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 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.
