Aussie "Dividend Aristocrats" and How to Find Them

The article below may be of interest to some. This is @The Falcon's domain who may like to add his views time permitting. Certainly these aristocrats are what dividend investors keenly seek out. So perhaps a good topic for discussion. I thought it would be useful to have a thread devoted to finding the best of the best dividend stocks available in Australia.

 

Very good thread @austing

Even though not 25years as a publicly listed company I would be happy to add CBA, WBC to my list of high probability of dividend growth stocks over the next 25 years.

Although, having untarnished record of maintaining or increasing dividends over 25years is ideal scenario I would be quite happy to consider companies that once in a while had to reduce dividends but posses strong durable competitive advantage to bounce back in a relatively short timeframe. The reason is during tough times market gives you the best opportunities to buy such companies at heavily discounted price. Think CBA under $30 bucks during GFC.

Another company worth consideration is Blackmores. Since 1997 dividends have either be maintained or increased even during GFC. I think best days of Blackmores lies ahead with Asian market growth story.

Finally, old LICs even though different beast can be classified as Dividend Aristrocrats IMHO.

When looking for Dividend Aristrocrats stocks it is extremely important to look forward as it is to look at it's past history. Just because stock has been growing dividends for a long time is no guarantee it will do the same in future.

Australian market have a very small pool of great companies compared to say US market and because of this most of the time these companies sell at very high price making it difficult to invest and make a satisfactory return on your investment. Being patient is the key.

Cheers,
Oracle.

 

Thanks @oracle,

Probably not the best title but I was using the article as a starting point. Ideally it would be good if this thread could become a repository of not only what might be the best dividend growth stocks (not just aristocrats) available but also HOW to indentify these. Even better perhaps also tips for WHEN to buy. And resources / shortcuts to get there. For example the ETF (ETF) based on Morningstars Moat Index might be helpful as a starting point for indentifing potential stocks with a competitive advantage:

Overview | UBS Australia (select holdings)

There are plenty of other simple rules that have been discussed on the forum in the past that could be helpful. Would be good to have these all in the one place. For example, for what it's worth as a long term investor I'm not keen on resources, AReits, airlines, insurers and strong cyclical stocks. But I admit I don't do much stock picking nowadays preferring listed funds so I'm quite rusty in this area. However there are others here who are very good at this. I hope they can find the time to add to this thread.

And to save everyone having to repeat the following I will put this at the top of the thread:

WHAT FOLLOWS IS NOT TOO BE TAKEN AS ADVICE, GENERAL INFORMATION ONLY

 

From today's AFR:

 

Good thread idea. This is a subject that is near and dear to me. Great stuff. There is a lot of good material about DGI (Div growth investing) but its typically US market focussed - regardless, the fundamentals of this type of investing remain the same in any market. I'll dig some things up and post later. I think the Millner group have been running the Dividend aristocrat filters with IVC,RHC,SOL,CSL,APE all showing up between the holdings of Milton and BKI Investments

 

Now that you mention Milton (MLT) the attached chart shows this LIC comes mighty close to being considered a Dividend Aristocrat.

Damn LICs, you can't get away from them.

 

Milton and BKI are the only 2 LICs I have invested in (one is in family trust and other in SMSF) along with VAS ETF due to their dividend aristocrat history and their current top 25 holdings consisting of dividend aristocrat type companies giving good reason to believe they will continue their tradition of robust dividend growth in future. Milton Corp in particular has such characteristics with SOL and APE among it's top 10 holdings.

Cheers,
Oracle.

 

And from the other Milner LIC BKI a good article on Dividend Aristocrats:

http://bkilimited.com.au/investment/wp-content/uploads/2015/12/15050151.pdf

Disclosure: I own both MLT and BKI.

 

Good find. That is really a bloody good intro piece - sums up what DGI is about nicely. Interesting that they flag dividend cut as the key review/action trigger, as we have discussed separately in the past Looks like the guys are managing the portfolio very much along classic DGI lines. Interesting. I think over time BKI will be good to watch as they still have a lot of legacy stuff but over time this will change.

 

Further to our private discussion on BKI and resource holdings I had forgotten about this report. I'm a little more optimistic having seen the following in the report. Not ideal (no Resources would be better) but given the quality of the majority of the other holdings, their DGI approach and a miniscule MER it comes close to meeting my Industrial dividend growth requirements. And I like their view on AReits. As you say, interesting!

 

Starting to see some of the same stocks mentioned across articles:

Source:
How moats protect your investments

 

What a wonderful company brings tears to my eyes, we had a set rules that when reviewing companies we should standby at that time, but one silly rule stopped us from buying BKL in 09 around the $12.50 to $14.00 mark.
The previous 10 years averages
EPS of 14.81%
ROE of 33.86%
ROC of 29.6%
The Average PE for that 10 year period was 16.08 which gave us a average price of $19.00.
Book average growth was 13.24%

Oh and the rule was that the stock had to return better than 11% grossed on dividend, go figure.

I couldn't agree more

 

I'd imagine a few of us have a BKL story! Mine, early 2015. Trading around 4500cps, 28x. Had dinner with our guys from Shenzhen, they were telling me how they had just been out buying some BKL stuff from Sydney CBD Chemart and it and Swisse and pretty much any Australian vitamins were in huge demand, the shops pretty much cleaned out. One of my rules (sub 20x) knocked it on the head, I was also dubious about the distribution channel that they had in place and regulatory risk (still there). Anyway, I continue to keep an eye on the stock, its a long game and over the years entry points will present.

 

Economic moat and long term dividend growth go hand in hand. For those interested in more about moat theory, Morningstar USA has a few books. I can recommend "Why moats matter" as a good overview of the sources of sustainable competitive advantage, and the Industries where you are likely to find these businesses - many industries due to their nature do not have characteristics that allow economic moats to form.

Dividend growth culture within an organisation is extremely important from a shareholder standpoint. Management that has this culture typically behave in a more shareholder friendly manner than the market at large, being more disciplined in use of capital and taking a longer term view in managing the business, being less inclined to flights of fancy and short term incentive. To some extent this becomes self perpetuating, as these businesses attract shareholders who value this approach, and allow management to take a longer view - it then becomes part of the organisational culture and forms a virtuous circle of sorts. I cant overstate how important management is to long term value. Innovations and products come and go, but the discipline to perform for shareholders must remain. These are the kind of companies that individual shareholders can hold for the long term, with a reasonable level of certainty of a good outcome.

The US market has some wonderful examples of companies where dividend growth is part of their DNA, Johnson and Johnson, Philip Morris and Exxon Mobil come to mind. In Switzerland, Nestle possesses this same culture. At home, there are a good number of companies that fit the bill as well.

 

Where do you want me to start? Not buying CSL at $36 because I would only pay max of $35. Not buying Ramsay Health care at $19 4 years ago because I thought it was too expensive. Same story with REA not buying thinking it's too expensive.

You live and learn. Once you have identified quality business you just need to keep being patient to buy as soon as price seems fair. Remember what Buffet says about quality companies. It is much better to buy excellent companies at fair price than an average company at excellent price. Time is friend of an excellent business.

Cheers,
Oracle.

 

Couldn't agree more. But there's also the often quoted view of Peter Lynch and Buffet which goes something like:

These types of businesses would appear to be much scarcer.

As mentioned this is not my area of competence but I and I'm sure others would be very interested in how relevant the above quote is nowadays and companies that might fit this critetea.

 

Well observed. Extra caution needed when looking at companies that have China as a major market. No moat is enough there especially against state favouritism. China not yet a market economy ruled by law.

 

My main problem was not so much the buying of great companies BUT THAT I BLOODY SOLD THEM for some stupid reason. Hence why nowadays I try to use Thornhill's "take a couple of asprin and lie down till the urge to Sell passes" approach.

 

Mistakes of commission. I too have been guilty of this more than mistakes of omission!

 

Yes, the old Buffet "ham sandwich" line. Monopoly infrastructure and regulated utilities are two businesses that come to mind that can be run by a ham sandwich to good effect. Pretty much anything with wide economic moat (very high barriers to entry) can be run by luncheon meat. Australian banks for example.