Editor's note: The following is an excerpt from Get Rich With Dividends.
represent the bluest of the blue chips—big, solid companies with two and a half decades or more track records of raising dividends.
However, with only 40 to 50 stocks qualifying to be included in the index in a given year, we need to expand our universe— especially because not every Aristocrat has a decent yield. Just because a company has raised its dividend for 25 years in a row doesn’t mean it has an attractive dividend yield.
The yield could have started very small and grown at a minuscule pace. Or the stock could have gotten hot, running up in price and decreasing the yield. For example, Aristocrat Sherwin-Williams
(SHW) has raised its dividend for 34 consecutive years, but still only yields 1.2%.
Therefore, we need to look in other places for companies with juicy yields that have a history of growing the dividend.
Enter the Champions.
The DRiP Resource Center
maintains a list called the Dividend Champions. These stocks are similar to the Aristocrats in that the companies have raised their dividends for at least 25 consecutive years. However, they are not required to be part of the S&P 500 and have no liquidity or other restrictions. Just the 25-year track record with an annual dividend boost. That’s the only qualification.
I love the name Champions because it reminds me of my favorite sport, boxing, and that a person doesn’t need to be six foot three and 240 pounds to be a successful professional athlete.
I’ve seen grown men who weigh 125 pounds walk into an arena and be given the same respect (or even more) by an adoring crowd as if they were the heavyweight champion of the world.
Some of the small stocks on the Champions list also prove you don’t have to be big to be successful, More than a few have market caps of under $1 billion yet are still terrific income investments.
For example, Tompkins Financial Corp.
(TMP) is a Dividend Champion. Tompkins, a small bank based in Ithaca, New York, has a market cap of just $459 million and trades an average of 30,000 shares per day. Compare that with an Aristocrat such Kimberly-Clark
(KMB), which has a market cap of $33 billion and trades 2.4 million shares a day.
Dividend Aristocrats are always Dividend Champions because they’ve raised their dividend for 25 years in a row—but a Dividend Champion might not be a Dividend Aristocrat if the stock is not in the S&P 500.
Some of the stocks on the Champions list offer benefits to individual investors that may not be attainable by professional money managers. Some Champions are rather small, so an institutional investor, such as a mutual fund manager, would not be able to buy stock without moving the price considerably. Additionally, the manager might have a tough time selling the stock due to liquidity issues.
For example, if a mutual fund manager wanted to own a few million shares of California Water Service Group
(CWT), it would be tough to either accumulate or sell stock when the time comes, considering that it trades fewer than 250,000 shares per day.
However, an individual investor who wants to pick up several thousand shares or fewer would have no problem buying or selling them in the marketplace. In this case, the individual investor has more flexibility than the money manager with millions at his or her disposal.
The professional money manager can invest only in stocks that are large enough to handle the influx of money and must buy enough shares to make a difference to the fund’s performance. The individual investor can buy or sell without impacting the stock or attracting much notice. The ability to purchase stocks that are inaccessible to professionals is one way individual shareholders can outperform institutional money managers.
As you conduct your research on Perpetual Dividend Raisers, you’ll find plenty of stocks that don’t trade much volume but are great little companies with long histories of dividend increases.
You’ll be able to buy them, but the fund manager at Fidelity and Vanguard will have to pass them up.
Marc is the Associate Investment Director of the Oxford Club and the author of Get Rich with Dividends: A Proven System for Earning Double-Digit Returns.
No positions in stocks mentioned.