4 Dividend Growth Stocks Worth Adding Here

Summary

  • The two juggernauts in telecom, AT&T and Verizon offer investors a 5%+ dividend yield
  • Public Storage is the leader in self storage units and has phenomenal financial flexibility
  • Realty Income is a perennial investor favorite and “The Monthly Dividend Company”
  • All four companies offer investors attractive dividend growth opportunities at currently depressed levels

With the stock market seemingly hitting new all-time highs every week, the common narrative is there are no good investing opportunities left.  As a dividend growth investor I am always scouring for stocks that represent a good value to the overall market.

I present four dividend growth stocks worth adding here.

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J.M. Smucker Added To The Portfolio

jm smucker logo

Summary

  • I bought shares of J.M. Smucker after liking what I saw with a deeper analysis
  • The stock is trading near it’s 52 week low and at a fair value based on adjusted earnings
  • The dividend will be increased soon, ballpark may be around 8%
  • The dividend has room to grow, a current yield slightly better than the S&P

Introduction

I like to give the TL;DR (too long, didn’t read) version at the top so you can just skim if you want but of course I encourage you too read on!

I have been working on a series of articles pertaining to the big food companies.  I’ve covered Kellogg, General Mills, J.M. Smucker and soon to be Hormel.  All four companies have been trading near their 52 week lows, offer a steady business model and pay dividends.  This is an intriguing combination and had me wanting to dive deeper to see if they were worth investing in.

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Is Disney A Buy After Earnings?

disney logo

Earnings Summary

Disney reported 2nd quarter numbers on May 8th.  The company reported earnings of $1.50, up 15% from the $1.30 earned in 2016.  So is Disney a buy after earnings?

For the first half of the fiscal year, earnings of $3.05 were reported versus the $3.04 earned in the first half of 2016.  This represents virtually no growth seen in earnings.  Excluding certain items, earnings were up 2% for the six months.

disney q2 2017 earnings

CEO Bob Iger commented on the strength of the studio and parks divisions.  He iterated focusing on long term shareholder value.  Even the much maligned media networks segment grew revenue 3% year over year.  That is the largest revenue segment with nearly $6B in revenue for the quarter though operating income dropped 3%.

ESPN has been the cause of the stock woes over the past 18 months.  The decrease in operating income was due to a decrease of revenues at ESPN which was partially offset by increases at the Disney Channels and Freeform.

ESPN saw higher programming costs which was partially offset by affiliate and advertising revenue growth.  I think the ESPN situation is overblown, the company is moving that content to many of the streaming services.  These headwinds will blow over, in the meantime I want to see if the share price pulls back to an unreasonable level.

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General Mills: Is it a Buy Now?

Summary

I investigate whether General Mills is worth a buy at this time.  In the end I conclude it would not be the worst time to buy shares.  The company is trading at historical valuations levels of about 19x earnings.  I’m hesitant to expect market outperformance at this point, sales are currently declining.  Sales would need to shore up before we can expect stellar earnings growth.  In addition, the company has $4B in debt coming due in the next few years that will need to be reissued.  Based on cash flow after dividend payments, full debt repayment seems unlikely.

General Mills logo

Buying now secures about a 3.3% dividend yield, which is much better than what the market is currently providing, just expect some muted dividend growth until sales pick back up.  The best time would have been to buy shares a few years ago when the company had been long term out of favor, trading around a multiple of 15 before picking up the past few years.  2016 saw large scale overvaluation which is visible on any stock chart.  Again, with shares at a 52 week low, they look reasonable but hardly a steal.

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Big Food On Sale, Part 1 Of 4: Kellogg Company

Introduction

Check out my latest article on Seeking Alpha covering Kellogg.  The stock is near a 52 week low and offers slow but steady growth.  I’ll have 3 other parts covering some other big food names near their 52 week lows also.

Summary

I consider it to be a hold and using Custom Stock Alerts I’ll be keeping an eye should the price drop further.  The company has a fair amount of debt and sales are currently declining.  Through cost savings initiatives the company should be able to drive moderate single digit earnings growth.

2 Blue-Chip Dividend Growth Stocks On Sale

Analysis of Target and Verizon

Check out my latest dividend growth article where I cover Target (TGT) and Verizon (VZ).

Brief Summary

Both companies seem attractively priced today for the dividend growth investor.  They have total return opportunities as they are being priced below their historical multiple and at a discount to the S&P as a whole.  Both companies are able to pay their dividends by cash flow.

Following the analysis, I purchased shares of Verizon after the article and had already owned Target but did not add to my position.

 

Added More Shares After CVS Earnings Drove The Stock Down 15%

Q3 Earnings Results

CVS Health (CVS) Q3 results: Revenues: $44,615M (+15.5%); Operating Income: $2,817M (+20.8%); Net Income: $1,542M (+24.7%); EPS: $1.43 (+30.0%); Non-GAAP EPS: $1.64 (+28.1%); Quick Assets: $2,263M (-11.2%); CF Ops: $7,948M (+64.2%).

Q4 Guidance: GAAP EPS: $1.52 – 1.58; Adjusted EPS: $1.64 – 1.70.

2016 Guidance: GAAP EPS: $4.84 – 4.90 from $4.92 – 5.00; Adjusted EPS: $5.77 – 5.83 from $5.81 – 5.89; CF Ops: $9.3B- 9.5B; FCF: $6.8B – 7.0B.

2017 Preliminary Outlook: GAAP EPS: $5.16 – 5.33; Non-GAAP EPS: $5.77 – 5.93.

Shares are down 15% premarket.

Why?

At first glance – all good right?  Revenues up 15.5%, earnings up 30% year over year and the company guided to a good Q4.  Shares down 15% premarket!?!?  So the big story is how management guided down substantially for 2017.  It appears rival Walgreens took some business unexpectedly which is expected to drive overall earnings down.  Still, taking the lower end of guidance, the stock is trading at 15x 2017 GAAP earnings.  It only looks cheaper at either the higher end of guidance or using non-GAAP figures.

Also of note, the company authorized an additional $15B in stock buybacks which at current prices could be one of the better executed buybacks in recent history.  Also the company is due to raise their dividend in December!

Simply Safe Dividends

cvs_ssd

The company ranks extremely highly in the Simply Safe Dividends database.  They’ve had incredible 20% yearly growth for 5 years now and in terms of free cash flow, the payout is quite low.  Additionally with the expected hike coming the overall yield figure should see a nice boost.  Long story short, I used the opportunity presented to buy some more shares.  I’ll collect a very safe and growing dividend while the story line plays out.

Fast Graphs

Here is also a Fast Graph showing the companies now undervaluation compared to historical norms.

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A good recent article about CVS can be found here.

Corning – Strong Quarter Continues A Strong Year

Q3 Earnings

A strong quarter for Corning continues a strong year!  Corning reported their Q3 earnings yesterday (Oct-25-2016).  Some highlights (from seekingalpha, here and here)

Corning (NYSE:GLW): Q3 EPS of $0.42 beats by $0.04.

Revenue of $2.55B (+4.1% Y/Y) beats by $30M.

Results – revenue $2.55B (+4.1% Y/Y, $30M above consensus), EPS $0.42 (+24% Y/Y, +14% Q/Q; $0.04 above consensus)

Segment revenues breakdown – Core Sales for Display Technologies grew 7% Q/Q, 1% Y/Y to $943M, Core Earnings grew 14% Q/Q, 5% Y/Y to $270M. For Optical Communications, Core Earnings were up 14% sequentially and 38% on the year to $98M. Core Earnings for Environmental Technologies declined 5% on the quarter and 8% on the year to $35M. Specialty Materials Core Earnings down 8% Q/Q to $44M, Life Sciences’ unchanged at $21M.

Previously disclosed $2B share repurchase launched during the quarter.

Corning (NYSE:GLW) CEO Wendell P. Weeks: “Corning’s strong third-quarter results reflect the increasing momentum that we expected in the second half of this year. Sales and gross margins increased in every business segment year over year. We also grew the company’s sales, core earnings and core EPS both sequentially and year over year. Our operating results and progress on key growth initiatives continue to reinforce our confidence in Corning’s strategy.”

My Take

 I actually wrote about Corning just over a year ago in one of my first articles on Seeking Alpha. (Article here)

Stock performance has been very lumpy the past few years but I stand by what I saw in the company.  I saw a company with very strong financials, a diverse product base and at that point, a willingness to start return more money to shareholders which they have.  The company had announced another share buyback program and an increased dividend.  Since my original call the stock is up nicely, roughly 26%.

 glw_10252016

Based on where the market has previously assigned a multiple to the company the stock is potentially overvalued.  I want that story line to play out a little bit more after lumpy multiples being assigned over the past twelve years.

 glw_ycharts

Looking at a 10 year Y-Chart, shares outstanding have fallen from 1.7B to just 1B.  Additionally, margins are rich at 25%, free cash flow is generous even having dipped to “only” 933M the past 12 months.  Dividend cover is easy as the total dividends paid has been 653M this past year.

 Finally, at a quick glance using Simple Safe Dividends, I can see how Corning ranks compared to the universe of dividend stocks covered.

glw_ssd

The high safety score of 88 gives me confidence that the company faces no immediate issues paying the dividend as they in aggregate rank higher than 88% of the companies covered.  The growth figure is well above average and comes in the 67th percentile.  Finally, the overall yield ranks right at the mid-way point.

In conclusion Corning has kept doing what it needs to do and stands poised to richly reward shareholders.

Let me know your thoughts in the comments section.

United Technologies – Another Solid Quarter For This Steady Eddy

Earnings Time

Earnings time is always exciting, this is when we get the see how our companies have performed over the past 3 months and get a sense for where they are headed for the next 3 months.  I’m looking at United Technologies today (UTX) today as they reported before the market open today.  If you aren’t familiar with the company they are a diversified industrial in the aerospace, defense and building industries.  Some of their product lines are Otis Elevators, Pratt & Whitney Engines, Carrier HVAC equipment.  Visit their site for more information.

At a glance (from seekingalpha):

United Technologies (NYSE:UTX): Q3 EPS of $1.76 beats by $0.10.

Revenue of $14.35B (+4.1% Y/Y) beats by $80M.

They beat on both the top and bottom lines, nice!

So looking to FAST Graphs, this company has been a steady eddy over the years as well as a market beater over the long run.  This first image shows their historical performance back to the start of 2003.  A few highlights from this, growth was higher during the early periods but the past few years have still seen high single digit earnings growth.  This is good, earnings is what will ultimately drive dividend increases and stock price increases.  Additionally, your personal yield on cost (dividends received divided by your investment) would have grown from a starting 1.8% to 8.3%.  This is compounding at it’s finest!

Dividend Machine

Since we are trying to build our own compounding machine, companies like this have fit the bill.  This is why we shouldn’t be worried even with a slightly higher starting yield today, because the compounding effect has caused the stock price to rise in correlation with the earnings growth and subsequent dividend growth.  By the way, UTX currently has a 23 year dividend growth history, 2 years short of becoming a dividend champion.

utx_returns

utx_10252016

FAST Graphs

We can see visually in this second graph the fact that the company has been a steady grower over time.  Earnings are represented by the orange line.  The blue line represents the average multiple (PE ratio) the market has paid for said earnings.  What we like to see is a steady upward trajectory of the orange line.  The black line is the month end stock price and you can see it meander around the blue line.  Generally speaking, when it’s above the blue line the stock is overpriced, under it is undervalued.  The distance at any given time from the blue line represents the premium or discount the market is paying for the company’s earnings.

The Great Recession is but a small blip in their earnings growth history (time period highlighted in gray).  After having taken a step back in earnings last year, full year 2016 and 2017 look to return to their steady growth ways.  The stock still looks appealing today, trading at about 15x earnings which is very slightly undervalued based on the companies own historical performance.  It’s also trading right at about the market’s as a whole historical multiple.

Cash Flow Statement

Finally I want to just highlight a couple data points from the cash flow statement.  The purple bars represent free cash flow which is the ultimate indicator of a successful company.  This is the actual cash leftover for a company to spend after everything is said and done.  It can be used for dividends, share repurchases, paying down debt or growing the company.  The blue-ish looking bar represents the dividends per share paid out by UTX over the years.  A measure of dividend safety is to verify that the blue bar is lower than the purple and also the sheer percent of cash flow it takes up.  That figure can give us a general guideline of how quick the dividend may grow in the future.

utx_cash_flowIn terms of cash flow, the dividend took up about 23% of in 2000.  At year ending 2015 (which saw an earnings decline), the dividend represented 51%.  So the free cash payout ratio has increased over the years though it is still a very safe dividend.  By comparison, 2014 was a better year in terms of generating cash and the dividend was still under 40%.  We’ll have to see what the year end free cash flow numbers look like.

In conclusion, United Technologies reported another good quarter and they are on pace for a solid 2016.  The company has been a steady performer and has rewarded shareholders greatly over the years, including market beating total returns.  Even at today’s price it looks attractively priced for starting or adding to a position.

Let me know your thoughts in the comments.