CB - The 8 Best Dividend Aristocrat Bargains For October

2023-10-07 07:30:00 ET

Summary

• Soaring interest rates have the stock market pulling back, but the 2024 recession could cause stocks to fall another 22% to 28%.
• Dividend aristocrats are the ultimate sleep well at night choice for income investors worried about what's coming next.
• Here are the 8 most undervalued very secure dividend aristocrats, which are 35% historically undervalued.
• They are expected to keep delivering 13% long-term returns, just as they've done for the last three decades.
• In the next two years, they could double, and in the next decade, they offer 400% total return potential. That's 6X better return potential than the S&P through 2025 and 3X better over the next decade—Buffett-like return potential from the ultimate blue-chip bargains hiding in plain sight.

It's been a rough few weeks for investors who forgot that stocks don't always go up.

The 8% decline in the S&P and Nasdaq is likely just a taste of what's coming soon to a portfolio near you.

Stocks have actually gotten more expensive as they've fallen because interest rates have gone up so quickly.

Based on the real yield of almost 2.5%, the S&P 500 (SP500) should be trading at 12.5X earnings, not 18. In a recession, profits will also fall, but so will interest rates (unless we're in a stagflation-hell scenario).

S&P Recessionary Bear Market Bottom Scenarios: 2024 Recession

(Source: DK S&P Valuation Tool, Bloomberg, FactSet.)

Here is the base-case model for where the market is likely to bottom next year if we get a recession beginning at any point next year.

Bond Market Pricing In 92% Probability of Recession Beginning Next Year

If You Hide In Cash, You Will Regret It

I know what you're thinking: "I should be 100% in cash right now! Stocks are going to crash!"

That is 100% the wrong reaction to have.

Market and economic timing don't work; only long-term, diversified, prudent investing works.

Decades of studies in numerous countries make it clear that time in the market, not timing the market, is your best and the only hope of retiring in safety and splendor, or even comfort and dignity.

Dividend Aristocrats: The Ultimate Sleep Well At Night Choice For What's Coming Next

Dividend aristocrats are companies in the S&P with 25+ year dividend growth streaks.

Dividend champions are any company, including those outside the S&P, with 25+ year streaks.

Dividend Kings are any company with a 50+ year streak.

And no less than Ben Graham, father of securities analysis, value investing, and Buffett's mentor, considered a 20+ year dividend growth streak a sing of excellence.

In a crashing market, there is no steadier ship to be on than a dividend aristocrat.

But do you know what is even better than an aristocrat? A high-yield, deep-value aristocrat.

An aristocrat so undervalued that it's likely priced in most, if not all, of the coming recession.

And don't forget that many economists think the recession will not arrive until 2025.

So let me show you how to quickly and easily find the best dividend aristocrat bargains for October, the high-yield Super, and Ultra SWANs you can depend on when the market shits its pants in terror.

Finding The Best Dividend Aristocrat Bargains In 1 Minute

From 504 stocks in the Dividend Kings Master list to four 5+% yielding non-speculative investment grade, non-speculative real estate investment trusts, or REITs.

All in one minute, thanks to the DK Zen Research Terminal. This is how I find all my investment ideas.

So, we have the most undervalued, non-speculative dividend aristocrats with very secure dividends.

The Best Dividend Aristocrat Bargains For October

First, let me address questions I'm sure people will ask in the comments.

• Where is BTI? A 23-year dividend growth streak, not technically an aristocrat; where is ENB? MO? O? MO is 28% undervalued, and ENB and O are 27% undervalued
• they JUST BARELY missed making the top 8
• no listicle is an exhaustive "this is the only thing I recommend article."

Here are the best, very safe dividend aristocrat bargains for October, with articles linking to further research.

1. Albemarle ( ALB )
2. ABM Industries ( ABM )
3. National Fuel Gas ( NFG )
4. Chubb Limited ( CB )
5. Essential Utilities ( WTRG )
6. Community Trust Bancorp ( CTBI )
7. Essex Property Trust ( ESS )
8. Federal Realty Trust ( FRT )

Fundamentals Summary

• yield: 3.2%
• dividend safety: 96% very safe (1.3% dividend cut risk)
• overall quality: 92% medium-risk 12/13 Super SWAN
• credit rating: BBB+ stable (4.90% 30-year bankruptcy risk)
• long-term growth consensus: 10.0%
• long-term total return potential: 13.2%
• discount to fair value: 35% discount (very strong buy) vs. 5% overvaluation on S&P
• 10-year valuation boost: 4.4% annually
• 10-year consensus total return potential: 3.2% yield + 10.0% growth + 4.4% valuation boost = 17.6% vs 10.1% S&P
• 10-year consensus total return potential: 406% vs 161% S&P.

3X the market's return potential and twice the much safer yield. Now that's cooking with gas!

Historical Returns Since 1994

How realistic are 13% long-term returns from these aristocrats? For the last 29 years, they've delivered 13% annual returns.

Very stable and dependable 13% long-term returns, almost twice the annual returns of the S&P.

12% Annual Income Growth For 28 Years = 94.3% Yield On Cost

Now, that's a rich retirement dream chart!

• 45% inflation-adjusted yield on cost
• for every $1,000 invested in 1994 you're now getting $450 per year, adjusted for inflation.

Consensus Total Return Potential Through 2025

• if and only if each company grows as analysts expect
• and returns to historical market-determined fair value
• this is what you will make.

Albemarle

ABM Industries

National Fuel Gas

Chubb

Essential Utilities

Community Trust Bancorp

Essex Realty

Federal Realty

S&P 500

S&P has about 16% upside potential through the end of 2025, or 7% per year.

These 35% undervalued aristocrats? 95% upside potential and 38% annual return potential.

• 6X the S&P's consensus total return potential through 2025
• and 3X for the next ten years
• Buffett-like return potential from aristocrat bargains hiding in plain sight.

Bottom Line: The Best Aristocrat Bargains Can Help Protect Your Retirement Dreams In Scary Markets

The smart investor knows that timing the market is a crap shoot; there is no consistent way to do it.

Nobody can predict interest rates, the future direction of the economy, or the stock market. Dismiss all such forecasts and concentrate on what’s happening to the companies in which you’ve invested.” -Peter Lynch.

If you're not willing to own a stock for 10 years, don't even think about owning it for 10 minutes." - Warren Buffett

(Source: JPMorgan Asset Management, Bank of America, RIA, Princeton, Fidelity, DK S&P Valuation Tool.)

In other words, in the short-term, luck is 20X as powerful as fundamentals.

In the long term, fundamentals are 33X as powerful as luck.

What will these stocks do in the next year? I can tell you a 5% confidence guess.

Or I can tell you that I'm 80% confident, the Templeton/Marks certainty limit that if you buy these eight aristocrat bargains today, in 5+ years, you'll be thrilled with the results.

I don't do price forecasts or price targets, which are 12 months long.

I help smart investors like you find incredible opportunities around us, and I know where to find them.

1. Albemarle
2. ABM Industries
3. National Fuel Gas
4. Chubb Limited
5. Essential Utilities
6. Community Trust Bancorp
7. Essex Property Trust
8. Federal Realty Trust

Do you want some of the most secure dividend stocks on earth? There you go.

How about the potential to earn 400% returns in the next decade? You can't get that from the S&P or Nasdaq, but these 35% undervalued aristocrats can.

How about rock-solid income dependability in any economy? There is a 1.4% risk that these aristocrats cut their dividends.

If you buy great companies at great prices within a diversified and prudently risk-managed portfolio based on your needs, what the stock market does in the next year is irrelevant.

Short-term prices are vanity, cash flow is sanity, and dividends are reality.

Invest the smart way, and long-term success is a 97% guarantee, and that's good enough for me;)

For further details see:

The 8 Best Dividend Aristocrat Bargains For October