NDSN - My 11 Best Dividend Kings For September 2022
Summary
- The 45 Dividend Kings finished August with a modest loss, collectively losing 1.21%.
- Last month, the 11 best dividend kings based on forecasted growth and valuation underperformed the average dividend king return by 63 bps.
- Since July 2021, the buy and hold portfolio for this strategy has generated 113 bps of alpha over the average dividend king universe return.
Dividend Kings
The Dividend Kings are an elite group of companies that have all paid and increased dividends for at least 50 consecutive years. There are multiple lists of dividend kings on the internet, some that include more than 45 companies. I have chosen to use the list provided by Suredividend.com that was updated on September 1, 2022 and includes one new dividend king this month.
The 45 companies on the dividend king list span 9 unique sectors, offer an average dividend yield of 2.63% and have an average 5-year dividend growth history of 6.79%. Even though all 45 of these companies share the status of an elite dividend stock, not all will offer great returns going forward. So how can an investor identify the dividend kings that have a higher chance of offering better returns?
In my prior article , I shared a method for selecting the dividend kings that present the best opportunity for better than average future returns. The method leverages a long-term pattern of correlation between share price appreciation and long-term earnings growth. The pattern is more evident when applied to a group of stocks and measured over a longer time period. While this method may not work for all stocks, it can help identify a group of stocks that collectively can outperform a universe of stocks.
First, let me explain in more detail how and why this strategy may work and then I'll share the real results.
EPS Growth Combined With Valuation
Forecasted EPS growth rates are a useful indicator of future returns, but this factor can be strengthened when combined with the current valuation of a given stock. My preferred method of valuation for dividend stocks is dividend yield theory. The premise is simple, if the current dividend yield exceeds the trailing dividend yield, a stock is considered to be potentially undervalued and vice versa.
I have decided to test this theory on the dividend king universe of stocks going forward. Each month, I will select roughly the top quarter of dividend kings that present the best-forecasted EPS growth rate combined with current valuation. I will be using analyst forecasted 5-year EPS growth rates from FinViz.com. Current valuation will be computed using current and trailing dividend yields obtained from Seeking Alpha. I will assume that a given stock can return to fair valuation within a 5-year period that aligns with the forecasted EPS growth rate. Potentially undervalued stocks will be awarded a boost to their forecasted EPS growth rate equivalent to the annualized rate of return necessary to bring the share price back to fair value within the 5-year period. Overvalued stocks will be penalized using the same principle in reverse.
The best way to apply and measure the success of this strategy is through a buy-and-hold portfolio. I have been tracking how such a portfolio is working out and I will share those results later on in the article.
Past Performance
The table below shows the returns for the chosen dividend kings using this methodology for the time period of July 2021 through August 2022.
| Ticker |
| Jul 21 |
| Aug 21 |
| Sep 21 |
| Oct 21 |
| Nov 21 |
| Dec 21 |
| Jan 22 |
| Feb 22 |
| Mar 22 |
| Apr 22 |
| May 22 |
| Jun 22 |
| Jul 22 |
| Aug 22 |
| ABM |
| 4.83% |
| 6.52% |
| -9.11% |
| -1.82% |
| 2.25% |
| -9.22% |
| 2.52% |
| 7.53% |
| 2.70% |
| -0.78% |
| -10.20% |
| 6.68% |
| ABT |
| -5.37% |
| -1.87% |
| 0.62% |
| BDX |
| 6.42% |
| 1.06% |
| CINF |
| -0.39% |
| CWT |
| 12.86% |
| 1.75% |
| 3.98% |
| 3.50% |
| FUL |
| 1.86% |
| 4.57% |
| -4.45% |
| 9.50% |
| 3.76% |
| 10.72% |
| -11.40% |
| -3.36% |
| 1.22% |
| 6.57% |
| 6.97% |
| 1.03% |
| HRL |
| -1.81% |
| -9.97% |
| 3.81% |
| -2.17% |
| 17.90% |
| LOW |
| -0.25% |
| 5.81% |
| -0.51% |
| 15.68% |
| 4.61% |
| 5.68% |
| -7.87% |
| -6.86% |
| -1.82% |
| -10.56% |
| 10.26% |
| 1.36% |
| MMM |
| -9.57% |
| 0.15% |
| -3.13% |
| MO |
| -3.33% |
| 5.00% |
| 2.87% |
| MSA |
| 6.04% |
| -5.04% |
| 6.00% |
| -7.06% |
| NDSN |
| -0.19% |
| 6.74% |
| 0.63% |
| -8.90% |
| -2.39% |
| 0.26% |
| -5.02% |
| -7.09% |
| NWN |
| -0.91% |
| -4.37% |
| 13.13% |
| PH |
| 1.60% |
| -4.60% |
| 1.01% |
| -9.60% |
| 17.49% |
| PPG |
| -9.42% |
| -14.23% |
| -1.78% |
| -2.35% |
| -0.71% |
| -9.61% |
| 13.08% |
| -1.31% |
| SJW |
| 8.89% |
| SWK |
| -1.92% |
| -8.92% |
| 2.52% |
| -2.33% |
| -7.41% |
| -6.84% |
| -13.64% |
| -14.05% |
| -1.22% |
| -11.07% |
| -7.18% |
| -9.48% |
| SYY |
| -3.98% |
| 7.35% |
| -0.85% |
| -2.04% |
| -8.92% |
| 12.15% |
| 0.08% |
| 11.45% |
| -5.72% |
| 4.69% |
| -1.52% |
| 1.21% |
| 0.22% |
| -3.16% |
| TGT |
| -12.76% |
| 15.68% |
| -1.27% |
| TNC |
| -3.24% |
| -4.80% |
| 13.13% |
| -9.60% |
| TR |
| 1.42% |
| -3.85% |
| Return |
| 3.40% |
| 2.21% |
| -4.73% |
| 4.19% |
| -1.31% |
| 7.18% |
| -5.17% |
| -3.28% |
| -2.91% |
| -2.66% |
| 1.36% |
| -6.91% |
| 7.39% |
| -1.85% |
| Benchmark |
| 1.71% |
| 0.83% |
| -5.33% |
| 4.05% |
| -1.68% |
| 8.79% |
| -3.88% |
| -2.25% |
| 0.97% |
| -2.41% |
| -0.10% |
| -5.39% |
| 5.52% |
| -1.21% |
| Alpha |
| 1.70% |
| 1.37% |
| 0.60% |
| 0.13% |
| 0.36% |
| -1.61% |
| -1.29% |
| -1.04% |
| -3.88% |
| -0.25% |
| 1.46% |
| -1.52% |
| 1.87% |
| -0.63% |
5 out of the 11 chosen dividend kings for August finished last month with a return better than the average dividend king universe return. The returns from these 5 better performing kings were not strong enough for the August list to beat the average dividend king universe. The selected kings for August finished the month with a loss of 1.85%, underperforming the average dividend king universe return by 0.63%. The main drivers of underperformance were: Tennant Company ( TNC ) -9.60%, Stanley Black & Decker ( SWK ) -9.48% and MSA Safety Incorporated ( MSA ) -7.06%. There were a few good selections as well: ABM Industries ( ABM ) +6.68% and Altria Group ( MO ) +2.87%. This watchlist doesn't beat the average dividend king universe return every month but in the long run it is still performing very well. A better measure for this strategy is with a buy-and-hold approach that is discussed later in this article.
11 Best Dividend Kings For September
Since this method relies on two factors that are constantly changing, it is likely that we will experience a high turnover rate with this strategy. I have updated the analysts' expected future earnings growth rates for all the dividend kings and applied the necessary valuation adjustments. Here are the 11 dividend kings with the best expected future growth rates for September.
There are two changes in the chosen stock between August and September. ABM Industries ( ABM ) and Altria Group ( MO ) drop off and are replaced by Abbott Labs ( ABT ) and Nordson Corporation ( NDSN ). Both new additions have been part of the best 11 list in the past as a result the buy-and-hold portfolio will not be expanded from its current 21 unique holdings. ABM Industries and Altria Group both finished August with positive returns and as a result no longer find themselves amongst the most attractive dividend kings. Abbott Labs finished August with a loss of 5.69% and is down 26.19% year-to-date through month-end August. Nordson fell 1.38% in August and is down 10.35% year-to-date.
Please note that this stock selection strategy focuses solely on quantitative data. Further due diligence is necessary to ensure there are no major negative catalysts for each dividend king.
Buy And Hold Strategy
In addition to tracking the returns for the best dividend kings each month, I also track how a buy-and-hold portfolio has performed for this stock selection method.
| EPS + Value |
| Benchmark |
| Alpha |
| Jul 21 |
| 3.40% |
| 1.71% |
| 1.70% |
| Aug 21 |
| 1.99% |
| 0.83% |
| 1.16% |
| Sep 21 |
| -5.05% |
| -5.33% |
| 0.28% |
| Oct 21 |
| 4.54% |
| 4.05% |
| 0.48% |
| Nov 21 |
| -0.07% |
| -1.68% |
| 1.60% |
| Dec 21 |
| 7.75% |
| 8.79% |
| -1.03% |
| Jan 22 |
| -4.89% |
| -3.88% |
| -1.02% |
| Feb 22 |
| -0.26% |
| -2.25% |
| 1.99% |
| Mar 22 |
| -2.14% |
| 0.97% |
| -3.11% |
| Apr 22 |
| -2.20% |
| -2.41% |
| 0.21% |
| May 22 |
| 0.79% |
| -0.10% |
| 0.89% |
| Jun 22 |
| -7.12% |
| -5.39% |
| -1.73% |
| Jul 22 |
| 6.01% |
| 5.52% |
| 0.49% |
| Aug 22 |
| -1.82% |
| -1.21% |
| -0.61% |
| Total |
| -0.29% |
| -1.42% |
| 1.13% |
| 2021 |
| 12.72% |
| 8.06% |
| 4.66% |
| 2022 |
| -11.54% |
| -8.78% |
| -2.76% |
The buy-and-hold portfolio for this strategy finished August with a loss of 1.82%. It underperformed the average dividend king universe return and slightly beat the August watchlist. As a result, the alpha generated by this strategy decreased from 1.78% to 1.13% since July 2021. This portfolio performed very well in 2021 but is slightly underperforming this year, August did not help in this matter.
Even though the 4 largest holdings that made up 43% of the entire portfolio at the end of July all performed well in August, it wasn't enough to generate alpha over the dividend king universe. The 4 largest holdings at the end of July, their allocation and August returns were:
- Sysco ( SYY ) 13.30%. -3.16%
- ABM Industries ( ABM ) 10.37%. +6.68%
- H.B. Fuller ( FUL ) 10.08%. +1.03%
- Lowe's ( LOW ) 9.43%. +1.36%
Here is the current allocation of the buy-and-hold portfolio as of August 31, 2022. I've also included the July 31, 2022, allocation to show you how it has shifted as a result of contributions and market activity.
| TICKER |
| July |
| August |
| ABM |
| 10.37% |
| 11.17% |
| ABT |
| 2.46% |
| 2.19% |
| BDX |
| 2.03% |
| 1.98% |
| CINF |
| 0.00% |
| 0.67% |
| CWT |
| 3.98% |
| 3.68% |
| FUL |
| 10.08% |
| 10.30% |
| HRL |
| 5.72% |
| 5.50% |
| LOW |
| 9.43% |
| 9.71% |
| MMM |
| 2.78% |
| 2.30% |
| MO |
| 1.78% |
| 2.43% |
| MSA |
| 2.53% |
| 2.84% |
| NDSN |
| 7.45% |
| 6.94% |
| NWN |
| 3.66% |
| 3.06% |
| PH |
| 4.52% |
| 3.93% |
| PPG |
| 6.03% |
| 6.28% |
| SJW |
| 1.04% |
| 0.97% |
| SWK |
| 6.50% |
| 6.17% |
| SYY |
| 13.30% |
| 12.82% |
| TGT |
| 1.55% |
| 2.11% |
| TNC |
| 2.60% |
| 2.83% |
| TR |
| 2.19% |
| 2.11% |
A buy-and-hold approach is a much easier and more tax-friendly investing approach to adopt. Unless a portfolio is held in a tax-free or tax-deferred account, the impact of taxes as a result of moving in and out of positions each month would significantly impact total returns.
Performance For All Dividend Kings In 2022
All 45 dividend kings are down 7.94% year-to-date through month-end August. 23 dividend kings are outpacing the dividend king universe of stocks this year and are driving the return. The remaining 22 dividend kings are all trailing the dividend king universe return.
Best 5 Dividend Kings in 2022:
- ABM Industries ( ABM ) +14.98%
- National Fuel Gas Company ( NFG ) +13.00%
- Genuine Parts Company ( GPC ) +12.82%
- Black Hills Corp. ( BKH ) +9.58%
- Computer Services ( CSVI ) +8.32%
Worst 5 Dividend Kings in 2022:
- Stanley Black & Decker ( SWK ) -52.74%
- Dover Corp. ( DOV ) -30.44%
- Target ( TGT ) -29.72%
- 3M Company ( MMM ) -27.86%
- Abbott Labs ( ABT ) -26.19%
Best 5 Dividend Kings in August:
- Computer Services ( CSVI ) +48.76%
- Lancaster Company ( LANC ) +27.32%
- ABM Industries ( ABM ) +6.68%
- Becton Dickinson and Company ( BDX ) +3.32%
- Altria Group ( MO ) +2.87%
ABM Industries and Altria Group, the 3rd and 5th best dividend kings in August, were included in the top 11 list for August. Additionally, Becton Dickinson is part of the buy-and-hold portfolio.
The return shown for CSVI for August is a self-computed return since I am having a very difficult time finding a source to obtain a monthly return for this stock. Please let me know if you believe it is incorrect or if you have a reliable source that shows a total return per month I can use going forward.
Summary
I believe that targeting the 11 best dividend kings with the highest forecasted growth rate based on EPS growth forecasts and reversion to fair value will offer excess returns over the dividend king universe of stocks. It may take time to fully see the results; an ideal evaluation period will be 5 years. For some investors, that is a long period of time and I encourage all of you to do further due diligence on any of the companies I mentioned prior to investing. So far, this simple strategy is working out well, but 14 months of data is a relatively short period of time. I look forward to seeing what this method has to offer in the future.
For further details see:
My 11 Best Dividend Kings For September 2022