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Cash Flow Kings With Rising Dividends

These companies have both raised dividend payments and maintained positive free cash flow for the last seven years.

Investors continue to seek out dividend income from common stocks even as the uncertainty about future dividend tax rates weighs on people’s minds. The 15% maximum rate for qualified dividends is set to expire at the end of this year unless Congress and the president act. However, the environment of low interest rates coupled with the relative stability of high-yield stocks during market downturns keep dividend-paying stocks on investor’s shopping lists.

The First Cut seeks out domestic, exchange-listed stocks that have consistently raised their annual dividend payment over the last seven years while maintaining positive free cash flow over each of the last seven years. Financial stocks were excluded because their financial statements are not comparable with firms in other industries.

Cash flow is fundamentally different from earnings. Earnings are determined using principles of accrual accounting, while cash flow measures the direct consumption and generation of cash. The First Cut screens for positive free cash flow, which is calculated by examining cash flow from operations (a measure of a firm’s ability to generate cash from day-to-day operations) and then subtracting capital expenditures and dividend payments. Free cash flow is considered to be excess cash flow that a company can use as it deems most beneficial. Strong free cash flow provides financial flexibility to increase dividends, develop new products or services, enter new markets, pay off debt, or buy shares back.

The 30 stocks with the highest dividend yield (annual dividend payment divided by price) and with a current dividend yield above their average yield of the last three years made the First Cut. The historical growth rates and the consensus earnings growth rate estimate measure past and expected company performance. The 52-week price change highlights recent stock market performance.

Stocks with Consistent Dividend Increases and Positive Free Cash Flow

 
 
 
Company (Ticker) 		Div Yield  
Ind
Div
($/Sh) 		Free
Cash
Flow
($/Sh) 		Annual Growth Rate (%) Share
Price
(10/15)
($) 		52-Wk
Price
Change
(%) 		 
 
Current
(%) 		3 Yr
Avg
(%) 		Historical Est
EPS
3-5 Yr 		 
 
Div 		Free Cash
Flow 		 
EPS 		 
Description
Courier Corp. (CRRC) 5.3 3.9 0.84 0.77 20.5 59.2 -28.5 na 15.82 8 book manufac’g & publishing
Lockheed Martin Corp. (LMT) 4.3 2.2 3.00 5.28 23.2 -12.1 10.3 8.5 70.02 -6 advanced tech sys & prods
Kimberly-Clark Corp. (KMB) 4.0 3.8 2.64 2.40 7.0 36.0 11.6 8.3 66.38 12 personal & healthcare prods
Watsco, Incorporated (WSO) 3.7 3.6 2.08 1.52 25.8 -8.5 -22.0 15.3 56.80 7 air-cond, heat & refrig equip
Johnson & Johnson (JNJ) 3.4 3.0 2.16 3.61 9.7 8.8 5.7 6.3 63.57 4 healthcare prods
Abbott Laboratories (ABT) 3.3 2.8 1.76 3.28 10.7 19.1 48.8 9.7 53.17 2 healthcare prods
Automatic Data Processing (ADP) 3.2 3.1 1.36 1.55 15.3 19.0 9.5 10.6 42.94 5 business outsource solutions
National Semiconductor Corp. (NSM) 3.1 1.7 0.40 1.15 31.7 -5.5 -8.1 7.3 13.04 -11 integrated circuits
Procter & Gamble Company (PG) 3.1 2.7 1.93 4.19 12.0 10.9 7.5 8.8 62.76 10 consumer pkgd goods
Campbell Soup Company (CPB) 3.0 2.9 1.10 1.10 10.5 139.6 6.6 6.5 36.61 13 convenience food prods
PepsiCo, Inc. (PEP) 2.9 2.6 1.92 3.42 15.3 7.5 4.1 8.9 66.68 6 food, snacks & beverages
Analog Devices, Inc. (ADI) 2.8 2.7 0.88 1.80 12.6 -14.4 -15.3 16.0 31.67 12 integrated circuits
Colgate-Palmolive Company (CL) 2.8 2.2 2.12 3.35 11.2 39.4 21.1 9.1 75.89 -4 consumer pkgd goods
Medtronic, Inc. (MDT) 2.7 1.7 0.90 2.52 23.1 15.1 5.0 9.2 33.29 -10 medical therapy devices
General Dynamics Corp. (GD) 2.6 2.1 1.68 4.70 18.2 11.1 13.9 7.8 63.93 -5 aviation & weapon sys
McGraw-Hill Companies, Inc. (MHP) 2.6 2.5 0.94 2.68 7.2 3.2 -1.0 5.6 35.54 20 information servs provider
Pool Corp. (POOL) 2.5 2.3 0.52 1.49 8.2 39.3 -39.3 15.0 20.76 -12 swimming pools; leisure prods
Brady Corp. (BRC) 2.4 2.3 0.72 2.63 7.7 19.4 -8.2 8.0 30.40 7 facility & cable ID; bar-codes
Weyco Group, Inc. (WEYS) 2.4 1.8 0.64 1.45 20.2 128.1 -15.0 na 26.23 17 men’s footwear
Cardinal Health, Inc. (CAH) 2.3 1.8 0.78 4.51 21.5 35.5 -7.2 9.2 33.22 19 healthcare prods & servs
L-3 Communications Holdings (LLL) 2.3 1.4 1.60 9.68 23.1 10.7 21.7 8.8 71.05 -6 aircraft maintain contractor
Strayer Education, Inc. (STRA) 2.3 1.0 3.00 5.78 28.5 35.9 28.2 17.7 131.48 -42 academic programs
United Technologies Corp. (UTX) 2.3 2.2 1.70 3.95 14.7 5.8 3.6 10.4 74.10 15 high-tech aerospace servs
Harris Corp. (HRS) 2.2 1.8 1.00 3.76 26.0 27.7 19.7 5.0 44.47 19 communications & info tech
ITT Corp. (ITT) 2.1 1.4 1.00 3.19 24.5 12.6 9.9 11.7 47.81 -12 defense electronics; fluid tech
Martin Marietta Materials, Inc (MLM) 2.0 1.5 1.60 1.84 16.6 63.3 -28.7 10.8 79.54 -15 construction aggregates
Becton, Dickinson and Co. (BDX) 1.9 1.6 1.48 3.47 15.4 23.6 15.7 9.4 76.13 11 medical supplies & devices
Cintas Corp. (CTAS) 1.8 1.7 0.48 1.59 7.2 24.3 -12.3 10.7 27.36 -7 uniforms & document mgmt
QUALCOMM, Inc. (QCOM) 1.7 1.4 0.76 1.60 16.3 42.9 -12.9 17.0 44.79 6 wireless telecommun prods
Moody’s Corp. (MCO) 1.6 1.2 0.42 1.82 12.2 -4.3 -13.2 11.1 26.50 11 credit ratings & research
Source: AAII’s Stock Investor Pro, Thomson Reuters, and I/B/E/S. Data as of 10/15/2010. 

Stock Investor Pro Screening Criteria Used In November 2010 First Cut

  Field: Operator: Factor: Compare to:
  Exchange Not Equal   Over the counter
And ADR/ADS Stock Is False    
And Country Contains   United States
And Sector Not Equal   Financial
And Industry Not Equal   Real Estate Operations
And Free cash flow/share 12m >   0
And Free cash flow/share Y1 >   0
And Free cash flow/share Y2 >   0
And Free cash flow/share Y3 >   0
And Free cash flow/share Y4 >   0
And Free cash flow/share Y5 >   0
And Free cash flow/share Y6 >   0
And Free cash flow/share Y7 >   0
And Dividend, indicated >=   Dividend Y1
And Dividend 12m >=   Dividend Y1
And Dividend Y1 >   Dividend Y2
And Dividend Y2 >   Dividend Y3
And Dividend Y3 >   Dividend Y4
And Dividend Y4 >   Dividend Y5
And Dividend Y5 >   Dividend Y6
And Dividend Y6 >   Dividend Y7
And Yield >   Yield-Average 3 years

Discussion

Corrie therese from CA posted over 15 years ago:

this is very good article for individual investors like myself.


Corrie therese from CA posted over 15 years ago:

Also this article has no print option.


John from IL posted over 15 years ago:

Corrie, there is a print option for the article. It is along the left hand side of the screen after around two paragraphs into the article. The header is listed as "Print this article" and below you should find a link "Printer & mobile friendly version." that brings up version of the page with only the article.


Jerrold from FL posted over 15 years ago:

The annual dividend growth rates - Does the company raises dividends annually? For how long? By what percentage? For how many years have they done so? Just some really important questions left unanswered.


John from IL posted over 15 years ago:

Jerrold, The criteria used for the First Cut are listed below the table of passing companies. This first cut required an increase in the annual dividend per share payment for each of the last six years. The screen did not require a minimum growth rate. The table of passing companies lists the three-year annual growth rates. The First Cut is limited to one page of the AAII Journal, so it can be difficult to detail the filters behind the First Cut.


N from GA posted over 15 years ago:

Having recently retired I am on the hunt for safe Dividends


Nash from GA posted over 15 years ago:

As a recent retire I am converting to dividend stocks. More information like this wuuld be appreciated.


George Blue from TX posted over 13 years ago:

I follow the DI portfolio (12 stocks) and would like to present their increasing yield (last 10 years OK) along with FCF and current yield. Can you advise? Thanks.


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