Updated on March 12th, 2021 by Bob Ciura
Income investors are always on the hunt for high-quality dividend stocks. There are many ways to measure high-quality stocks. One way for investors to find great dividend stocks is to focus on those with the longest histories of raising dividends.
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. Meanwhile, investors should also familiarize themselves with the Dividend Champions, which have also raised their dividends for at least 25 years in a row.
While their length of dividend increases is the same, leading to some overlap, there are also some important differences between the Dividend Aristocrats and Dividend Champions. As a result, the Dividend Champions list is much more expansive. There are many high-quality Dividend Champions that are not included on the Dividend Aristocrats list.
With this in mind, we created a downloadable list of all 142 Dividend Champions. You can download your free copy of the Dividend Champions list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
This article will discuss large cap stocks, and an analysis of our top 7 Dividend Champions, ranked according to expected total returns 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 Champions
- Top Dividend Champion #7: Roper Technologies (ROP)
- Top Dividend Champion #6: Lowe’s Companies (LOW)
- Top Dividend Champion #5: Atmos Energy (ATO)
- Top Dividend Champion #4: Telephone & Data Systems (TDS)
- Top Dividend Champion #3: Farmers & Merchants Bancorp (FMCB)
- Top Dividend Champion #2: Becton, Dickinson, & Company (BDX)
- Top Dividend Champion #1: Eagle Financial Services (EFSI)
Overview of Dividend Champions
The requirement to become a Dividend Champion is simple: 25+ years of consecutive annual dividend increases. The Dividend Aristocrats have the same requirement when it comes to number of years, but with a few additional requirements.
To be a Dividend Aristocrat, a company must also be included in the S&P 500 Index, must have a float-adjusted market cap of at least $3 billion, and must have an average daily value traded of at least $5 million. These added requirements preclude many companies that possess a sufficient track record of annual dividend increases, but do not qualify based on market cap or liquidity reasons.
As a result, while there is some overlap between the Dividend Aristocrats and the Dividend Champions, there are also many Dividend Champions that are not Dividend Aristocrats. Income investors might want to consider these stocks due to their impressive histories of annual dividend increases, so we have compiled them in the downloadable spreadsheet above.
In addition, we have ranked the top 7 Dividend Champions according to total expected annual returns over the next five years. Our top 7 Dividend Champions right now are ranked below.
The Top 7 Dividend Champions To Buy Right Now
The following 7 stocks represent Dividend Champions with at least 25 consecutive years of dividend increases, but they also have durable competitive advantages, long-term growth potential, and high expected total returns. Stocks have been ranked by expected total annual return over the next five years, from lowest to highest.
Top Dividend Champion #7: Roper Technologies (ROP)
- 5-year expected returns: 10.0%
Roper Technologies is a specialized industrial company that manufactures products such as medical and scientific imaging equipment, pumps, and material analysis equipment. Roper Technologies also develops software solutions for the healthcare, transportation, food, energy, and water industries.
The company has generated an impressive track record of growth over the past five years.
Source: Investor Presentation
Roper reported its Q4 and full-year results on January 29th, 2021, for the period ending December 31st, 2020. Quarterly revenues and adjusted EPS were $1.51 billion and $3.56, indicating a year-over-year increase of 8% and 5%, respectively.
Roper keeps on expanding its portfolio, and by taking advantage of the current ultra-low rates environment, the company deployed a massive $6 billion of capital towards high-quality software acquisitions through the year. The $5.35 billion purchase of Vertafone highlights the company’s financial resilience, as it was entirely funded using cash on hand, its credit facility, and debt.
Along with financial results, management updated its FY2021 guidance, expecting EPS of $14.35-$14.75 for the full year, with first quarter adjusted EPS of $3.26-$3.32.
Roper has proven consistent growth in its profitability over the years. From 2015 to 2020, the company grew its EPS by an annualized rate of 17.1%. The company’s pipeline of high-quality acquisition opportunities remains robust, and its existing software subsidiaries keep growing organically, adding to its recurring revenues. The Vertafone acquisition will add to Roper’s growth, and the company has guided for double-digit annual cash flow growth going forward.
We are raising our five-year EPS growth expectations to 10%, to reflect these estimates. Roper has also a tremendous dividend growth record, numbering 28 years of consecutive dividend increases. Roper is on the list of Dividend Aristocrats, a group of 65 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. You can see the entire Dividend Aristocrats list here.
Over the past decade, DPS has grown annually by nearly 24%, on average.
Based on expected EPS of $14.55 for 2021, shares of Roper trade for a P/E ratio of 26.5, which is slightly above our fair value P/E of 26, which reflects the company’s resilient growth prospects. Shares are essentially fairly valued, but we expect 10% annual EPS growth plus the 0.6% dividend yield leading to total annual returns of 10.0% over the next five years.
Top Dividend Champion #6: Lowe’s Companies (LOW)
- 5-year expected returns: 10.3%
Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates nearly 2,000 home improvement and hardware stores in the U.S. and Canada.
Lowe’s has a tremendous dividend history. With over 50 years of annual dividend increases, Lowe’s has earned a place on the exclusive Dividend Kings list.
Lowe’s had another strong year in 2020. Adjusted earnings-per-share increased 41.5% in the fourth quarter, due to 28.1% comparable sales growth. For the year, Lowe’s generated adjusted earnings-per-share of $8.86. Lowe’s benefited from the continued strength in the housing market.
We forecast 7% annual EPS growth over the next five years. Lowe’s has a long runway of growth up ahead.
Source: Investor Presentation
Another key to Lowe’s success has been its booming e-commerce platform. This is a key differentiator between successful retailers like Lowe’s and the many retailers that are reporting losses or going out of business. Lowe’s is benefiting right alongside the e-commerce boom.
Lowe’s enjoys competitive advantages from scale and brand power as it operates in a duopoly with Home Depot. Neither of the two are expanding their store count significantly, and neither is interested in a price war. Both should remain highly profitable, as the home improvement market in the US is large enough for two companies to succeed.
Based on expected EPS of $9.48 for the current fiscal year, Lowe’s stock trades for a P/E ratio of 17.1. Our fair value estimate is a P/E of 20. The combination of an expanding valuation, expected EPS growth and dividends lead to total expected returns of 10.3% per year through 2026.
Top Dividend Champion #5: Atmos Energy (ATO)
- 5-year expected returns: 10.4%
Atmos Energy can trace its beginnings all the way back to 1906 when it was formed in Texas. Since that time, it has grown both organically and through mergers. Today, Atmost Energy is a large-cap stock with a market cap of $11 billion.
The company distributes and stores natural gas in eight states, and serves over 3 million customers.
Source: Investor Presentation
On February 2nd, the company released financial results for the fiscal 2021 first quarter. Revenue was up 4.4% year-over-year to $915 million, but that number still missed estimates by more than $70 million. Distribution operating income was up $29 million to $210 million for the quarter, which was attributable to a $37 million increase in rates and customer growth.
Earnings-per-share came to $1.71 in Q1, up 16% from $1.47 in the year-ago period. Given the earnings beat in Q1, we’ve boosted our earnings-per-share estimate for this year by a nickel to $5.05.
Atmos’ earnings-per-share has risen steadily in the past decade as the company continues to grow both organically and through acquisitions. We are forecasting a five-year annual EPS growth rate of 6.5% moving forward. The company can achieve this growth through continued improvements in gross margin, reductions in operating costs as a percentage of revenue, and top line growth via acquisitions as well as customer growth.
Shares currently trade for a P/E of 17.0, which is below our fair value estimate of 19. In addition to returns generated by an expanding valuation multiple, we expect the company to grow EPS by 7% per year, while the stock also has a 2.8% dividend yield. Total returns are estimated to reach 10.4% per year over the next five years.
Top Dividend Champion #4: Telephone & Data Systems (TDS)
- 5-year expected returns: 10.4%
Telephone & Data Systems is a telecommunications company that provides customers with cellular and landline services, wireless products, cable, broadband, and voice services across 24 U.S. states. The company’s Cellular Division accounts for more than 75% of total operating revenue.
On February 18th, TDS reported financial results for the fourth quarter. The company grew its total operating revenues by 3% to $1.38 billion. Diluted earnings were $14 million for the company, up 17% from last year’s $12 million. Quarterly diluted earnings per share grew from $0.10 to $0.12, a 20% increase.
For the full year, total operating revenues grew 1% to $5.23 billion compared to $5.18 billion in 2019. Diluted earnings per share grew at a very high rate of 87% in 2020, to $1.93 compared with $1.03 per share in 2019. Postpaid churn rate was identical year-over-year at 1.21%.
U.S. Cellular was the driving force behind TDS’ growth last year.
Source: Investor Presentation
Telephone & Data Systems operates in the competitive telecommunications industry. Price wars are common among telecoms in the constant battle for subscribers. That said, the entire industry benefits from a high level of concentration. There are only a few major telecoms (AT&T, Verizon and T-Mobile) that dominate the U.S. market. Building a new network large enough to compete with the established giants, TDS included, would be extremely prohibitive.
TDS has historically held up extremely well during recessions; consumers are very reluctant to cut their telecommunications services like wireless, broadband, and cable, even during an economic downturn. For example, during the Great Recession, TDS’ earnings-per-share actually increased 69% from 2008-2010. The company has remained profitable during the current period of economic weakness caused by the coronavirus pandemic.
Much of TDS’ future growth potential depends on U.S. Cellular, as TDS has an 82% stake in U.S. Cellular. We expect 1.5% annual earnings-per-share growth over the next five years. Earnings growth will be achieved through a mix of revenue growth and margin improvements.
Shareholder returns will be boosted by a rising valuation multiple, expected EPS growth of 1.5%, and the current dividend yield of 3.1%. Overall, total returns are expected to reach 11.4% per year over the next five years for this top blue chip stock.
Top Dividend Champion #3: Farmers & Merchants Bancorp (FMCB)
- 5-year expected returns: 10.5%
Founded in 1916, Farmers & Merchants Bancorp is a locally owned and operated community bank with 32 locations in California. Due to its small market cap ($611 million) and its low liquidity, it passes under the radar of most investors. Nevertheless, F&M Bank has paid uninterrupted dividends for 86 consecutive years and has raised its dividend for 56 consecutive years.
The company is conservatively managed and, until four years ago, had not made an acquisition since 1985. However, in the last four years, it has begun to pursue growth more aggressively. It acquired Delta National Bancorp in 2016 and increased its locations by 4.
Moreover, in October-2018, it completed its acquisition of Bank of Rio Vista, which has helped F&M Bank to further expand in the San Francisco East Bay Area.
In early February, F&M Bank reported (2/4/21) financial results for 2020. Despite the pandemic and the suppressed interest rates, the bank grew its earnings-per-share 4.8% over the prior year, and thus achieved record earnings-per-share of $74.03 for the full year. Net interest income grew 6.2% in 2020, thanks to 16.1% growth in loans, while deposits grew 24%.
Unlike most banks, which recorded significant loan loss provisions due to the pandemic, F&M Bank has booked provisions for loan losses equal to only 1.9% of its total portfolio. It was also able to enhance its net interest margin from 3.80% in the third quarter to 3.86% in the fourth quarter.
Despite the impact of the pandemic on the economy, management is optimistic for this year thanks to the sustained business momentum.
Shares trade for a P/E ratio of 10, compared with our fair value estimate of 12. An expanding valuation multiple could increase annual returns modestly each year. Combined with 5% expected EPS growth and the 2.0% dividend yield, total returns are expected to reach 10.5% per year over the next five years.
Top Dividend Champion #2: Becton, Dickinson, & Company (BDX)
- 5-year expected returns: 11.1%
Becton, Dickinson & Co., or BD,is a global leader in the medical supply industry. The company was founded in 1897 and has over 70,000 employees across 190+ countries. The company generates around $17 billion in annual revenue, with approximately 43% of revenues coming from outside the U.S.
BDX has been very active on the acquisition front in recent years, and is now comprised of three segments.
Medical Division products include needles for drug delivery systems, and surgical blades. The Life Sciences division provides products for the collection and transportation of diagnostic specimens. The Intervention segment includes several of the products produced by what used to be Bard.
Source: Investor Presentation
On 2/4/2021, BDX released earnings results for the first quarter of fiscal year 2021. Revenue grew 25.8% to $5.32 billion, beating estimates by $450 million. Adjusted earnings-per-share of $4.55 was a 72% improvement from the prior year and $1.39 per-share better than expected. COVID-19 diagnostic revenues totaled $867 million and contributed 20.5% of the year-over-year growth. Each segment of the company had higher revenue than the prior year.
BDX also raised its guidance for fiscal 2021 and now expects adjusted EPS in the range of $12.75 to $12.85, up from $12.40 to $12.60 previously.
BDX has increased earnings-per-share by 7.8% per year over the past 10 years, and has grown earnings in 8 out of the last 10 years. We feel that BDX can grow earnings at a rate of 10% per year through fiscal 2026 due to a combination of mid-single-digit organic sales growth, revenue gains due to the Bard acquisition, and future share repurchases.
With a P/E of 19 compared with our fair value estimate of 18.4, we see the stock as slightly overvalued. Still, the combination of 10% expected EPS growth and the 1.4% dividend yield lead to total expected returns of 10.8% per year over the next five years.
Top Dividend Champion #1: Eagle Financial Services (EFSI)
- 5-year expected returns: 11.4%
Eagle Financial Services is the holding company for Bank of Clarke County. Eagle Financial Services serves retail and commercial customers and offers consumer, mortgage and commercial loans as well as other banking services. The company was founded in 1991 and is headquartered in Berryville, Virginia.
Eagle Financial Services reported its fourth-quarter and full-year results on January 29th. Last year was a strong one for Eagle Financial Services. Net income increased 14.5% for the year, due to net interest income growth and reduced interest expense on deposit accounts. Net interest income increased 14.1% in 2020. For the full year, earnings-per-share increased 14.1% from 2019.
We expect annual EPS growth of 5%-6% per year over the next five years. Loan growth will continue to be a growth catalyst, as will above-average interest margins. Loans increased by $192 million for 2020.
Eagle Financial Services has increased its dividend for over 30 consecutive years, an impressive dividend history given the company’s small size. With a market cap of just ~$100 million, investors should consider the risks of investing in such small stocks with low liquidity.
That said, the company has been able to raise its dividend for three decades while the stock has an attractive 3.4% yield.
The combination of EPS growth, valuation expansion, and dividends leads to total expected returns of 11.4% per year over the next five years.
Final Thoughts
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 25 years, it must have durable competitive advantages, highly profitable businesses, and leadership positions in their respective industries. They also have long-term growth potential and the ability to navigate recessions while continuing to raise their dividends.
The top 7 Dividend Champions presented in this article have long histories of dividend growth, and the combination of high dividend yields, low valuations, and future earnings growth potential make them attractive buys right now.