Wide Moat Stocks In The US Dividend Champions List

Bodiam (A Very Special) Castle!
antonychammond / Foter.com / CC BY-NC-SA

I like to invest in undervalued dividend growth stocks that have a sustainable competitive advantage. Today I’m going to talk about the second part of this phrase as I’ve already written quite a bit about how I determine target prices and how to identify undervalued dividend growth stocks.

Warren Buffett is famous for investing in companies with a sustainable competitive advantage and even coined the term “wide economic moat”. The phrase refers to the difficulty of invading a castle with a wide moat. The same theory applies to companies. If a company has a wide moat then it is difficult for its competitors to gain market share or take profit from the company the same way it is difficult to invade a castle with a wide moat.

Characteristics of wide moat companies are having an established and well known brand, or having pricing power with a large portion of market demand. These help act as barriers against companies trying to enter the industry and steal market share. Usually by investing in these types of wide moat companies you are investing in the best companies, which have the best ability to make more and more money compared to the competition. The nice thing about these types of companies is that if something happens and they need to up the price of whatever they are selling, they can usually pass the price increase on to their customers instead of from their bottom line.

It can be difficult to identify wide moat companies but some people like to look at return on equity (ROE) or return on invested capital (ROIC) and compare these levels to the competition. These can be useful ratios, but there are other qualitative factors that apply too. Often to be able to identify these wide moat companies you have to have a very good understanding of how the industry works and the key players in it. I don’t have the time to learn every industry, so I rely on Morningstar and the Internet to help me identify these special companies.

My Questrade account gives me access to Morningstar reports and analyses on different companies. In these reports they have a moat rating with three options: no moat, narrow moat or wide moat. Today I thought it would be useful to combine Morningstar’s wide moat stocks and David Fish’s US Dividend Champion List to come up with a list of dividend growth stocks with wide moats. I will point out that Morningstar does change the moat rating for companies so these companies may not always be wide moat stocks. Either way it should be a useful list.

The US Dividend Champions List is a list of companies that are listed on US stock exchanges that have increased their dividend for at least 5 consecutive years. The list is broken down into Champions (25 years or more), Contenders (10-24 years) and Challengers (5-9 years). I’ve included all the companies from each of the three sections that have a wide moat rating from Morningstar to create the following list.

US Dividend Champions Wide Moat List

The results are 68 companies that are listed on a US stock exchange. I’m not recommending all of these companies, but if you are looking for strong dividend growth candidates with a sustainable competitive advantage this would be a good starting point.

When I invest in US companies I usually like to invest in companies that have a dividend streak of around 10 years or more. I like companies that have 10 or more years of consecutive increases because it is a sign from management that part of their dividend policy involves annual increases.

I was happy to see a number of my investments on the list. From the list I currently own Procter & Gamble (PG Trend Analysis), Johnson & Johnson (JNJ Trend Analysis), Sysco (SYY Trend Analysis), PepsiCo (PEP Trend Analysis), Medtronic (MDT Trend Analysis), Enbridge (ENB Trend Analysis), CH Robinson Worldwide (CHRW Trend Analysis), and Intel (INTC Trend Analysis). You can see my full portfolio here.

I peruse the internet and come across a lot of different dividend lists. While dividend lists don’t always give you a lot of specific details about individual companies they can be useful for finding companies that were not on your radar. They help cut down the list of potential investing options to a more manageable list. A good example of how I use dividend lists would be my latest purchase of CH Robinson Worldwide. While putting together this list I noticed that CH Robinson Worldwide was close to Morningstar’s five star stock price, so I did some more research. After completing a dividend stock analysis I bought some shares as it was below my target price. Hopefully you’ll be able to use this list in the same way to identify some good dividend growth candidates.

5 comments to Wide Moat Stocks In The US Dividend Champions List

  • Elspeth

    How do you get the Morningstar reports from your Questrade? Do you have to have one of the super fancy accounts to get them, or do all accounts give access?

    (Fellow Questrade user, learning new things every day)

    • I just have a regular account, so all Questrade users should have access. To get to the Morningstar reports login to your trading platform (IQ) click on the research tab. This should give you a few options, click on Market Intelligence. This will open up a new window. You’ll be on the home page, but you should see some other tabs like research, screener, news, etc. Click on the Research tab. You are now in the Morningstar area. Enter the stock ticker of the company you want information for and hit enter, or click GO. This will load a bunch of information on the company. The reports will be in the Analysis tab. This is where you can see what Morningstar thinks of the company and it also gives you access to their target prices, and their moat rating. I try to find 5 star stocks with wide moat ratings and then do some more research of my own. I mostly use it for the Morningstar reports and analysis, but you also get access to other Morningstar information like the company’s Profile, Valuation, Financials, Insiders, Filings, Key Ratios, Performance and Industry Peers.

      To others out there, if you want to signup for a Questrade account use this link, for a Questrade promotion/bonus when you signup.

  • Saw you on G&M – Like this post about moats. Using historical dividend increases as a main indicator of a company’s resilience to external influences is an easy way to find company’s with wide moats.

    Thanks for sharing,

    • Yeah that is a really good point. If a company has been increasing its dividend through thick and thin for a long time, then it would indicate they have figured out something that the competition hasn’t.

  • Amazing to see this in retrospective. Most of all oil and gas midstream companies lost their wide moat ratings after the oil crash. One must wonder how much can trust morningstar information and ratings.

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