The Rise and Fall of Dividend Champions

How many companies have tried and failed to become a Dividend Champion with 25+ years of annual dividend growth? How many of the former Champions are back in the running for another try at Dividend Championship?

Read on for some stats on the rise and fall of Dividend Champions since 2007.

The excellent US Dividend Champions list has been maintained by David Fish since 2007. The list contains a detailed “Summary” tab showing the evolution of companies in the list from year to year; however it’s not entirely accurate because the earlier lists from 2007 do not contain all of the companies showing as Champions today.

I compiled all of the lists from the Dividend Champion list archives together so I could see the complete evolution of all companies from December 2007 through to December 2015. To compile the list I started with the 2015 list and subtracted one year in each company’s history until 2007, then I added the companies that were eliminated in each year and back-tracked their history as necessary.

You can download the Excel File here.

I’ve shown the first three lines from the report as an example; it contains the symbol / company name and then the dividend growth length (in years) as a number for each year from 2007 to 2015. The 2015 column matches the December 2015 list; earlier years might not match up exactly with earlier lists because I’ve extended the data backwards.

Empty cells indicates either no dividend was paid or that the dividend growth was less than 5 years. You can infer when companies started paying dividends e.g. Agilent started paying a dividend in 2010 and grew it each year until 2015 when it reached a 5-year history and is first shown on the list.

Symbol Name Industry 2007 2008 2009 2010 2011 2012 2013 2014 2015
A Agilent Technologies Inc. Medical Equipment 5
AAN Aaron’s Inc. Retail-Rental 5 6 7 8 9 10 11 12 13
AAT American Assets Trust Inc. REIT-Retail 5

The Fall of Dividend Champions

There are many reasons why dividend champions are removed from the Dividend Champions list. Poor performance is just one; it could be because the company was taken private or merged with another company. It could also be that the company decided to expand or grow the company instead of paying out the dividend. And a pause in an annual increase will remove a company from the list. I’ve not researched the reasons why; I was mostly interested in the rate of decline of existing dividend champions.

Here’s a table showing how the companies in 2007 with 5+ years of dividend growth have fared in the subsequent 8 years until 2015.

# Years 2007 2008 2009 2010 2011 2012 2013 2014 2015
50+ 8 8 8 8 8 8 8 7 7
45 18 18 17 15 15 15 15 14 14
40 34 33 30 27 27 27 27 26 26
35 71 66 57 54 53 51 51 50 50
30 111 102 81 78 75 73 72 71 69
25 142 127 99 94 91 89 87 85 83
20 165 150 120 114 111 108 106 104 102
15 194 179 149 143 138 133 130 128 125
10 252 237 207 201 189 185 182 179 174
5 379 364 334 328 311 298 286 279 266

The data is cumulative; that is there were 379 companies with 5+ years of dividend growth in 2007 and 252 companies with 10+ years. In 2008 there were 364 companies remaining from the original 379. This means that between 2008 and 2007, fifteen companies failed to increase dividends and were removed (379-364 = 15), and that in 2007 there were 127 companies with a 5-9 year history (379 – 252 = 127).

I’ve plotted this table out in the chart below.

The numbers of companies with 5+ years of dividend growth since 2007 and how they fared until 2015.

This chart shows both the effect of the 2007-2008 financial crisis with a large drop in dividend increases in that period. In general, companies with a long history show a much lower failure rate than companies with a shorter history.

Past performance won’t apply going forward, but this kind of information might help determine the allocation of stocks between companies with long and short histories. A stock portfolio containing twenty companies with a 5-year history might expect to lose about 6 companies (28%) in an 8-year period with a corresponding reduction (or freeze) in dividend increases.

Using the numbers above that’s (266-174) / (379-252) = 92/127 = 72% remaining. The table below shows all ranges.

Start Length 2007 2015 Survival %
5-9 127 92 72%
10-14 58 49 84%
15-19 29 23 79%
20-24 23 19 83%
25-29 31 14 45%
30-34 40 19 48%
35-39 37 24 65%
40-44 16 12 75%
45-49 10 7 70%
50+ 8 7 88%

The law of small numbers increasingly distorts the results since a single company dropping out has a much more significant effect when there’s only 8 to start with compared to 127.

Rising from the ashes

The following former Dividend Champions from 2007 are back in the 2015 list with a 5 or 6 year Dividend History. Their former status might mean they’re above average compared to other 5-year growth companies.

Symbol Company Name 2007 2015 Sector
AVY Avery Dennison Corp. 31 5 Business Equipment
BBT BB&T Corp.  36  5 Banking
BUD Anheuser-Busch InBev SA/NV  31  6 Beverages-Alcoholic
FITB Fifth Third Bancorp  33  5 Banking
GE General Electric Co.  31  5 Conglomerate
HSY Hershey Company  32  6 Confectioners
JCI Johnson Controls Inc.  32  6 Auto Parts
KEY KeyCorp  43  5 Banking
LM Legg Mason Inc.  26  5 Financial Services
LNC Lincoln National Corp.  25  6 Insurance
PFE Pfizer Inc.  41  6 Drugs
STT State Street Corp.  26  5 Banking
UDR UDR Inc.  30  5 REIT-Residential
USB U.S. Bancorp  35 5 Banking

Survivorship Bias

The Dividend Champions List is a no-nonsense list; if a company cuts its dividend it’s out; there’s no special treatment for 50-year Champions despite their pedigree. For the most part, this is a good thing since only the strongest companies survive which is a desirable trait for companies in a dividend growth portfolio. But Survivorship bias can creep into comparisons so keep that in mind when comparing numbers.

As a case in point, in the 2015 Dividend Champions list there are 13 Financial companies, 14 Utilities and 5 Health care companies which have a 33+ year dividend growth length. So you might look at those numbers and think that Financial companies and Utilities are both great sectors for dividend champions and Health Care is quite weak.

However if you wind the clock back to 2007 and look at companies back then that had a 25-year Dividend Growth history (which is 33 years now), your conclusion might be quite different.

Industry 2007 (25-Year History) 2015 (33-Year History)  Survival %
Health Care 19 14 73.4%
Utilities 8 5 62.5%
Financial 44 13 29.5%

Less than one-third of the 25-year Dividend Champions from the Financial sector in 2007 managed to continue to increase dividends over the next eight years, compared to nearly three-quarters of the Health-care companies. This time period includes the Financial crisis where Financial companies were heavily impacted, but the high numbers of Financial companies in the 2015 list are simply because there were more financial companies to start with. And another financial crisis is perhaps more likely than a crisis in the Utilities sector in the future.

Even this conclusion has its bias since it only counts companies with 25+ years and not the total number of dividend paying companies.

Summary

I don’t think too much weight should be put on the percentages in this summary; the set of numbers are too small. But it was an interesting exercise to see the kind of failure rates that might be expected over a long investing cycle, especially for investors who have a 40-year investing period ahead of them.

Re-visiting former champions that have recovered from their prior cut or freeze is an interesting topic too. Of course they cut their dividend in the first place but further research might indicate if they deserve a second chance or not.

And in case you’re wondering, the solitary Dividend Champion with 60-years of dividend growth which was removed from the Dividend Champions list in the 2007-2015 period was Diebold Inc (DBD) due to a dividend freeze in 2014. It’s still paying dividends with a 4.3% yield but the Champion’s List has no mercy.

Quote of the day

Choose a job you love, and you will never have to work a day in your life.

0 thoughts on “The Rise and Fall of Dividend Champions”

    1. Yes that’s a good point – it be interesting to see how many companies now pay dividends out of the total number of companies compared to 25 years ago or so and if that ratio changes over time.

      Best wishes,
      -DL

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