In this article I rank an elite group of stocks that have increased their dividend payouts for at least 25 consecutive years (called Dividend Aristocrats)…based on David Van Knapp’s quality scoring system and my modifications…
The Dividend Aristocrats have outperformed the S&P 500 handily over the past 10 years:
Source: S&P Global
Before presenting my ranking of Dividend Aristocrats, here is a brief summary of David Van Knapp’s quality scoring system and my modifications:
- The system references 5 quality indicators, assigning 0-5 points to each quality indicator for a maximum score of 25 points, as follows:
- Value Line‘s Safety Rank measures the total risk of a stock relative to approximately 1,700 other stocks covered by Value Line. The safest stocks get a rank of 1 and the riskiest stocks get a rank of 5.
- Value Line also provides a Financial Strength rating, based on factors such as balance sheet strength, corporate performance, market capitalization, and stability of returns. The scale runs from A++ to C in nine steps.
- Morningstar‘s Economic Moat reflects the strength and sustainability of a company’s competitive advantage. Morningstar differentiates between wide, narrow, and no moat companies.
- Standards & Poors (S&P) provides credit ratings to help investors determine investment risks. The ratings are either investment grade (AAA through BBB–) or speculative (BB+ through D).
- Simply Safe Dividend’s Dividend Safety Scores, which range from 0 to 100 and are based on more than a dozen fundamental metrics that influence the ability of companies to continue paying dividends:
Here is the scoring system used, a slightly modified version of the one presented by David Van Knapp:
Modified version of David Van Knapp’s quality scoring system.
My modifications include assigning 3 points to companies that don’t have an S&P Credit Rating but carry no debt. Also, I award points for Dividend Safety Scores matching the colored ranges below (which may have been David’s intent but was not so presented in this article)…
…The top-ranked Dividend Aristocrats are, both earning perfect scores of 25:
…These stocks missed a perfect score on only 1 of the quality indicators:
…These stocks missed on up to 2 quality indicators:
…These stocks fell short on up to 3 quality indicators:
…These stocks missed on up to 4 quality indicators:
…These stocks fell short on up to 5 quality indicators:
…The remaining 18 stocks have quality scores below 20:
I love the simplicity of David Van Knapp’s quality scoring system and I believe it does a remarkable job of identifying high-quality stocks. The quality scoring system is quite stringent and stocks scoring 20-25 points would be considered high-quality stocks by many investors…
Hopefully, this article will give dividend growth investors a good starting point for stock selection and further research…