Over the past 100+ years investors have lived through numerous corrections and bear markets, (when prices drop by 20% or more). The present market is no exception, and it too will end…soon I hope. According to Investors Intelligence of New Rochelle, NY, “the 3rd year of the Presidential Cycle (this year) has been up in every single instance since the 1930’s.” With interest rates at/or near historic lows set by the Fed, we should see the economy gradually improve. Many companies are flush with cash and in great financial shape as are my selections below. As most savvy investors know, when quality stocks are hitting new lows they are at bargain prices because their P/E’s become lower and their yields rise.
Being a bottom fisher, I always look to the new low list for investment ideas and/or when to add to my holdings. Last Monday 837 stocks hit new lows and on Tuesday, October 4th there were another 1,203 new lows. Of these 2,040 issues, I have selected 5 of Dave Fish’s Dividend Champions that have been growing their dividends by 9% or better over the last 5 years. And they are:
3M (MMM): (I wrote about 3M this past August, here) This is an international diversified technology company with strong positions in the consumer, office, graphics, electronics, telecom, healthcare, industrial, protection services, and security, safety, and transport spaces. Foreign sales are 67% of its total revenues. It sells more than 58,000 products to customers in over 200 countries worldwide. According to Value Line, 3M has an A++ financial strength rating, with stock price stability at 100 with Earnings Predictability rated at 80. Shares hit a new low of $68.63 on 10-4-11, down from its 52-week high of $98.19 set on July 7, 2011. 3M share prices bounced back by weeks end to close at $73.82.
Earnings too have been growing by some 9%/year over the past 10 years. Third quarter earnings of $1.60/share were a bit better than expected, and it is on track to earn $6.20 for the year, up last years’ $5.75. Plus it is sitting on over $4.5 billion in cash assets, with a total debt load of just $5.6 billion. 3M’s 10 year average dividend payout ratio has been just under 40% of net earnings. It currently yields 3%. So if both trends continue, and I don’t see it abating, 3M could be earning $10/share and be paying an annual dividend of $4/share by 2015.
Becton, Dickinson (BDX): BDX is a major worldwide medical company that develops, manufactures, and sells a wide range of medical devices, instruments, and testing equipment. BDX has posted double-digit earnings growth every year since at least 1994 with the exception of 2010. In 2009 it earned $4.95/share, but in 2010 that dropped slightly to $4.94. The slower earnings growth was due to the disposal of some of its slower growing units. Those units would have accounted for 20¢/share in earnings in 2010. Look for 2011 to again show a 10% earnings increase into the $5.55/share area. Dividend increases have come annually since 1972, and BDX gets very high marks for financial strength and safety. During the second quarter, BDX completed $221 million of its $1.5 billion share repurchase plan. Guidance for the program in 2011 is $1.5 billion with $1.1 billion repurchased in the first half of the year.
The stock posted a 52-week low of $69.59 on Tuesday 10-4-11, and a 52-week high of $89.75 on July 7th. BDX closed out the past week at $72.86. It has $1.9 billion in cash assets and $2.7 billion in total debt, a trailing P/E of 12, (its average annual P/E is usually in the high teens), and its dividend yields 2.2%. Looking out to 2015, BDX could be earning $8.00/share and paying an annual dividend of $2.40/share.
Dover Corp (DOV): This is a diversified manufacturer of a wide range of industrial products and manufacturing equipment, and has grown mainly through acquisitions. It owns over 40 businesses, which are divided into 4 operating segments: industrial products, engineered systems, fluid management, and electronic technologies. A low of $43.64 was posted on 10-4-11, while its 52-week high was $70.15 on 7-7-11. By the end of the week market prices had recovered to $50.04.
Looking at earnings, DOV reported $3.67/share in 2008, and because of the recession in 2009 it earned just $2.00. In 2010, it bounced back to $3.48/share. The consensus estimates for 2011 are calling for $4.50/share, and for 2012 $5.00. As of June 30th it had cash assets of $1.4 billion, with total debt of $2.23 billion, and cash flow of over $966 million. DOV recently increased its quarterly dividend to $0.315/share, from $0.275, an increase of 14%. This is the 56th consecutive annual increase, (since 1956). The yield is 2.5%, and the P/E is just 11.
Emerson Electric (EMR): EMR manufactures a very broad range of electrical products and equipment. It spent about 2.3% of 2010's revenues of $21 billion on research and development, while net profit margins have been averaging around 8.5% since 2000. Overseas sales account for some 57% of revenues. The 52-week low of $39.50 was touched on 10-4-11, while its high of $62.24 was hit on 2-18-11. EMR closed out the week at $44.01.
Dividends have been raised for 54 consecutive years, currently paying $1.38/share and yielding 3.1%. The 10-year average payout ratio has been close to 50%. Earnings should grow to about $3.30/share in 2011 and as much as $3.90 in 2012. The 10-year average annual P/E is usually in the high teens, today it is just over 13.
Franklin Resources (BEN): BEN is the holding company for the Franklin-Templeton Group of mutual funds. It had over $734 billion in assets under management as of June 2011. The company also provides investment management, and stock transfer services, insurance products; closed-end funds, and trust services. On 10-4-11, BEN hit its 52-week low of $87.71, while on 7-7-11 the high of $137.56 was reached. The closing price at week's end was $94.93.
BEN has a 10-year average net profit margin of close to 35%, which is an excellent indicator of a well run company. Dividend increases have come annually since 1993, and have risen from 24¢/year in 2000 to the present $1.00, while earnings have gone from $2.28/share to $6.36 in 2010. Consensus of the 19 analysts who follow BEN: look for $8.87/share for 2011; I have a feeling that it will be closer to $9. Either way, that translates into a P/E of around 11. Ben has only $1.8 billion in total debt, with cash assets in excess of $6.7 billion. The current yield is 1.1%.
I personally believe that all of the above companies currently present an inviting entry point and/or an opportunity to increase one's position in them.
Disclosure: I am long EMR and BDX and will be adding to my positions. I do not hold any of the others nor do I intend to purchase any within the next 72 hours.