I've been feeling lately, after writing about dividend stocks for almost a year, that there is nothing new for me to discover. That I have already covered every dividend stock of interest, and there are no more good ones.
Which is a discouraging thing, because I have not yet completed my 10-stock perfect dividend portfolio. I have only chosen eight companies, and I need to select two more.
But rationally I know that there are many hundreds of companies that pay out a dividend, and I probably haven’t come close to examining all of them.
In fact, I just found an article this morning recommending three companies that are part of the Russell Global Small Cap Dividend Achievers index. I haven’t examined any of these, so here is the analysis. All three of these companies are Achievers, which means that they have raised their dividends for at least 10 years.
In my examination, I review the companies on seven different criteria: yield, number of years paying and raising dividends, 5-year dividend growth rate (DGR), 5-year projected earnings growth rate (EGR), total return for the past twelve months, PE and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.
I constructed a rating system that awards points for each of the previous named criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.
The first company is Owens & Minor, Inc. (NYSE:OMI), a manufacturer of medical supplies. The company is currently trading at approximately $30 and yields 2.9%. It has raised dividends every year for 15 years, its 5-year DGR is 14.2%, and it has returned 9.2% over the past twelve months.
Other metrics that I use when calculating a rating for a dividend company include the analysts’ 5-year annual growth estimate (9.5%), the company’s PE (17.7) and its dividend-payout ratio (51%).
Owens & Minor scores a 15 on my ratings system, which is too low to make it into my portfolio. I do believe that it is a solid small-cap selection, however, and its 5-year DGR is extremely attractive; however, I still believe there are better selections.