PII - The Best Dividend Aristocrat Bargains For September

2023-08-30 07:05:00 ET

Summary

• An overvalued market combined with the traditional worst month for stocks of the year potentially makes for a painful September.
• But dividend aristocrat bargains are all around us, including eight companies that are an average of 35% undervalued compared to the S&P 500's 15% premium and Nasdaq's 25%.
• These dividend aristocrats average a very safe 3% yield, a 40-year dividend growth streak of 40 years, a BBB+ credit rating, and are expected to deliver 14% long-term.
• Those are the same returns they've delivered for three decades. Analysts currently expect about 19% annual returns over the next decade, 25% of those returns due to the deep value discount.
• The last time these dividend aristocrats were this undervalued, they soared 20% per year for the next decade (as analysts expect today) and over 1000% over the next 15 years.

September is usually the worst month for stocks, and I've explained why this is a seasonal effect from America's farming past.

But of course, every month is different, and while no single month will make or break your portfolio, it's always smart to buy smart things to maximize the chances of great returns.

No matter what kind of goals you have, something wonderful is always on sale, and that's what I have devoted my career to helping you find.

Right now, value is losing to growth. That's been the case for a decade. But that's because value became 50% historically overvalued a decade ago relative to growth.

(Source: Portfolio Visualizer Premium)

I can't tell you exactly when value or growth goes into favor, only that the cycle between the two has been going on for decades (since the 1920s).

That's over 100 years of fear vs. FOMO, of manias, bubbles, and all manner of craziness and the rise and fall of common sense.

And that's just Vanguard's value ETF vs. the Nasdaq. For individual companies, things can be even more dramatic.

How To Find The Best Dividend Aristocrat Bargains For September

Here is a very simple screen I did using the Zen Research Terminal, which has a database of 500 of the world's best companies, including:

• All the dividend aristocrats (S&P companies with a 25+ year dividend growth streak)
• All global aristocrats
• All dividend champions (any company with a 25+ year dividend growth streak)
• All dividend kings (any company with a 50+ year streak)
• Ultra SWANs (sleep well at night) - mostly wide moat aristocrats and kings
• 40 of the world's best growth stocks (to help boost income growth to 10% to 20%)

And here are the eight most undervalued non-speculative dividend aristocrats for September.

I've linked to articles about each company for further research.

1. Albemarle (ALB)
2. Polaris (PII)
3. Chubb (CB)
4. National Fuel Gas (NFG)
5. ABM Industries (ABM)
6. Community Trust Bancorp (CTBI)
7. Cullen/Frost (CFR)
8. Federal Realty Investment Trust (FRT)

Fundamentals Summary

• Yield: 3.0% vs 1.4% S&P 500
• Dividend safety: 91% very safe (1.45% severe recession dividend cut risk)
• Dividend growth streak: 40 years (since 1983)
• Credit Rating: BBB+ stable (4.9% 30-year bankruptcy risk)
• Quality: 88% 12/13 Super SWAN dividend aristocrat
• Valuation: 35% historical discount vs. 15% S&P overvaluation (Nasdaq 25% overvalued)
• DK rating: potential very strong buy
• Growth consensus: 11.4%
• LT total return potential consensus: 14.4% vs. 9.9% S&P 500
• 10-year valuation boost: 4.4% annually (35% undervalued):
• 10-year total return consensus: 18.8% CAGR (460%) vs. 8.4% S&P (124%)

The most undervalued non-speculative dividend aristocrats have 4X the total return potential of the S&P 500 over the next 10 years.

Historical Returns Since 1994 (97% Of Returns From Fundamentals)

Historical returns 13% to 15% per year for 29 years. Expected long-term returns? 14%.

And from these kinds of discounted valuations? Buffett-like returns for up to 10 years.

• Remember 19% annually is what analysts expect for the next decade

The Last Time These Aristocrats Were This Undervalued

(Source: Portfolio Visualizer Premium)

The last time these dividend aristocrats were undervalued, they went up 6X in the next decade, a Buffett-like 20% annual return.

And over the next 15 years, they were up almost 11X, a Ben Graham-like 17% annual return.

Maybe you think the Nasdaq or S&P might keep up their bubble despite the end of free money and record-low rates.

Maybe that bubble can continue for a few more years. But can it continue for the next five years? Ten years? 15 years?

• Statistically, these aristocrats have a 90% probability of beating the S&P over the next 10 to 15 years.

2025 Consensus Total Return Potentials

• " If and only if each company grows as analyst consensus expects and returns to historical fair value by 2025 , this is the total returns you would earn."
• Not a price target, not a forecast, not speculation, pure math

Albemarle

Polaris

Chubb

National Fuel Gas

ABM Industries

Community Trust Bancorp

Cullen/Frost

Federal Realty Trust

Bottom Line: Dividend Aristocrat Bargains Are Plentiful

Let me be clear: I'm not calling the bottom in any stock, ever. I'm not a market timer.

Even Ultra SWANs and aristocrats can fall hard and fast in a bear market.

Fundamentals are all that determine safety and quality, and my recommendations.

• over 30+ years, 97% of stock returns are a function of pure fundamentals, not luck
• in the short term, luck is 25X as powerful as fundamentals
• in the long term, fundamentals are 33X as powerful as luck

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

I know the charts on these aristocrats suck. Don't tell me they are bad stocks because their charts are ugly. Their technical are terrible.

That's why they are 35% undervalued. That is why I am pointing them out to you right now.

History doesn't repeat, but it often rhymes." - Mark Twain

The Last Time These Aristocrats Were This Undervalued

(Source: Portfolio Visualizer Premium)

If you want returns like this in the next decade, you must get them from deep-value blue chips or get lucky speculating and guess the next great growth stock.

I don't know about you, but I'd rather get paid double the market's yield from BBB+-rated dividend aristocrats with a 40-year dividend growth streak trading at table-pounding valuations.

The S&P is 15% overvalued, the Nasdaq 25%. Yet here are no less than eight investment-grade non-speculative dividend aristocrats with a 40-year dividend growth streak trading at a 35% discount.

A dangerous market? You bet.

A speculative tech bubble? Sure.

Wonderful aristocrat bargains worth buying right now? It's always and forever a market of stocks, not a stock market, so here are eight amazing names to consider.

ALB, PII, CB, NFG, ABM, CTBI, CFR, and FRT.

For further details see: