Updated on October 14th, 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.
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:
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.
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: Telephone & Data Systems (TDS)
- Top Dividend Champion #6: Becton, Dickinson & Company (BDX)
- Top Dividend Champion #5: Parker-Hannifin (PH)
- Top Dividend Champion #4: Stanley Black & Decker (SWK)
- Top Dividend Champion #3: Donaldson Company (DCI)
- Top Dividend Champion #2: ABM Industries (ABM)
- Top Dividend Champion #1: AT&T Inc. (T)
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: Telephone & Data Systems (TDS)
- 5-year expected returns: 11.1%
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.
In addition to returns generated by an expanding valuation multiple, expected growth and dividends, we expect total returns of 11.0% per year over the next five years.
Click here to download our most recent Sure Analysis report on TDS (preview of page 1 of 3 shown below):
Top Dividend Champion #6: Becton, Dickinson and Company (BDX)
- 5-year expected returns: 11.3%
Becton, Dickinson & Company is a global leader in the medical supply industry. The company was founded in 1897 and today operates in 190 countries, generating annual sales above $19 billion. Nearly half the company’s revenue comes from outside the U.S.
The company operates three segments—the Medical Division includes needles for drug delivery systems, and surgical blades. The Life Sciences division provides products for the collection and transportation of diagnostic specimens. Lastly, the Intervention segment includes several of the products produced by what used to be Bard.
Source: Investor Presentation
Shares trade for a P/E of 18, just below our fair value estimate. The stock could generate total returns of 10.8% per year, based on expected annual EPS growth of 10% and the 1.4% dividend yield.
Click here to download our most recent Sure Analysis report on BDX (preview of page 1 of 3 shown below):
Top Dividend Champion #5: Parker-Hannifin (PH)
- 5-year expected returns: 11.5%
Parker–Hannifin is a diversified industrial manufacturer specializing in motion and control technologies. The company was founded in 1917 and has grown to a market capitalization of $37 billion with annual revenues of over $14 billion. Parker–Hannifin has paid a dividend for 71 years and has increased that dividend for a remarkable 65 consecutive years.
Parker-Hannifin has generated strong growth in the past several years.
Source: Investor Presentation
In early August, Parker–Hannifin reported (8/5/21) financial results for the fourth quarter of fiscal 2021. Sales and organic sales grew 25% and 22%, respectively, over last year’s quarter and adjusted earnings–per–share grew 47% thanks to much higher margins and accelerated synergies from its acquisitions.
Based on expected adjusted EPS of $17.50, PH stock trades for a P/E of 16.8. Our fair value estimate is a P/E of 16.5, implying that the stock is just slightly overvalued. Still, the stock yields 1.4%, while we also expect 10% annual EPS growth. Total returns are expected to reach 11.5% per year.
Click here to download our most recent Sure Analysis report on PH (preview of page 1 of 3 shown below):
Top Dividend Champion #4: Stanley Black & Decker (SWK)
- 5-year expected returns: 11.5%
With over 50 years of annual dividend increases, Stanley Black & Decker is on the exclusive Dividend Kings list.
Stanley Black & Decker is a world leader in power tools, hand tools, and related items. The company holds the top global position in tools and storage sales. Stanley Black & Decker is second in the world in the areas of commercial electronic security and engineered fastening.
Source: Investor Presentation
The company reported second quarter results on 7/22/2021. Revenue grew 36.5% to $4.3 billion, topping estimates by $70 million. Adjusted earnings–per–share of $3.08 compared very favorably to adjusted earnings–per–share of $1.60 in the prior year.
The stock has a 1.6% dividend yield, and we expect 8% annual EPS growth. With a small reduction from a declining P/E multiple, total returns are expected to reach 11.5% per year.
Click here to download our most recent Sure Analysis report on SWK (preview of page 1 of 3 shown below):
Top Dividend Champion #3: Donaldson Company (DCI)
- 5-year expected returns: 12.7%
Donaldson has been creating filtration solutions for a wide array of applications since 1915. Its sales consist of filters in various engine and industrial applications as core categories, but continuous innovation and acquisitions have expanded the portfolio. The company is expected to produce about $3.1 billion in revenue this year.
We expect 9% annual EPS growth for Donaldson going forward, while the stock also has a 1.5% dividend yield. With a very small boost from P/E multiple expansion, we expect 11.8% annual returns over the next five years for Donaldson stock.
Click here to download our most recent Sure Analysis report on DCI (preview of page 1 of 3 shown below):
Top Dividend Champion #2: ABM Industries (ABM)
- 5-year expected returns: 12.7%
ABM Industries has increased its dividend for 53 consecutive years. ABM Industries is a leading provider of facility solutions, which includes janitorial, electrical & lighting, energy solutions, facilities engineering, HVAC & mechanical, landscape & turf, and parking.
Source: Investor Presentation
Shares also look significantly undervalued, with a fiscal 2021 price-to-earnings ratio of 13, which is well below our fair value estimate of 17.5.
We expect total annual returns of 12.7% over the next five years, driven by 5% expected EPS growth, the 1.7% dividend yield, and a 6% annual boost from a rising P/E multiple.
Click here to download our most recent Sure Analysis report on ABM (preview of page 1 of 3 shown below):
Top Dividend Champion #1: AT&T Inc. (T)
- 5-year expected returns: 15.8%
AT&T is a giant communications company, offering mobile, broadband and video to 100 million U.S. consumers and 3 million businesses. AT&T is on the Dividend Aristocrats list.
In the 2021 second quarter, AT&T generated $44.0 billion in revenue, up 7.6% from Q2 2020. Adjusted earnings-per-share (EPS) equaled $0.89 compared to $0.83 in the year ago quarter. AT&T ended the quarter with a net debt-to-EBITDA ratio of 3.15x.
Source: Investor Presentation
With a P/E below 10, AT&T is undervalued against our fair value estimate of 11. The combination of 3% expected EPS growth and the 8.1% dividend yield lead to total expected returns of 15.8% per year over the next five years.
Click here to download our most recent Sure Analysis report on AT&T (preview of page 1 of 3 shown below):
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.
Further Reading: The Dividend Contenders list (10 to 24 years of consecutive dividend increases) and the Dividend Challengers list (5 to 9 years of consecutive dividend increases).