Updated on April 12th, 2022 by Bob Ciura
There are many was to measure the quality of a dividend stock. One way is the length of a company’s dividend history. In general, stocks that have raised their dividends for multiple years in a row have demonstrated that they are committed to rewarding investors with steadily rising dividends.
One lesser-known group of dividend growth stocks is the list of Dividend Challengers, which have raised their dividends for at least 5 years in a row.
While 5 years is not the longest history of dividend growth, it does demonstrate a history of returning cash to shareholders with dividends. It also represents a company with a profitable business model, durable competitive advantages, and a positive growth outlook.
With this in mind, we created a downloadable list of 270 Dividend Challengers.
You can download your free copy of the Dividend Challengers list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
Investors are likely familiar with the Dividend Aristocrats, a group of 65 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. Dividend growth investors should also familiarize themselves with the Dividend Challengers, which could be Dividend Aristocrats in the making.
This article will discuss an overview of Dividend Challengers, and why investors should consider quality dividend growth stocks. Additional information regarding dividend stocks in our coverage universe can be found in the Sure Analysis Research Database.
Table of Contents
You can instantly jump to any specific section of the article by clicking on the links below:
- Overview of Dividend Challengers
- Example Of A Dividend Challenger: Skyworks Solutions (SWKS)
- Final Thoughts
Overview of Dividend Challengers
The requirement to become a Dividend Challenger is simple: 5-9 consecutive years of dividend growth. This is not exactly a high hurdle to clear, but it does separate dividend growth stocks from the companies that have held their dividends steady for many years. This is a subtle, but important, difference.
Companies that do not raise their dividends each year are often unable to do so because the underlying business is struggling.
While there are no proven precursors to a dividend cut, one potential red flag is when a stock freezes its dividend, particularly if that stock had previously held a long track record of hiking its dividend payout each year.
When business conditions deteriorate, companies often see their revenue and earnings-per-share decline. This could happen for a number of reasons, including a recession, escalating competition, or perhaps an unexpected event such as a geopolitical conflict or natural disaster. In any event, a company with falling revenue and earnings-per-share will likely not be able to raise its dividend.
Depending on how things go from there, the company in question might be able to return to dividend growth if its fundamentals improve.
On the other hand, if conditions worsen, the next step could be a dividend cut or suspension. A dividend freeze might be the first step in this process, which is why investors should pay attention if a dividend growth stock goes longer than a year without raising its payout.
Example Of A Dividend Challenger: Skyworks Solutions (SWKS)
Skyworks Solutions is a semiconductor company that designs, develops, and markets proprietary semiconductor products used worldwide. Its products include antenna tuners, amplifiers, converters, modulators, receivers, and switches.
Source: Investor Presentation
The company has increased its dividend for 8 consecutive years. Shares currently yield 1.8%.
On February 3rd, 2022, Skyworks reported first-quarter results for Fiscal Year (FY)2022. Revenue grew 15% for the first quarter to $1.510 billion compared to 1Q21, which was flat to consensus estimates. On a non-GAAP basis, operating income was $585.8 million, with non-GAAP diluted earnings per share of $3.14 compared to $3.36 per share in the same quarter last year.
Overall, Skyworks delivered first-quarter solid results, with double-digit sequential growth in both revenue and earnings per share.
Management expects that demand for connectivity to start rapidly expanding across multiple essential wireless protocols, including 5G, advanced Wi-Fi, and precision GPS. Skyworks management team provided an outlook for the second quarter for the Fiscal Year 2022. They anticipate revenue between $1.30 billion and $1.36 billion, with non-GAAP diluted earnings per share of $2.62 at the midpoint
Skyworks has a strong balance sheet with over $1 billion in cash and cash equivalents and no debt. This gives the company tremendous flexibility and resiliency to offset some of its concentrated customer base risks and move forward with its growth plans.
The dividend is very well covered by earnings, and we consider it very safe. The company remained profitable during the previous recession.
Click here to download our most recent Sure Analysis report on SWKS (preview of page 1 of 3 shown below):
The various lists of stocks by length of dividend history are a good resource for investors who focus on high-quality dividend stocks. In order for a company to raise its dividend for at least 5 years, it must have durable competitive advantages, the ability to generate consistent profits even during recessions, and shareholder-friendly management that is dedicated to returning cash to investors.
They also have long-term growth potential and the apparent ability to raise their dividends in the future.
If you are interested in finding high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:
- The Dividend Aristocrats List: a group of elite S&P 500 stocks with 25+ years of consecutive dividend increases.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 38 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The High Yield Monthly Dividend Stocks List: the 20 monthly dividend stocks with the highest current yields.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500.
- The Dividend Contenders List: 10-24 consecutive years of dividend increases.