![ncf_power_ranking_b3_576.jpg]()
It’s time for another addition of my CCC rankings by 10-year YOC.
*I wasn’t able to get this out last month but was anxious to see what changes we might have now.
What I Did
I decided to take the CCC spreadsheet and rank the stocks based on their 10-year YOC. If you are unfamiliar with what Yield-On-Cost is (YOC) then refer to my resources tab or see below for an example. If you don’t know about David Fish’s Champion, Challenger and Contender (CCC) spreadsheet then you are doing yourself a disservice, the link is also on my resources tab.
Let’s say you purchased a stock at $10/share in 2013 that paid a 4% dividend or $0.40/share. In order to achieve a 10-year YOC of 10% that stock would need to pay out at least $1.00/share by 2023.
You may wonder why I care about a 10-year YOC instead of just the 1,3,5 and 10-year CAGR’s. The main factor that the CAGR leaves out is the starting dividend yield. The starting dividend in combination with the dividend growth rate will greatly influence your returns.
There’s a variation of this screen used alot by members of the Seeking Alpha community and it’s coined the “Chowder Rule”. This can also be found now on the CCC sheets. The rule basically adds the starting yield with the dividend growth rate (5-year CAGR) and looks for it to be higher than a certain number. While this can be a useful screen, there is still a discrepancy between dividend payers that have different growth rates but still arrive at the same number. For instance, a 3% yielder with 5% growth would get the same grade (an 8) as a 5% yielder with 3% growth. Holding a lower yielding stock with a higher growth rate will at some point provide higher returns assuming the growth rates don’t change. My 10-year YOC would give this 3% and 5% yielder a 4.9 and 6.7 respectively.
Why I Did It
The purpose of this screening process will be to identify companies that have a high expected dividend growth rate combined with a starting yield that would produce greater returns. These companies may be good candidates for further research.
How I Did It
The first step was to sort all stocks by their current dividend yield and eliminate any stocks not paying at least a 2% yield.
Next I sorted all columns by TTM P/E and eliminated every stock with a TTM P/E over 20. I do realize this eliminates a lot of REIT’s, MLP’s, and telecom stocks. I’m ok with this since I’m not really targeting these stocks right now. Then I decided to eliminate any Champions with a 10-Year CAGR < 5%, followed by any Contenders with a 5-Year CAGR < 7 % and finally any Challengers with a 3-year CAGR < 7%. This screen eliminates a lot of slow growing companies like utilities.
This last screen dropped the list of Champions, Contenders and Challengers to 23(-11), 54(+5) and 63(+7) respectively.
Next I took the latest CCC sheet and added some new columns to calculate a 10-year YOC using each stock’s 1,3, 5 and 10-year compound annual growth rate (CAGR). I will call these new metrics 10YOC1, 10YOC3, 10YOC5, and 10YOC10 for simplicity.
After sorting, I looked for any companies that had a 10YOC1, 10YOC3, 10YOC5 or 10YOC10 of 10% or higher. I applied this to the list of Champions, Contenders and Challengers.
Next, I wanted to look to see if the DGR was increasing or decreasing. I highlighted in red the 10-year YOC’s of companies that were both reducing their rate of increases and still under 10%.
This is a previous example of how it looked:
Companies got credit for increasing their dividends at faster rates. For example: The 10YOC5 for AWR in the example above was 4.97 and did not get highlighted in red because its 10YOC5 was higher than its 10YOC10 of 4.09.
Next, I decided to remove any company that had a 10YOC1 in the red for Champions and a 10YOC1 or 10YOC3 in red for Contenders and Challengers.
For the Example Champions list above this removed LEG, MDT, NUE and WMT.
This new round of elimination dropped the list sizes for the Champions, Contenders and Challengers to 5(-3), 24(+6) and 41(+2) respectively.
My Results
Here are the 70(+5) candidates left that may be worthy to do further research on:
If any of the below images are too small, right click and open in a new tab.
Champions![10_14_CCC_Champions]()
Contenders![10_14_CCC_Contenders]()
Challengers![10_14_CCC_Challengers]()
On the Champions list, three companies were eleminated, well four if you count XOM which I includes since they were close. ORI scraped by since they do have a 10-year YOC of over 10 and the rate of increases has stayed the same. I don’t know anything about that company though. I already own CVX on the list. I was looking at HP at one time but ended up with another driller ,ESV. I’m looking at WMT but have a high investment in TGT already so I’m good there.
There were a few new names on the Contender’s list. I also left a few companies on that I highlighted in red since they were close to making it. Those names included DE , GIS and BBL which I already own. There’s several Oil & Gas names that may be worthy of checking out further.
The Challenger’s list is fairly large at 41 names. CMI is a company I’d like to add at some point. A lot of these names will make up the future Contender’s and Champion’s lists.
Keep in mind that this is just a starting point and I feel these companies need further research before making an investment.You can find previous months by following my CCC Rankings label.
*photo courtesy of ESPN
