This month’s Periodic Table examines the Dividend Contenders. These are stocks with dividend increase streaks of 10-24 years.

There are 222 Contenders, according to David Fish’s most recent Dividend Champions, Contenders and Challengers. David updates his invaluable research tool at the end of every month.

As of the end of November, there are 113 Champions (increase streaks of 25+ years), 222 Contenders (10-24 years), and 480 Challengers (5-9 years).

Dividend growth investors often face a conundrum.

Should you go for high yield or fast dividend growth? Or do some stocks offer both?

We can use the Periodic Table to help answer those questions.

The Periodic Table below shows stock tickers sorted by their yields and dividend growth rates (DGR).

Yields run across the top (labeling the columns), and 3-year dividend growth rates (DGR) run down the left side (labeling the rows). (The 3 years covered are 2014-2016, as 2017 is not completed yet.)

The table has been split into 3 parts for ease of reading. Asterisks (*) indicate stocks that are REITs (real estate investment trusts) or MLPs (master limited partnerships). These corporate forms tend to be higher-yielding, so you’ll see a lot of them over to the right side of the table where the high-yielders reside.

After the table, we’ll focus on some very interesting takeaways from the data.

Periodic Table of Dividend Contenders – Yield vs. Dividend Growth Rate
(a) Growth Rate 0-8% per year

Periodic Table of Dividend Contenders – Yield vs. Dividend Growth Rate
(b) Growth Rate 8-12% per year Periodic Table of Dividend Contenders – Yield vs. Dividend Growth Rate
(c) Growth Rate >12% per year

The background colors denote certain judgements that I have made:

  • Pink – The pink areas contain stocks with low yields and slow growth rates; I would probably not consider them for ownership.
  • Yellow – The yellow areas have stocks with low yields but decent growth rates. These are of moderate interest.
  • Green – The green areas are stocks with more generous yields and growth rates, or low yields but really fast growth rates. The highest-quality companies in the green areas would be the most interesting candidates for possible purchase.

Obviously, the colors reflect my own judgements about the desirability of certain kinds of dividend growth stocks. Your preferences may vary.

I highlighted in yellow the stocks that I own in my Dividend Growth Portfolio. That’s a live, real-money portfolio now in its 10th year of existence. The portfolio is updated every month at this link.

Ten of the portfolio’s 22 stocks are Contenders: Microsoft (MSFT); Alliant Energy (LNT); Hasbro (HAS); Smucker (SJM, just added this year); Digital Realty Trust (DLR); Qualcomm (QCOM); Phillip Morris (PM); Realty Income (O, which I just added to a few weeks ago); Southern (SO); and Omega Healthcare Investors (OHI).

Finally, in the table I boldfaced the tickers of the stocks that I have covered as Dividend Growth Stocks of the Month. Here are links to those articles if you want to do more research:

Let’s take a look at a few stocks with interesting stories to tell.

Microsoft, Alliant Energy, Hasbro, and Digital Realty Trust are all examples of stocks that have much lower yields now than when I bought them. The reason is that their prices have skyrocketed. When price goes up, yield goes down, because Yield = Dividend / Price.

Here’s Microsoft over the past 5 years:

Its price has gone up over 200%, helping to cause its yield to drop by 38%. Important note: This does not mean that Microsoft cut its dividend. It didn’t – it has raised its dividend for 16 straight years, including 7.7% this year. But when a stock’s price skyrockets way faster than its dividend is increased, its current yield falls, because the denominator in the yield equation becomes so large.

The same thing has happened to Digital Realty Trust over the past 2 years.

You might think that when you are buying new stocks, just grab the ones with the highest yields and growth rates. Those would be the ones toward the right and lower portion of the table. What could go wrong?

Plenty. Take AmTrust Financial Services (AFSI), which has a yield of 7.1% and a 3-year DGR of 38% per year. It appears in the highest-yield and fastest-growth area of the table: the lower-right corner.

Simply Safe Dividends gives AFSI a dividend safety score of just 40/100, meaning that its dividend is not very safe. Over the past 3 years, AFSI’s price has plunged, contributing to its high yield.

AFSI has not increased its dividend yet in 2017; its last increase was more than a year ago. Clearly this is a stock that you would need to investigate further before investing. There’s a story behind those numbers, and it may not be a good one. Always remember that yield and DGR, by themselves, do not paint a complete picture of any stock.

That said, while preparing this Periodic Table, I became intrigued by several stocks in the green areas. I will be looking at them further, and over the next few months, you may see a few become the subjects of future Dividend Growth Stock of the Month or Valuation Zone articles.

— Dave Van Knapp

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Disclaimer: As always, please do not take anything in this article or the linked articles as recommendations. Always do your own due diligence before investing in anything.