With August 10’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. It's invested during this market downturn to strengthen its offerings for data centers based on the current shift from an emphasis on 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%
LT Debt/Equity: 47%
Dividend Yield: 3.30%
Dover Corporation (DOV) is a collection of a diverse set of smaller engineering businesses. It makes 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%
LT Debt/Equity: 40%
Dividend Yield: 2.44%
Cincinnati Financial (CINF), a fairly large insurer, is selling at a discount. 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%
LT Debt/Equity: 17%
Dividend Yield: 6.66%
Novartis (NVS): There are more than just financials and industrials on sale today. The global healthcare 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 its large dividend and 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%
LT Debt/Equity: 23%
Dividend Yield: 4.33%
ConocoPhillips (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%
LT Debt/Equity: 33%
Dividend Yield: 4.21%
Disclosure: I own units of EMR.