This article presents the highest-quality Dividend Contenders, which are companies listed on U.S. exchanges that have consistently higher annual dividend payouts for at least 10-24 years. A companion article presented the highest-quality Dividend Champions (25+ years), and a subsequent article will present the highest-quality Dividend Challengers (5-9 years).
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I use a quality scoring system to assess the quality of dividend growth [DG] stocks and focus my research efforts on the highest-quality DG stocks. The system employs six quality indicators from independent sources and assigns 0-5 points to each quality indicator for a maximum of 30 points.
To screen for the highest quality Dividend Contenders, I screened for stocks that appear in the top two scoring categories of the quality indicators, namely those scoring 4 or 5 points for each quality indicator.
I regularly perform quality assessments on different lists of DG stocks and share the results in articles on Seeking Alpha. These articles present key metrics of interest to dividend growth investors.
For reference, here are the most recent editions of some of these articles:
The Dividend Contenders
The late David Fish created the so-called CCC list of DG stocks with dividend increase streaks of at least 25 years (Dividend Champions), 10-24 years (Dividend Contenders), and 5-9 years (Dividend Challengers).
We introduced Dividend Radar in May 2020 as a free resource for DG investors. Dividend Radar is automatically created and published every Friday as an Excel spreadsheet. It includes key metrics and fundamental data of interest to dividend growth investors, as well as up-to-date dividend growth rates, fair value estimates, and trailing total returns for all DG stocks.
The latest Dividend Radar (dated July 14, 2023) contains 727 DG stocks. There are 136 Dividend Champions, 376 Dividend Contenders, and 215 Dividend Challengers.
The 376 Dividend Contenders have an average dividend increase streak of 14.1 years, an average dividend yield of 2.86%, and an average 5-year dividend growth rate [DGR] of 11.30%. The average 5-year DGR of the Dividend Contenders is significantly higher than that of the Dividend Champions (6.82%).
Seven stocks have dividend increase streaks of 24 years and will be promoted to Dividend Champions with another higher annual dividend payout:
- Alerus Financial Corporation (ALRS)
- Brown-Forman Corporation (BF.A)
- Casey’s General Stores, Inc. (CASY)
- Fastenal Company (FAST)
- McCormick & Company, Incorporated (MKC)
- John Wiley & Sons, Inc. (WLY)
- John Wiley & Sons, Inc. (WLYB)
Below is a chart showing the sector distribution of the Dividend Contenders:
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The Dividend Contenders are dominated by stocks from the Financials sector (44.9%).
I find it useful also to consider the supersector distribution of the Dividend Contenders:
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Defensive Sectors (Consumer Staples, Health Care, Utilities) are not closely tied to the economy because companies in these sectors provide goods and services that are always in demand. Cyclical Sectors (Consumer Discretionary, Financials, Materials, Real Estate) are closely tied to the ups and downs of the economy. When the economy is thriving, companies in cyclical sectors do well because unemployment is low and wages increase. In downturns, though, companies in cyclical sectors tend to struggle as consumers are less confident about the future. Sensitive Sectors (Communication Services, Energy, Industrials, Information Technology) are sectors that ebb and flow with the overall economy but to a limited degree. Companies in these sectors are not immune to a poor economy, but they also may not be as severely impacted by economic downturns. |
About six out of every ten Dividend Contenders are cyclical stocks.
Quality
My modified quality scoring system was inspired by David Van Knapp [DVK], who presented an elegant and effective approach to assessing the quality of DG stocks in this article. I use six quality indicators and assign 0-5 points to each quality indicator, for a maximum quality score of 30 points.
To learn more about my quality scoring system and how it differs from DVK’s Quality Snapshots, see this article on how I assess dividend quality.
To screen for the highest quality Dividend Contenders, I consider only stocks that appear in the top two scoring categories of quality indicators:
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The top-scoring Dividend Contenders earned 29 points (5 × 5 points + 1 × 4 points), while the lowest score of qualifying Dividend Contenders is 24 points (6 × 4 points).
It turns out that 19 stocks, or only about 5.1% of the Dividend Contenders, pass this quality screen. I own 12 of these stocks in my DivGro portfolio, so there are 7 other high-quality Dividend Contenders I could consider for possible inclusion in my portfolio.
Valuation
After applying the quality screen, I next consider each stock’s valuation.
To estimate fair value, I reference fair value estimates and price targets from several sources, including Portfolio Insight, Morningstar, and Finbox. Additionally, I estimate fair value using the 5-year average dividend yield of each stock. With several estimates and targets available, I ignore the outliers (the lowest and highest values) and use the average of the median and mean of the remaining values as my fair value estimate.
Recognizing that the highest-quality DG stocks rarely trade at discounted valuations, I’m willing to pay a premium price for such stocks. On the other hand, I require a discount for lower-quality DG stocks. The price I’m willing to pay is anything up to my risk-adjusted Buy Below price:
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Additional Criteria
Stocks that pass my quality and valuation screens are candidates for investment.
For candidates I don’t own, I consider these additional criteria:
- Growth Outlook: a qualifying Adjusted Chowder Number [ACN], meaning the stock is likely to deliver annualized returns of at least 8%
- Income Outlook: a 5-year yield on cost [YOC] ≥ 4.00%, meaning the stock is likely to have a high YOC after 5 years of ownership
For candidates already in my portfolio, I favor adding to underweight positions, as determined by my system for calculating portfolio target weights.
The Highest-Quality Dividend Contenders
This section presents the 19 highest-quality Dividend Contenders ranked by quality score. To rank stocks, I sort them in descending order by quality score and use tie-breaking metrics, including their Dividend Safety Scores, S&P Global Credit Ratings, and forward dividend yield.
The table presents key metrics of interest to dividend growth investors, along with quality indicators and my fair value estimates:
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Color-coding
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| Rank | Company (Ticker) | Sector | Supersector |
| 1 | Microsoft (MSFT) | Information Technology | Sensitive |
| 2 | Visa (V) | Financials | Cyclical |
| 3 | Costco Wholesale (COST) | Consumer Staples | Defensive |
| 4 | Hershey (HSY) | Consumer Staples | Defensive |
| 5 | Cisco Systems (CSCO) | Information Technology | Sensitive |
| 6 | Accenture plc (ACN) | Information Technology | Sensitive |
| 7 | Comcast (CMCSA) | Communication Services | Sensitive |
| 8 | Globe Life (GL) | Financials | Cyclical |
| 9 | Cboe Global Markets (CBOE) | Financials | Cyclical |
| 10 | Intercontinental Exchange (ICE) | Financials | Cyclical |
| 11 | WEC Energy (WEC) | Utilities | Defensive |
| 12 | Bristol-Myers Squibb (BMY) | Health Care | Defensive |
| 13 | Travelers (TRV) | Financials | Cyclical |
| 14 | Waste Management (WM) | Industrials | Sensitive |
| 15 | Alliant Energy (LNT) | Utilities | Defensive |
| 16 | Analog Devices (ADI) | Information Technology | Sensitive |
| 17 | Marsh & McLennan (MMC) | Financials | Cyclical |
| 18 | Xcel Energy (XEL) | Utilities | Defensive |
| 19 | Aon plc (AON) | Financials | Cyclical |
All of the stocks I don’t own fail my Growth Outlook and Income Outlook screens, so I’m not interested in adding any of those to my DivGro portfolio.
Of the stocks I already own, the following stocks are underweight based on my calculated target weights:
- ACN (-44 shares)
- COST (-19 shares)
- CSCO (-6 shares)
- ICE (-34 shares)
- LNT (-243 shares)
- WEC (-23 shares)
- XEL (-39 shares)
For readers, I think the best candidates are BMY, WEC, LNT, and CMCSA. Additionally, ADI may be worth a look.
With the highest forward yield among the candidates, BMY is discounted most and passes both my growth and income outlook criteria. My BMY position is overweight by 30 shares; otherwise, I would consider adding more shares to my DivGro portfolio.
Trading at a discount of 15% below my risk-adjusted Buy Below prices, the WEC and LNT have strong 5-YOCs and reasonable ACNs for stocks in the Utilities sector. Both stocks have a forward yield above 3%.
Likewise, CMCSA is discounted by 21% with a 5-YOC of 4.1% and a reasonable ACN of 12 (though below my ideal ACN of 15). CMCSA yields 2.68% at $43.32 per share.
ADI yields only 1.78% but has an impressive 5-DGR of 11.7% and, therefore, a favorable growth outlook with an ACN of 15. The stock is trading at a discount of 10% relative to my risk-adjusted Buy Below price.
Bonus Section: Stocks Failing VL-PS and SP-CR Screens
In this section, I’m listing stocks that failed the Value Line Price Stability and S&P Global Credit Rating screens but passed the other stringent screens for this article. Stocks with a low investment-grade S&P Credit Rating (in the BBB range) or lacking an S&P Credit Rating but with a long-term debt/capital ratio of less than 10% qualify here.
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| Rank | Company (Ticker) | Sector | Supersector |
| 1 | Hubbell (HUBB) | Industrials | Sensitive |
| 2 | Humana (HUM) | Health Care | Defensive |
| 3 | Avery Dennison (AVY) | Materials | Cyclical |
| 4 | American Tower (AMT) | Real Estate | Cyclical |
| 5 | Steris plc (STE) | Health Care | Defensive |
| 6 | Best Buy (BBY) | Consumer Discretionary | Cyclical |
| 7 | Pool (POOL) | Consumer Discretionary | Cyclical |
I don’t own any of these stocks and have no interest in adding any to my DivGro portfolio, as they all fail my Growth Outlook and Income Outlook screens.
The best candidates here are AMT, BBY, and POOL. AMT and BBY have generous yields and strong income outlooks, while POOL has an impressive 5-DGR of 21.3% and a strong growth outlook. All three are discounted relative to my risk-adjusted Buy Below prices.
Dividend Contenders: Additional Screens
In this section, I’m using various screens to find Dividend Contenders with compelling metrics. I consider stocks with quality scores above 20 to be high-quality DG stocks. All of the candidates below are high-quality Dividend Contenders with quality scores in the range of 21-30.
Adjusted Chowder Number
As mentioned earlier, I like using the ACN as a Growth Outlook screen. Stocks with ACNs colored green in my summary tables are likely to deliver annualized returns of at least 8%, provided they continue to increase their dividends at similar rates.
Here are the top six Dividend Contenders based on ACN:
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| Company (Ticker) | Sector | Supersector |
| Tractor Supply (TSCO) | Consumer Discretionary | Cyclical |
| Landstar System (LSTR) | Industrials | Sensitive |
| KLA (KLAC) | Information Technology | Sensitive |
| Pool (POOL) | Consumer Discretionary | Cyclical |
| L3Harris Technologies (LHX) | Industrials | Sensitive |
| Broadcom (AVGO) | Information Technology | Sensitive |
I own AVGO in my DivGro portfolio. My AVGO holding is overweight by about 12 shares, so I’m not looking to add shares. Besides, AVGO is trading well above my risk-adjusted Buy Below price.
Of the stocks I don’t own, TSCO and LHX pass my Growth Outlook and Income Outlook screens.Both look like excellent candidates to consider adding to my DivGro portfolio. TSCO is discounted most, while LHX offers a higher yield.
Dividend Yield
Below are the top seven Dividend Contenders based on forward yield:
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| Company (Ticker) | Sector | Supersector |
| Altria (MO) | Consumer Staples | Defensive |
| Verizon Communications (VZ) | Communication Services | Sensitive |
| Crown Castle International (CCI) | Real Estate | Cyclical |
| Philip Morris International (PM) | Consumer Staples | Defensive |
| U.S. Bancorp (USB) | Financials | Cyclical |
| Pfizer (PFE) | Health Care | Defensive |
| NorthWestern (NWE) | Utilities | Defensive |
These selections yield at least 4.41%, and all are discounted to my risk-adjusted Buy Below prices.
MO, CCI, and PFE pass my Growth Outlook and Income Outlook screens.
I already own MO and PFE. MO is underweight by 50 shares, and PFE is underweight by 245 shares.
CCI yields 5.82% and is discounted by 23%, so I think it is worth looking into.
Dividend Growth Rate
Here are the top seven Dividend Contenders based on 5-year DGRs:
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| Company (Ticker) | Sector | Supersector |
| Broadcom (AVGO) | Information Technology | Sensitive |
| Tractor Supply (TSCO) | Consumer Discretionary | Cyclical |
| Landstar System (LSTR) | Industrials | Sensitive |
| Pool (POOL) | Consumer Discretionary | Cyclical |
| Allegion plc (ALLE) | Industrials | Sensitive |
| Best Buy (BBY) | Consumer Discretionary | Cyclical |
| Amphenol (APH) | Information Technology | Sensitive |
These selections have 5-year DGRs of 18.1% or higher.
AVGO and LSTR are trading at above my risk-adjusted Buy Below prices.
Of the discounted stocks, I think TSCO is the best candidate for growth-oriented investors. Since the stock passes my Income Outlook and Growth Outlook screens, I’m considering opening a position in my DivGro portfolio.
Trailing Total Returns
Below are the top seven stocks sorted by 5-year trailing total returns:
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| Company (Ticker) | Sector | Supersector |
| Eli Lilly (LLY) | Health Care | Defensive |
| KLA (KLAC) | Information Technology | Sensitive |
| Apple (AAPL) | Information Technology | Sensitive |
| Broadcom (AVGO) | Information Technology | Sensitive |
| Microsoft (MSFT) | Information Technology | Sensitive |
| Arthur J. Gallagher (AJG) | Financials | Cyclical |
| Hubbell (HUBB) | Industrials | Sensitive |
Given their exceptional performance (5-year TTRs of at least 28.7%), it is unsurprising that none of these selections are discounted right now.
In my view, the best pick for total return investors would be AVGO, but below $746 per share.
Concluding Remarks
This article presented the 19 highest-quality Dividend Contenders based on my quality scoring system. Additionally, I used several screens to find high-quality stocks with quality scores in the range of 21-30.
I’ve highlighted several stocks trading at favorable valuations and offering compelling metrics:
For income investors: BBY, BMY, CCI, MO, PFE (yield > 3.5%)
For growth-oriented investors: BBY, POOL, TSCO (5-DGR > 20%)
For value investors: AMT, BMY, CCI, CMCSA, PFE (discounted by 20% or more)
For total return investors: AVGO (below $746)
Defensive picks: BMY, LNT, MO, PFE, WEC
Additional picks: APD, LHX
I own AVGO, BMY, CMCSA, LNT, MO, PFE, and WEC.
As always, I encourage readers to do their own due diligence before investing.
Thanks for reading, and happy investing!
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
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