With August 10th’s sustained market drop, after weeks of huge declines, there are some hardy, successful, and highly profitable dividend companies trading at attractive discounts to both recent prices and fundamental value.
It’s impossible to tell what the markets will do in the coming days and weeks, but for those investing with a time frame of several years, and with an eye on dividend yields and dividend growth, there are some appealing bargains on the market right now that have diverse operations and solid balance sheets. Money can buy bigger dividend income streams during markets like this one.
Emerson Electric (EMR)
Emerson’s stock began seriously dropping shortly before this sell-off began, because the straightforward CEO mentioned that he’s seeing growth slow in the second half of 2011. This industrial company remained profitable during the market bottom of 2009, and its EPS is quickly rebounding with healthy forecasts, but the mere mention of a slowdown took huge slices off of the valuation. Emerson Electric is economically sensitive and cyclical, but large and diverse, and has a role to play in data centers, industrial automation, climate technologies, clean energy, and tools and appliances. They have invested during this market downturn to strengthen their offerings for data centers based on the current shift from an emphasis personal computing to more server-based computing. With strong emerging market exposure, and a focus on attractive industries, I view Emerson as having a bright future.
Discount from 52-week high: 33%
P/E: 13.9
P/B: 3.5
LT Debt/Equity: 47%
Dividend Yield: 3.30%
Dover Corporation (DOV)
Dover Corporation is a collection of a diverse set of smaller engineering businesses. They make a variety of industrial products, engineered systems, fluid management solutions, and electronic technologies. The company has a long history of successful acquisitions, and this recent year has been the largest acquisition year yet. The company maintains a pretty low dividend yield with a low payout ratio and reasonable EPS and dividend growth, but this recent sell-off has been pushing the yield up to more moderate levels. In addition, Dover is part of the club of companies that has raised its dividend for over 50 consecutive years. Dover, despite being a manufacturer, has the resources and capabilities to remain profitable even in severe recessions.
Discount from 52-week high: 27%
P/E: 11.5
P/B: 2.3
LT Debt/Equity: 40%
Dividend Yield: 2.44%
Cincinnati Financial Corporation (CINF)
Cincinnati Financial, a fairly large insurer, is selling at a discount today. Dividend growth is very low, but the current dividend yield is impressive. CINF, like Dover, has raised its dividend for more than 50 consecutive years. CINF’s portfolio is modestly aggressive compared to other insurers, since in addition to its steady bond portfolio, it has a smaller but substantial stock portfolio, consisting primarily of dividend payers and master limited partnerships. I consider CINF’s equity/bond portfolio a plus compared to other insurers, which may help its long-term profitability as it deals with a difficult Midwest economy.
Discount from 52-week high: 30%
P/E: 13.3
P/B: 0.85
LT Debt/Equity: 17%
Dividend Yield: 6.66%
Novartis (NVS)
There are more than just financials and industrials on sale today. The global health care company Novartis, based in Switzerland, is a strong and sturdy business that has seen a significant stock price drop. Switzerland’s economy is very strong, which is perhaps part of the reason this stock took such a big hit; a strengthening Swiss Franc compared to the US Dollar and other currencies may continue resulting in short-term unfavorable impacts on profits for NVS. For those looking to benefit from the long-term prospects of Novartis, including their large dividend and their history of raising the dividend each year since the company as it exists today was created in the 1990s, the current valuation seems like a solid buy.
Discount from 52-week high: 16%
P/E: 12.9
P/B: 2.1
LT Debt/Equity: 23%
Dividend Yield: 4.33%
ConocoPhillips (COP)
COP, one of the largest US oil and gas producers, is splitting into upstream and downstream components in an attempt to boost shareholder returns. The dividend yield is solid, dividend growth is respectable, and this action is expected to boost the dividend further, since ConocoPhillips will maintain its dividend while the other created entity may pay a dividend as well. COP made significant poorly timed acquisitions in recent years, but the current focus on returning value to shareholders and remaining appropriately sized and potentially nimble may pay figurative and literal dividends well into the future.
Discount from 52-week high: 23%
P/E: 7.9
P/B: 1.45
LT Debt/Equity: 33%
Dividend Yield: 4.21%
Full Disclosure: I own units of EMR.
You can see my list of individual stock holdings here. I also hold broad index ETFs.
JT
It’s interesting to see the insurance companies get owned in the selloff. A few downgrades, and obviously fixed-income yields are in the toilet, but nothing says “margin of safety” like insurance company balance sheets right now.
defensiven
Novartis is one of my favourites right now. Based on CHF their dividend yield is 5,5% and their PE3 is under 11. This is a company which has grow sales double digits since 2004 (and the most recent quarter). Novartis seems successfull in replacing outgoing patents. On top of that is solid finances (interest coverage over 20) and some exposure to generics and consumer segment.
Pey
Good call, Matt!
I picked up shares of DOV and COP over the past few days. They appear to be super bargains. Also, I added shares of WM, which are trading at 52 week lows.
Onward!
Dividend Mantra
Great list!
The only one I’m not sure about is CINF. I’m really surprised you didn’t list HGIC instead. I know we’re both long HGIC and it’s selling at about a 25% discount to its 52-week high. I think its prospects seem a little better, with a slightly lower yield, but higher growth rate and lower payout ratio.
A tremendous list full of great opportunities. Happy buying. :)
The Dividend Pig
Though not fire sale deals, I would add MMM and ITW…both have been steadily dropping, are great companies, and are hitting yields close to (MMM) or over (ITW) 3%
Matt
JT,
Insurance companies tend to trade close to book value, and a lot of these companies buy their own shares at attractive valuations, resulting in fairly consistent dividend and EPS growth despite low or mediocre company growth. The risk-adjusted return potential is pretty good in my book. The one thing, however, is that since insurance is mostly a commodity business and therefore these companies have little economic moat to speak of, I try to stay invested in more than one insurer at a time, to keep my eggs spread between more than one basket. I currently own HGIC and CB.
Defensiven,
Novartis is at the very top of my watch list. I’m fairly heavy in health care at the current time, but there’s a good chance I’m going to own Novartis one of these days. I almost bought it during these last two weeks, actually. The dividend witholding is problematic, but the fundamentals of the company are great, and I love that it’s based in Switzerland.
Pey,
DOV and COP seem like very strong picks to me. What are your thoughts on COP’s plan to split? Yay or nay? I should re-analyze WM one of these days. Last time I analyzed it, my concern was that it had a premium valuation, which, when taking the balance sheet into account, was a bit pricey for me. But now that it’s at a lower valuation with a higher yield, I think it’s worth looking back into.
Mantra,
I’m favorable to HGIC as well. I thought about including HGIC in this list instead of CINF. The reason I didn’t is that when I make lists like this, I prefer not to list a whole bunch of companies in my portfolio. Of course, I think most of my portfolio stocks are pretty strong and worth listing in my various “quick ideas” lists, but when possible, I substitute non-holdings of mine.
HGIC recently became a dividend champion. They hit the 25-year streak of increases. They took on some serious storm damage this year and had negative earnings, so I considered it possible that they would have to delay the dividend increase for a little bit, or keep it very small, but they held strong and provided a meaningful dividend increase on time. HGIC is significantly smaller than CINF and is a bit more susceptible to systematic failure, which is a difference worth noting. CINF is at a lower valuation as well. And as I mentioned, I love CINF’s portfolio compared to all of its competitors. But CINF has negligible dividend growth and it’s present in slower-growth areas of the country. So, there are trade-offs to consider.
Pig,
Both of those look like strong picks to me. As industrials, both of them seem to have been hit fairly hard in this drop. I may publish an analysis on ITW one of these days.
inq
CVX might be good as well.
Jack
Does anyone know why CINF payout ratio ballooned to over 200% last year?
Matt
Hi Jack,
Which specific time period are you referring to? There are times when CINF reports a loss in a quarter, but over the last several years, the annual dividend payout ratio has been less than 100% every year.
Matt
inq,
CVX is good in my opinion, and is one of my holdings. COP is potentially a bit more of a value, but I like CVX’s stronger balance sheet and their excellent record of building shareholder equity.
Jack
Thanks for the question. I’m referring to Chuck Carnevale’s f.a.s.t. graph for CINF which is showing a 274% increase for 2011 (as opposed to my previous reference to last year). I’ve been watching CINF for a while, but am put off by this.
Dividend Growth Investor
I own shares of CINF and EMR. However I am not sure whether CINF would be able to maintain distributions over the next few years, as it will not be able to “earn” its dividend over the next 2 years. EPS is expected to be 0.80/share next year and 1.50/share in the year after that. The company currently pays $1.60/share in dividends each year.
EMR could be a good addition, and hopefully the company would start raising the dividend at a higher rate.