The Coca-Cola Company (KO), 3M Co (MMM), The Procter & Gamble Company (PG): Do Dividend Investors Need These Three Dow (.DJI) Stocks?

The Motley Fool recently put out a Special Advisor Report by Dan Caplinger with the title “Three Dow Stocks that Dividend Investors Need.” His picks promise dividend growth as well as a current attractive yield, and he looks to the Dividend Aristocrats for his proof of longevity and future staying power. These companies have a record of paying and raising dividends for at least twenty-five years, which makes them incredibly stable in an unstable economic world.

I’ve been analyzing dividend stocks for a year now, and have examined hundreds of companies and written nearly a hundred articles on the subject, all the while searching for companies for my Perfect Dividend Portfolio, which has not proven as easy as I initially thought it would be.

So naturally, when I see a definitive list like the one from Mr. Caplinger, I’m compelled to examine his recommendations using my own criteria and ratings system. I also use Dividend Growth as one of my key factors. However, I am a little less strict on my timeline, as I look at companies that have at least ten years of consistently raising dividends.

When I conduct my analysis, I review the companies on seven different criteria: yield, number of years paying and raising dividends, five-year Dividend Growth Rate (DGR), five-year projected Earnings Growth Rate (EGR), total return for the past twelve months, P/E ratio, and payout ratio. I feel that this selection covers the past dividend-paying history, the potential future earnings growth, and the valuation of the company.

I constructed a rating system that awards points for each of the aforementioned criteria. A “perfect” score would be 28 points, with 4 points awarded in all seven categories.

I’ve chosen ten companies for my Perfect Dividend Portfolio, and not one of them is on Mr. Caplinger’s list of must-have stocks. You can get access to his full report at the end of the post.

The first company on his list is The Coca-Cola Company (NYSE:KO). The company is currently trading at around $42 and yields 2.7%. It has raised dividends every year for 50 years, its five-year DGR is 8.4%, and it has returned 15.1% over the past twelve months.

Other metrics that I use when calculating a rating for a dividend company include analysts’ five-year annual growth estimate (9%), the company’s PE (22.1), and its dividend-payout ratio (55%).

The Coca-Cola Company (NYSE:KO) scores a 15 on my ratings system, which is too low to make it into my portfolio. I like pretty much everything about the company, except for its yield being below 3%. However, there are companies with better metrics, that score 18 or more on my ratings scale, and they are already in my portfolio.

The second company is 3M Co (NYSE:MMM). Yes, the people who make the sticky notes. The company is currently trading at approximately $105 per share and yields 2.4%. It has raised dividends every year for 54 years, its 5-year DGR is 4.4%, and it has returned 19.9% over the past twelve months.

Analysts’ five-year annual growth estimate is 9.8%, the company’s PE is 16.5, and its dividend-payout ratio is 38%.

3M Co (NYSE:MMM) also scored a 15 on my ratings system. I like to see a DGR closer to 10%, and the yield is too low for my serious consideration