In compiling the Dividend Champions list, I get to see which companies are nearing the anniversaries of their previous dividend increases. Most of these firms raise their payout about the same time every year, but some companies go longer before boosting their dividends, and this can raise concerns about their streaks of increases. Other streaks end because of unsustainable yields (or payout ratios) or because the companies are acquired by other firms. Note that all references to “CCC” below refer to the collection of Dividend Champions (25 or more years of higher dividends), Contenders (10-24 years), and Challengers (5-9 years).

Dividend Streaks in Danger: Overview

In previous years, I published quarterly articles mainly focused on “overdue” dividend increases, defined as being a year or more since the previous increase. That generally means declaring the same per-share amount for a fifth straight quarter. Once the overdue situation reached the point of a company paying the same total dividends in back-to-back years, it was considered a “freeze,” requiring deletion from the CCC listing. But deletion is also required when a company cuts or eliminates its dividend or when the company itself is taken over.

2016: Record Deletions

Last year was a little different, starting with my article in January that focused on the turmoil in the oil patch and the very real possibility that it would lead to numerous cuts in distributions. As you can see from the following table, there were a record 105 CCC deletions in 2016, up from 67 a year earlier. That means over 39% of the all-time deletions took place in just the past two years, but I don’t think the “trend” is as worrisome as it first appears, and to understand why, please keep the word “anomaly” in mind as you read the following breakdown.

Deletions by Year

No.

% of Total

Cut

Freeze

M&A

Other

2008

15

3.4

9

2

3

1

2009

44

10.0

28

13

3

0

2010

62

14.2

1

57

4

0

2011

28

6.4

8

13

6

1

2012

37

8.4

14

13

5

5

2013

36

8.2

6

13

12

5

2014

30

6.8

7

12

8

3

2015

67

15.3

18

12

18

19

2016

105

24.0

28

49

23

5

2017

14

3.2

3

0

11

0

No. of Companies

438

100.0

122

184

93

39

(All Charts from U.S. Dividend Champions spreadsheet)

The Good: I sometimes refer to CCC companies being acquired as the “good kind” of deletion, because shareholders usually are paid a premium over the market price prior to the takeover agreement. Obviously, the acquiring firm recognizes the high quality of the company being bought out, which should come as no surprise when you consider the extensive history of rising dividends, which stem from rising earnings. In 2016, a record 23 CCC companies were acquired, up from 18 a year earlier, including such corporations as ADT Corp. (NYSE:ADT), Airgas, AGL Resources (NYSE:GAS), Piedmont Natural Gas (NYSE:PNY), Questar (NYSE:STR), and the “old” Chubb (by ACE, which became the “new” Chubb Limited (NYSE:CB)).

The Bad: The last thing a Dividend Growth investor wants to learn is that one of his or her companies is about to reduce or eliminate its distribution, but that happened to a record-tying 28 CCC companies in 2016. (Note that my year-end summary had the number at 29, but one turned out to be in error, and that company was reinstated in January.) As mentioned earlier, though, the word “anomaly” comes to mind, both in the case of 2009 and 2016. In the case of 2009, of course, the “Great Recession” led to widespread carnage among banks and financial firms, and coincidentally, the Contender and Challenger listings did not yet exist. In 2016, the carnage was also limited to one industry sector, Energy stocks.

Many of you no doubt recall that in December 2015, Kinder Morgan (NYSE:KMI) and a couple of MLPs (Master Limited Partnerships) cut their payouts by more than 70%, leading to concern that other MLPs and oil-related stocks might follow suit. So in the January 2016 article mentioned above, I listed 20 CCC companies with yields above 10% and 25 more that had yields of 7-10%. Most of the 2016 cuts came from those listings, although some (mostly at the low end of those yields) managed to extend their streaks, in part because recovering prices reduced those yields.

The Ugly: Aside from an actual cut or elimination of the dividend, what Dividend Growth investors don’t want to learn is that the payout has been “frozen,” which means the rate remains unchanged beyond the usual increase expected every four quarters, which I sometimes refer to as “overdue” (and change the company’s dividend dates to Red as a warning). A company can remain “overdue” for several quarters, but is deleted when it reaches the point of having the same total in back-to-back years. Generally, this means deleting the listing when the fourth-quarter announcement (by Pay Date) comes out in that second straight year. In a broader sense, of course, an unchanged dividend isn’t a “negative” event – in fact, it’s really a non-event – but some of us Dividend Growth investors may treat it as a negative because, well, we’re spoiled! In any case, the 48 freezes among CCC companies in 2016 represented a near-record, second only to the 57 freezes in 2010. But here again, the word “anomaly” comes to mind in both cases.

You may recall that 2010 was the year that I added the Contenders and Challengers tabs, boosting the number of CCC companies from 159 at the end of 2009 to 417 at the end of 2010 (see chart below). In the process, though, quite a few companies were both added and deleted in the same year, a result of adding companies that had qualified by 2009 (that I “discovered” in 2010) but froze the payout in 2010. Had I waited until year-end 2010 to add the tabs, most (or all) of the 57 deletions would not have taken place! Incidentally, I think those freezes were a residual effect of the “Great Recession,” which had caused numerous cuts the year before. (Note in the earlier table there was only one CCC cut in 2010!)

No. of Co’s

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Champions

133

128

97

98

102

105

105

106

107

108

Contenders

6

22

62

129

146

183

210

246

250

227

Challengers

190

200

170

161

259

396

434

CCC Totals:

139

150

159

417

448

458

476

611

753

769

The reason I refer to 2016’s freezes as an anomaly can be traced back to the enormous expansion in the CCC universe in 2014 and 2015, when 374 companies were added (165 in 2014; 209 in 2015). Note that the numbers above are the Net of Additions and Deletions. Part of that rapid expansion was the inclusion of numerous “borderline” dividend raisers, including some that “backed into” Challenger status by having a fifth year that included no increase, but was more in total than Year 4. (Those companies are added, but immediately show Red numbers in the date columns to indicate overdue increases.) Of the 48 freezes in 2016, 23 ended 5-year streaks and eight ended 6-year streaks, compared with just nine streaks greater than 10 years. That seems to reinforce what I think has become “common knowledge” that the most likely streaks to end (at least through freezes) are the very shortest ones, which come from companies that haven’t (yet) developed strong dividend “cultures.” One good sign: Eight of the companies with 2016 freezes have already resumed increases in 2017.

Other: In addition to these categories, there are two other situations that lead to deletion. One is the currency-related decline in payments to U.S. investors – a situation that arises when a foreign company raises its dividend in its “home” currency, but because of the strong dollar, U.S. shareholders actually receive less in dollars. There were three of those situations in 2016, down from 19 a year earlier. These aren’t actually “cuts” because the companies raised their dividends in their native currency, but I delete them because the listings are based in the U.S., and investors here received less, not more. There should be fewer of these in the future because most of the remaining foreign companies declare their dividends in U.S. dollars.

The second “other” situation involves spin-offs, where the parent company starts paying at a lower rate, but investors continue to receive at least as much in dividends, with the newly spun company paying more of the former amount. The parent gets deleted (because of the lowered rate), but it’s not really a “cut” because of the additional amount received from the spin-off. There were two such deletions in 2016.

2017: Back Away Slowly

I’m optimistic that 2017 will see a reduction in the number of deletions among CCC companies, from last year’s record of 105 to about the 67 in 2015 (or possibly fewer). Beyond that, I think the number of new Challengers, which declined from the “Great Expansion” of 374 companies in 2014-15 to 121 last year (and a similar number in 2017), is a sign of “normalization” and fewer “candidates” for deletion. A more positive business climate might also prompt more companies to continue raising their dividends and establishing a more solid dividend “culture.”

More Good: Already in 2017, 11 of the 14 deletions have been the “good kind,” with such companies as Cardinal Financial (NASDAQ:CFNL), Clarcor (NYSE:CL), G&K Services (NASDAQ:GK), Harman International (NYSE:HAR), Linear Technologies (NASDAQ:LLTC), Spectra Energy (NYSE:SE), and St. Jude Medical (NYSE:STJ) having been acquired. Listed below are 12 more companies that are in the process of being acquired, or, in the case of Dow Chemical (NYSE:DOW) and Praxair (NYSE:PX), being “merged” with another company. (Note that I usually wait until the deal has been completed to delete a company, for the simple reason that deals are sometimes canceled.) No doubt, there will be other deals announced – and in some cases, consummated – during the remainder of 2017. Addendum: As this article was being compiled, C.R. Bard (NYSE:BCR) agreed to be acquired by Becton, Dickinson (NYSE:BDX). Both are Champions with 45-year streaks of higher dividends.

Company

Ticker

No.

3/31

Div.

Name

Symbol

Yrs

Price

Yield

Dow Chemical Co.

DOW

6

63.54

2.90

Janus Capital Group

JNS

6

13.20

3.33

Mead Johnson Nutrition

MJN

8

89.08

1.85

Monsanto Company

MON

16

113.20

1.91

Pacific Continental Corp.

PCBK

6

24.50

1.80

Praxair Inc.

PX

24

118.60

2.66

Reynolds American Inc.

RAI

13

63.02

3.24

Time Warner Inc.

TWX

7

97.71

1.65

Valspar Corp.

VAL

39

110.94

1.33

Westar Energy

WR

13

54.27

2.95

Western Refining Inc.

WNR

5

35.07

4.33

WGL Holdings Inc.

WGL

41

82.53

2.47

Less Bad: As mentioned above, the carnage in the energy industry led to a record-tying 28 cuts in the payouts of MLPs and other oil-related stocks in 2016. This year, no such industry-specific specter threatens to produce dozens of reductions or eliminations, although recent weakness among retailers could trigger a few. As always, the highest yields might prompt some caution for investors, and here is a list of those at 3/31:

Company

Ticker

No.

3/31

Div.

Name

Symbol

Yrs

Price

Yield

Stage Stores Inc.

SSI

7

2.59

23.17

Sunoco LP

SUN

5

24.17

13.66

New Residential

NRZ

5

16.98

11.31

Waddell & Reed

WDR

6

17.00

10.82

Golar LNG Partners

GMLP

6

22.34

10.34

Blueknight Energy

BKEP

5

6.75

8.59

EnLink Midstream

ENLK

6

18.30

8.52

Gladstone Investment

GAIN

6

9.07

8.47

Delek Logistics

DKL

5

33.30

8.17

Arbor Realty Trust

ABR

6

8.38

8.11

Select Income REIT

SIR

5

25.79

7.91

One Liberty Prop.

OLP

7

23.36

7.36

Preferred Apartment

APTS

7

13.21

7.12

Spirit Realty Capital

SRC]

5

10.13

7.11

Lexington Realty Trust

LXP

7

9.98

7.01

Note that there are only five with yields over 10% and just 10 between 7% and 10%, compared with 20 and 25, respectively, at the start of 2016, and some of these could easily be called “normal” high yielders. So, there seems to be very little chance of matching or beating the previous record.

Not So Ugly: The main reason why I deferred this article until April is that I can now list all of the potential 2017 freezes whose last increase came on 3/31/16 or before. Those have not only gone “overdue,” but can pay the same four quarterly amounts in 2017 as they had in 2016, making the freezes “official” and leading to deletion as soon as the fourth-quarter payments are announced (if unchanged). Fortunately, the companies have a few more chances to “save” (and extend) their streaks by announcing increased payouts, and I’m happy to announce that a handful of companies have already done so, removing themselves from the following list. Note that some are also on the High Yield list.

Company

Ticker

No.

3/31

Div.

Pay

Name

Symbol

Yrs

Price

Yield

Date

Myers Industries Inc.

MYE

7

15.85

3.41

4/1/15

Kansas City Southern

KSU

5

85.76

1.54

4/8/15

Schlumberger Ltd.

SLB

6

78.10

2.56

4/10/15

Ralph Lauren Corp.

RL

7

81.62

2.45

4/10/15

DiamondRock Hospitality Co.

DRH

5

11.15

4.48

4/10/15

RLJ Lodging Trust

RLJ

6

23.51

5.61

4/15/15

FMC Corp.

FMC

6

69.59

0.95

4/16/15

Western Digital Corp.

WDC

5

82.53

2.42

4/16/15

Gap Inc.

GPS

12

24.29

3.79

4/29/15

Pier 1 Imports Inc.

PIR

5

7.16

3.91

5/6/15

Golar LNG Partners

GMLP

6

22.34

10.34

5/14/15

Access National Cp

ANCX

6

30.02

2.00

5/22/15

HollyFrontier Corp.

HFC

6

28.34

4.66

6/26/15

Garmin Ltd.

GRMN

7

51.11

3.99

6/30/15

Tredegar Corp.

TG

6

17.55

2.51

7/1/15

Albany International

AIN

6

46.05

1.48

7/8/15

LaSalle Hotel Properties

LHO

7

28.95

6.22

7/15/15

Primoris Services

PRIM

6

23.22

0.95

7/15/15

Agrium Inc.

AGU

5

95.55

3.66

7/16/15

Trinity Industries Inc.

TRN

6

26.55

1.66

7/31/15

Enbridge Energy LP

EEP

10

19.00

12.27

8/14/15

Caterpillar Inc.

CAT

23

92.76

3.32

8/20/15

Marlin Business Services Corp.

MRLN

6

25.75

2.17

8/24/15

Kennametal Inc.

KMT

6

39.23

2.04

8/26/15

Span-America Medical Systems

SPAN

18

21.90

2.92

9/3/15

Pope Resources LP

POPE

6

70.76

3.96

9/3/15

Stage Stores Inc.

SSI

7

2.59

23.17

9/16/15

First Robinson Financial Corp.

OTCPK:FRFC

16

41.50

2.80

9/16/15

OTC Markets Group

OTCQX:OTCM

7

21.50

2.60

9/22/15

Weyerhaeuser Co.

WY

6

33.98

3.65

9/25/15

Commercial Banc.

OTCPK:CMOH

6

54.00

1.85

9/30/15

McKesson Corp.

MCK

9

148.26

0.76

10/1/15

Chesapeake Lodg.

CHSP

7

23.96

6.68

10/15/15

Umpqua Holdings

UMPQ

6

17.74

3.61

10/15/15

Dillard’s Inc.

DDS

6

52.24

0.54

11/2/15

EnLink Midstream LP

ENLK

6

18.30

8.52

11/12/15

Lifetime Brands Inc.

LCUT

6

20.10

0.85

11/13/15

EnLink Midstream LLC

ENLC

6

19.40

5.26

11/13/15

ONEOK Inc.

OKE

14

55.44

4.44

11/13/15

Westamerica Banc.

WABC

25

55.83

2.79

11/13/15

Blueknight Energy LP

BKEP

5

6.75

8.59

11/13/15

Targa Resources

TRGP

6

59.90

6.08

11/16/15

Energy Transfer Equity

ETE

10

19.73

5.78

11/19/15

Seagate Technology

STX]

6

45.93

5.49

11/20/15

Bob Evans Farms

BOBE

11

64.87

2.10

12/14/15

Kingstone Co’s Inc.

KINS

6

15.95

1.57

12/14/15

State Bank Financial

STBZ

5

26.12

2.14

12/22/15

United Bankshares

UBSI

43

42.25

3.12

1/4/16

Acme United Corp.

ACU

13

28.01

1.43

1/28/16

Waddell & Reed Financial

WDR

6

17.00

10.82

3/1/16

L Brands Inc.

LB

6

47.10

5.10

3/4/16

GrandSouth Bancorp

OTCQB:GRRB

5

14.50

2.76

3/11/16

Old National Bancorp

ONB

5

17.35

3.00

3/15/16

Anthem Inc.

ANTM

6

165.38

1.57

3/25/16

Cambridge Bancorp

OTCQB:CATC

18

65.00

2.83

3/30/16

Again, notice the preponderance of 5-, 6-, and even 7-year streaks (which include 2016 as an additional year “by default”), a good indication that these “weak” streaks could end. Some of the longer streaks may be indicative of companies that tend to announce increases only in alternating years, so they are a bit more likely to “rescue” the streak by doing so (again) in 2017. In my last article in this series published in October, I revealed that 18 companies has already frozen their dividends (by October 10), with 37 more possible by year-end. Since the announcements for October 1 pay dates came as early as late August, I plan to submit the next article around that time this year, but I’m a little more optimistic that 1/3rd to 1/2 of the companies above will announce increases, as they had in the previous five years, when freezes totaled just 12-13 each year.

In addition, there are already some “overdue” companies with pay dates of 4/1/16 and later, which can’t be 2017 freezes, simply because they paid at least one lower amount in 2016. So here’s a very early look at potential 2018 freezes, although this list will obviously change a great deal over the next 1-1/2 years.

Company

Ticker

No.

3/31

Div.

Pay

Name

Symbol

Yrs.

Price

Yield

Date

DDR Corp.

DDR

6

12.53

6.07

4/5/16

Flowserve Corp.

FLS

10

48.42

1.57

4/8/16

Camden Property Trust

CPT

6

80.46

3.73

4/18/16

Movado Group Inc.

MOV

6

24.95

2.08

4/26/16

Chatham Lodging Trust

CLDT

7

19.75

6.68

4/29/16

Zimmer Biomet Hdgs

ZBH

5

122.11

0.79

4/29/16

Oxford Industries Inc.

OXM

6

57.26

1.89

4/29/16

Conclusion

Although it may seem from the preceding that there are a large number of dividend growth streaks headed for extinction, I’d like to point out that many “overdue” streaks have been (and will be) rescued by belated dividend increases, and the other reasons for deletion (mainly acquisitions) are definitely not indications of deteriorating businesses. On a broad scale, it’s important to remember that earnings growth begets dividend growth, so screening for earnings strength and sustainability remains a primary concern in choosing to buy or hold Dividend Growth stocks.

For the remainder of the year, I see the number of CCC companies remaining relatively stable, as indicated by the projections below, which are fairly conservative.

CCC Projections:

(Number of Companies)

Month:

May17

Jun17

Jul17

Aug17

Sep17

Oct17

Nov17

Dec17

Beginning

820

824

822

824

824

821

811

806

Additions *

6

0

4

8

9

4

7

14

Deletions **

2

2

2

8

12

14

12

10

Ending

824

822

824

824

821

811

806

810

*Estimates Based on Near-Challengers Ex-Dividend Anniversaries

**Based on Overdue (Near deletion) and Pending Acquisitions

For 2018 and beyond, my early guess is that slow but steady growth (“normalization”) will push the number of companies above 900 before the decade ends. One phenomenon that will occur in 2019 and 2020 is an “echo wave” like the one we saw in 2012 and 2013, whereby a large coterie of corporations will graduate from Challenger to Contender, causing the latter to become the largest of the three Cs. Apple (NASDAQ:AAPL) will have to wait until 2021, though!

Disclosure: I am/we are long AAPL.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.



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