive edition 🔒 of Compounding Dividends. Each week we talk about the financial markets and give an update on our Portfolio.

In case you missed it:

1. Best Buys November 2024

2. All Dividend Aristocrats + 5 of Our Favorites

3. 5 Dividend Secrets

Subscribe to get access to these posts, and every post.

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We’ve already shared our Dividend Growth Stocks and our High-Yield Stocks with you:

Today part 3 of our watchlist rolls out.

It’s all about Cannibal Stocks.

Our Dividend Portfolio

We're focusing on Cannibal Companies today, but we’re always looking for good businesses with:

• Sustainable competitive advantages

• Quality management

• Healthy balance sheets

• Attractive growth

Creation of the watchlist

Our watchlist is split into three parts:

• Dividend Growth Stocks: Stable companies raising their dividends every year

• High-Yield Stocks: Companies that return a lot of capital as dividends

• Cannibal Stocks: Companies that heavily buy back their own shares

The goal is to provide you with a reliable income stream.

Cannibal Companies

Today’s article will focus on Cannibal Companies.

These companies return capital to shareholders by buying back their own shares.

Buybacks increase your ownership of the company

An easy way to understand this is to think about sharing a pizza.

The more people there are, the smaller each slice is.

Buybacks reduce the number of slices, making your slice bigger.

How many shares you have doesn’t change, but how much of the company you own does.

If you own a business that earns $10 per share and the company buys back 50% of its outstanding shares, EPS will increase from $10 to $20.

The chart below shows how different levels of buybacks affect returns:

In addition to generating attractive returns, buybacks address one of the common criticisms of dividends - taxes.

The image shows the cumulative returns of different factors, net of taxes.

Beyond Buybacks

Buybacks aren’t the only way for companies to return capital to shareholders.

Management teams can return capital to shareholders through:

• Dividends

• Share buybacks

• Debt paydown

These three added together are called “shareholder yield”.

Shareholder yield performs even better than dividends alone!

One of the reasons we love Finchat?

It calculates Shareholder Yield for you!

Here’s the shareholder yield of the company Big Lots. It’s over 40% (!):

A Cannibal Example

🏠 NVR

NVR is a homebuilder in the United States.

Between 1993 and 2024, NVR bought back more than 80% of its shares.

• Shares outstanding 1993: 17.9 million

• Shares outstanding 2024: 3.2 million

• 88.7% of shares bought back

• Zero dividends, no stock splits

• Stock price went from $5.50 to $9,000

  • 1,600 bagger!

• Earnings went up about 150x

A Few Highlights

The company with the highest shareholder yield on the list:

• 🖥️ Fidelity National Information Services at 25.3%

A few companies with consistently high shareholder yield:

• 🏷️ eBay: More than 5% per year for 7 years

• 🚗 AutoZone: More than 3% for 9 out of the last 10 years

The Cannibal Universe

Are you ready to look at more than 180 companies returning capital to shareholders?

Let’s dive into the list!

Read more

Welcome to this week’s 🔒 exclusive edition 🔒 of Compounding Dividends. Each week we talk about the financial markets and give an update on our Portfolio.

In case you missed it:

1. How to Analyze a Dividend Stock

2. 750 Interesting Dividend Stocks

3. Rewatch Our Webinar

Subscribe now

Subscribe to get access to these posts, and every post.

Last week, we shared more than 450 interesting dividend growth stocks with you.

But High-Yield Companies can be very interesting too.

Today's list includes all interesting High-Yield Companies.

Our Dividend Portfolio

Even though we're focusing on High-Yield Companies today, we’re still looking for good businesses with:

• Sustainable competitive advantages

• Quality management

• Healthy balance sheets

• Attractive histories of growth

Creation of the watchlist

Our watchlist is split into three parts:

• Dividend Growth Stocks: Stable companies that raise their dividends every year

• High-Yield Stocks: Companies that return a lot of capital as dividends

• Cannibal Stocks: Companies that heavily buy back their own shares

The goal is to provide you with a reliable income stream.

The company can’t keep raising its dividends if earnings don't grow while growing your dividends.

High-Yield Companies

Today’s article will focus on High-Yield Companies.

These companies have yields much higher than the market yield. 

High-Yield Companies are interesting because they generate a lot of income. 

The image shows that the higher the yield, the less you need to invest to get the same $500 dividend payment. 

High-Yield Companies Perform Well

Wellington Management found that companies in the top 40% of dividend yields outperform the S&P most often:

High-Yield Doesn’t Mean High Payout Ratio

A common criticism of High-Yield Companies is that they pay out too much in dividends.

The same study found this isn’t always true. 

Reinvestment

The beautiful thing about High-Yield Companies is that they’ll reliably provide you income. 

This allows you to retire comfortably.

But until you retire, you can reinvest your dividends.

This fuels compounding over time.

A Historical High-Yield Example

We’ve talked about Altria being the best performing stock over the past 100 years before.

Altria was formerly known as Philip Morris. They’re a tobacco company that sells cigarettes, primarily under the Marlboro brand, as well as smokeless tobacco products.

They have grown at over 16% per year for the last 98 years.

A $1 investment in Altria in 1925 is worth over $2.6 million (!) today.

Source: Which U.S. Stocks Generated the Highest Long-Term Returns?

Altria’s More Recent Performance

Buying Altria in 1925 would have been great, but most of us weren't investing back then.

What about a more recent investment?

If you invested $10,000 in Altria 20 years ago and reinvested your dividends, you would have earned over 14% per year, outperforming the S&P.

Even better?

You’d now receive more than $11,000 in dividend payments each year - more than your original investment!

One more interesting point:

These returns happened with a flat stock price! Altria was trading at $47.40 when this example started, and ended at $49.61.

Reinvesting your generous dividends made this possible.

Selecting the companies

For the High-Yield Bucket, we looked for companies with dividend yields that are much higher than the S&P (currently 1.3%). 

Our Criteria:

• Dividend Yield: 3.75% or higher

• 5-Year Dividend Growth: 3.75% or more

• Revenue Growth: 3% or more

An example from our list? Clearway Energy. 

Clearway generates electricity using wind and solar.

They currently have a dividend yield of over 6%. 

Source: Finchat

Our Portfolio will be built based on the watchlist. 

Partners of Compounding Dividends will get access with 100% transparency.

This allows you to watch our entire Portfolio 24/7.

Does this interest you?

Consider becoming a Partner of Compounding Dividends.

If you join this month, you enjoy a discount of 30%:

Subscribe now

A Few Highlights

The highest yielding company on the list:

• 🖥️ CMB Technology at 21.1%

A few High-Yield Companies with strong Dividend Growth:

• 🏬 Main Street Capital: 10% per year

• 🛜 Cogent Communications: 12% per year

The average dividend yield in the High-Yield Universe is 6.3%.

This means that an investment of $10,000 yields you $630 in dividends every single year!

The High-Yield Universe

Are you ready to look at more than 190 companies with strong dividend payouts? 

Let’s dive into the list!

Read more

The list contains more than 750 interesting dividend stocks.

In other words: when valuation looks attractive we might want to buy these companies.

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Our Dividend Portfolio

Portfolio Characteristics

Here is the essence of our Portfolio:

✅ The portfolio will invest worldwide (developed countries only)
✅ We’ll own 15-20 stocks
✅ The portfolio aims to invest in great dividend companies
✅ We won’t trade a lot. Activity and costs harm our results
✅ We won’t try to time the market (We’re way too dumb for that)
✅ The characteristics of companies in the portfolio:

• Sustainable competitive advantages

• Quality management in place

• Healthy balance sheet

• An attractive history of growth

• Good capital allocation

• History of returning capital to shareholders

• Ability to grow shareholder returns in the future

• Trading at fair valuation levels

Creation of the watchlist

The total universe is very large (750+ companies).

That’s why we split our watchlist into three parts:

• Dividend Growth Stocks: Stable companies that raise their dividends every year

• High-Yield Stocks: Companies that return a lot of capital as dividends

• Cannibal Stocks: Companies that heavily buy back their own shares

The goal is to provide you with a reliable income streamThe company can’t keep raising its dividends if earnings don't grow while growing your dividends.

Dividend Growth Companies

Today’s article will focus on Dividend Growth Companies.

We want to own companies that consistently increase their dividend payments each year.

Dividend Growth Stocks are attractive for a lot of reasons:

Strong businesses

Companies with a long history of dividend growth are usually strong businesses.

Why?

To keep increasing dividends, a company must also grow its earnings.

If earnings don’t grow, the company can’t keep raising its dividends.

This image shows that reinvesting your dividends pays off:

Great capital allocators

A history of dividend increases often shows that management has good capital allocation skills.

Management that focuses on paying dividends:

• Focuses on generating cash

• Reinvests profits wisely

• Plans long-term

• Controls costs

Companies that pay dividends focus on returning value to shareholders.

This aligns management's goals with those of investors.

Performance

Dividend Growth Companies have done very well in the past.

They tend to outperform companies that don’t raise their dividends, or don’t pay them at all.

Reinvestment

The beautiful thing about Dividend Growth Investing is that you’ll receive a reliable source of income.

This allows you to retire comfortably.

But until you retire, you can reinvest your dividends.

This fuels compounding over time.

Selecting the companies

For the Dividend Growth Bucket, we only select companies that have raised their dividends for over 10 consecutive years.

An example? Automatic Data Processing.

ADP has grown its dividend by over 12% per year over the past 10 years.

Source: Finchat

Our Portfolio will be built based on the watchlist.

Partners of Compounding Dividends will get access with 100% transparency.

This allows you to watch our entire Portfolio 24/7.

Does this interest you?

Consider becoming a Partner of Compounding Dividends.

If you join this month, you enjoy a discount of 30%:

Subscribe now

A Few Highlights

The highest yielding company on the list:

• 🏡 Arbor Realty at 10.6%

A few of the strongest Dividend Growers:

• 👨‍🔧 Cintas: 22% per year

• 🚜 Tractor Supply: 27% per year

• 🛠️ Lowe’s: 17% per year

The average dividend statistics for Our Universe look like this:

• Average dividend yield: 2.4%

• Average payout ratio: 60%

• Average dividend growth: 8.2%

• Average revenue growth: 5.7%

We calculated the results of a portfolio with those numbers after 20 years, using the 5.7% revenue growth for stock price appreciation.

If you invested $10,000 in a portfolio with those averages, after 20 years, you’d have:

The Dividend Growth Universe

Are you ready to look into our entire watchlist?

Let’s dive into the list!

Read more

It’s a very attractive list with ideas for dividend investors.

In this article, I am giving an overview of all 53 Dividend Kings ranked by increasing dividend yield.

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All Dividend Kings

• S&P Global Inc.: 0.7% dividend yield

• W.W. Grainger, Inc.: 0.8% dividend yield

• Parker-Hannifin Corporation: 1.0% dividend yield

• Walmart Inc.: 1.0% dividend yield

• Dover Corporation: 1.1% dividend yield

• H.B. Fuller Company: 1.1% dividend yield

• MSA Safety Incorporated: 1.2% dividend yield

• TriMas Corporation: 1.2% dividend yield

• Tennant Company: 1.2% dividend yield

• Nordson Corporation: 1.2% dividend yield

• Nucor Corporation: 1.4% dividend yield

• RPM International Inc.: 1.5% dividend yield

• Becton, Dickinson and Company: 1.6% dividend yield

• Lowe's Companies, Inc.: 1.7% dividend yield

• ABM Industries Incorporated: 1.7% dividend yield

• F&M Bank Corporation: 1.8% dividend yield

• Commerce Bancshares, Inc.: 1.9% dividend yield

• Gorman-Rupp Company: 1.9% dividend yield

• Emerson Electric Co.: 1.9% dividend yield

• Abbott Laboratories: 1.9% dividend yield

• Colgate-Palmolive Company: 2.0% dividend yield

• Lancaster Colony Corporation: 2.0% dividend yield

• Stepan Company: 2.0% dividend yield

• Middlesex Water: 2.1% dividend yield

• PPG Industries, Inc.: 2.1% dividend yield

• California Water Service Group: 2.2% dividend yield

• American States Water Company: 2.2% dividend yield

• Illinois Tool Works Inc.: 2.3% dividend yield

• Procter & Gamble Company: 2.4% dividend yield

• Cincinnati Financial Corporation: 2.4% dividend yield

• The Coca-Cola Company: 2.8% dividend yield

• Sysco Corporation: 2.8% dividend yield

• SJW Group: 2.8% dividend yield

• Target Corporation: 2.9% dividend yield

• Genuine Parts Company: 3.0% dividend yield

• Stanley Black & Decker, Inc.: 3.1% dividend yield

• Johnson & Johnson: 3.1% dividend yield

• PepsiCo, Inc.: 3.1% dividend yield

• AbbVie Inc.: 3.2% dividend yield

• Consolidated Edison: 3.2% dividend yield

• Kimberly-Clark Corporation: 3.4% dividend yield

• New Fortress Energy LLC: 3.5% dividend yield

• Archer-Daniels-Midland Company: 3.5% dividend yield

• Hormel Foods Corporation: 3.6% dividend yield

• KVUE Television: 3.8% dividend yield

• Fortis Inc.: 3.9% dividend yield

• Federal Realty Investment Trust: 3.9% dividend yield

• Union Bankshares Corporation: 4.1% dividend yield

• Black Hills Corporation: 4.4% dividend yield

• Northwest Natural Holding Company: 5.0% dividend yield

• CDUAF (Canfor Corporation): 5.1% dividend yield

• Universal Corporation: 6.3% dividend yield

• Altria Group, Inc.: 8.1% dividend yield

I created an Excel where you can find the following information for every Dividend King:

• Company Name

• Ticker

• Sector

• # Years of Dividend Increases

• Business Description

Let’s also expand on our favorite Dividend Kings.

You can download the entire list here:

Read more

It’s a very attractive list with ideas for dividend investors.

In this article, I am giving an overview of all 66 dividend aristocrats ranked by dividend yield.

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Dividend Aristocrats

Are you ready?

Here are all Dividend Aristocrats and their dividend yield:

1. Realty Income Corp.: 5.60%

2. Franklin Resources, Inc.: 5.20%

3. Amcor Plc: 4.80%

4. T. Rowe Price Group Inc.: 4.40%

5. Federal Realty Investment Trust: 4.30%

6. International Business Machines Corp.: 4.00%

7. Abbvie Inc: 3.90%

8. Chevron Corp.: 3.90%

9. Kenvue Inc: 3.90%

10. Essex Property Trust, Inc.: 3.80%

11. J.M. Smucker Co.: 3.70%

12. Kimberly-Clark Corp.: 3.60%

13. Stanley Black & Decker Inc: 3.60%

14. Consolidated Edison, Inc.: 3.40%

15. Clorox Co.: 3.30%

16. Johnson & Johnson: 3.30%

17. Medtronic Plc: 3.30%

18. Archer Daniels Midland Co.: 3.20%

19. Hormel Foods Corp.: 3.20%

20. Exxon Mobil Corp.: 3.20%

21. Coca-Cola Co: 3.10%

22. C.H. Robinson Worldwide, Inc.: 3.00%

23. PepsiCo Inc: 3.00%

24. Air Products & Chemicals Inc.: 2.80%

25. NextEra Energy Inc: 2.80%

26. Cincinnati Financial Corp.: 2.70%

27. Sysco Corp.: 2.70%

28. Target Corp: 2.70%

29. Atmos Energy Corp.: 2.70%

30. Genuine Parts Co.: 2.60%

31. McDonald's Corp: 2.40%

32. Procter & Gamble Co.: 2.40%

33. Aflac Inc.: 2.30%

34. Automatic Data Processing Inc.: 2.30%

35. Fastenal Co.: 2.30%

36. Illinois Tool Works, Inc.: 2.20%

37. McCormick & Co., Inc.: 2.20%

38. Abbott Laboratories: 2.10%

39. Colgate-Palmolive Co.: 2.10%

40. Cardinal Health, Inc.: 2.00%

41. General Dynamics Corp.: 1.90%

42. Lowe's Cos., Inc.: 1.90%

43. PPG Industries, Inc.: 1.90%

44. Brown-Forman Corp.: 1.80%

45. Emerson Electric Co.: 1.80%

46. Becton Dickinson & Co.: 1.60%

47. A.O. Smith Corp.: 1.50%

48. Caterpillar Inc.: 1.50%

49. Walmart Inc: 1.40%

50. Chubb Limited: 1.30%

51. Linde Plc.: 1.30%

52. Nucor Corp.: 1.20%

53. Albemarle Corp.: 1.20%

54. Expeditors International Of Washington, Inc.: 1.20%

55. Church & Dwight Co., Inc.: 1.10%

56. Dover Corp.: 1.10%

57. Pentair plc: 1.10%

58. Ecolab, Inc.: 1.00%

59. Nordson Corp.: 1.00%

60. Sherwin-Williams Co.: 0.90%

61. W.W. Grainger Inc.: 0.90%

62. Cintas Corporation: 0.80%

63. S&P Global Inc: 0.80%

64. Brown & Brown, Inc.: 0.60%

65. Roper Technologies Inc: 0.60%

66. West Pharmaceutical Services, Inc.: 0.20%

Conclusion

Here’s what you need to remember:

✅ Dividend aristocrats are companies that increased their dividends for 25 (!) consecutive years.

✅ In total, there are 66 Dividend Aristocrats in the market

Used sources

• Interactive Brokers: Portfolio data and executing all transactions

• Finchat: Financial data

Disclaimer

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