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McDonald's: Price Breaks $100 Again, Now What?
- Management plans to improve European performance and continue to explore strong growth in emerging markets.
- Valuations relative to those of peers and overall market are inexpensive.
- Current price implies 4.5%-5% annual dividend growth rate while MCD has capacity to sustain up to 9% annual growth.
- Floor price is ~$95 given a likely dividend yield ceiling at ~3.6%.
Johnson & Johnson: Buy Now Or Wait For A Better Entry?
- Fundamentals are healthy with improved outlook for the MD&D segment.
- Valuations remain reasonable relative to those of peers and overall market.
- Current valuation implies 6.0%-6.5% dividend growth rate and JNJ will have sufficient capacity to sustain dividend growth at above 6.0%.
- With a pessimistic dividend yield assumption, downside risk is only ~12%.
Pfizer Is A Buy Below $30
- Pfizer's robust free cash flow can comfortably support 8%-plus annual dividend growth.
- The current valuation trades at a solid discount to peers and overall market despite the higher dividend yield and healthy dividend prospects.
- Price floor should be at $26.
- Given the current state, maximum downside would be 9% from the current level after factoring in the dividend income.
General Electric: Price Floor Is At Around $24
- GE can comfortably support an annual dividend growth at 10%+.
- Current valuation implies only 8% dividend growth rate.
- Technical ceiling for dividend yield should be in the range of 3.8%-4.0%.
- The share price is poised for solid upside, driven by organic and acquisitive growth, while price downside is very limited, making GE a buy.
IBM: Don't Ignore The Cheap Valuation
- Due to market's concern on IBM's transition, valuation has tanked.
- Current valuation implies an annual growth for dividend per share at just 7.5%.
- Based on fair assumptions, IBM can sustain a ~15% annual per share dividend growth while still has ~$10B per annum for share buyback over the next few years.
National Oilwell Varco Is Poised For Ample Upside Potential
- On a pre-spinoff basis, NOV can support 10% annual dividend growth while still has $1B cash capacity for M&A and/or share buyback over the next few years.
- NOV trades at a slight discount to peers despite its healthy profitability, pristine balance sheet, and higher dividend yield.
- Near-term positive catalysts including separation of the Distribution segment and re-segmentation of NOV's remaining businesses.
Enterprise Products Partners: Distribution Growth Potential Is Underestimated
- EPD enjoys solid fundamentals with sufficient capex backlog to support healthy distribution growth.
- Distribution per unit will likely to rise by 7%-8% over the coming 3 years.
- Given the healthy distribution coverage ratio, funding from debt and equity issuance would be less than $2.3B per annum in the next 3 years.
- Current valuation seems to imply just 5% annual growth for per unit distribution.
Transocean: Should You Chase The Potential 7% Dividend Yield?
- Management continues to see a challenging industry environment.
- Current valuation has priced in about 5% annual dividend growth, based on the proposed annual dividend of $3.00 per share.
- RIG will need a notable number of extra sources on top of free cash flow to fund its proposed dividend commitment, presenting sustainability risk.
Silver Wheaton: Free Cash Flow Could Double In 2 Years
- Q1 results suggest SLW is on-track with its growth plan.
- Even with conservative assumptions, operating cash flow and free cash flow will grow at CAGRs of 17% and 53%, respectively, from 2014 to 2016.
- Management may raise dividend at 15%+ annual rate over the next few years.
- Valuation remains cheap relative to the growth potential, making SLW a buy.
Chesapeake Energy: The Price Is Far From Peak
- Turnaround plan is on track as reflected by strong Q1 performance.
- Free cash flow will experience notable growth in the coming years and funding requirement from asset sale and debt borrowing would be minimal.
- The stock still trades at high discount to peers, making it a buy.
Exxon Mobil: Chevron And ConocoPhillips Are Better Picks
- XOM's recent 9.5% dividend increase is not sustainable.
- Free cash flow will likely to grow at about 6% over the coming 3 years.
- XOM could grow dividend at well above 6%, but that requires notable debt borrowing.
- CVX and COP are better income picks due to their similar/better dividend growth potential and higher yields.
Kinder Morgan: Valuation Matches Fundamentals
- Healthy backlog accumulation will continue to drive distribution growth.
- Current state suggests distribution can grow at almost 5% per annum from 2014 to 2016.
- Current valuation implies ~4.5% distribution growth.
- Return downside is likely below 10%.
ConocoPhillips: The Uptrend Will Not End Here
- Improving cash margins and lower capital spending over time will drive notable free cash flow growth.
- Although asset sale is still required to partially fund dividend commitment over the next few years, the funding need is limited.
- There will be sufficient capacity to support a 6-7% annual dividend growth.
- Current valuation reasonably reflects the dividend prospects.
Linn Energy: Upside From Permian Divestiture Is Underappreciated
- Current valuation implies negative distribution growth ahead.
- Recent M&A activities suggest limited selling risk for the Permian divestiture plan.
- Coverage ratio will be notably improved following the divestiture of Permian assets even with conservative assumptions.
Chevron: 8%-10% Dividend Growth Is Deliverable
- Stabilized capex and completion of major LNG projects should help cash flow growth.
- Strong balance sheet allows for higher leverage to fund capital deployment.
- The company has sufficient resources to support 8%-10% annual dividend growth.
- Current valuation reflects 6%-7% dividend growth.
- The stock also trades favorably to its global peers.
Windstream: Still A Lucrative Buy Even With Dividend At Risk
- WIN will have sufficient capacity to maintain the current dividend level in near term.
- A dividend cut is very likely over a longer term as current payout ratio cannot be sustained by the declining revenue trend.
- Current valuation appropriately reflects the dividend risk.
- Potential dividend cut is likely insignificant, suggesting dividend yield would remain compelling.
Frontier Communications: Valuation Looks Stretched
- FTR has made some progress in offsetting secular declining trend.
- Dividend should be secure in near term.
- Current valuation implies perpetual dividend and free cash flow growth which seems optimistic.
- Dividend yield has dropped below 7.0%, which appears low relative to historical level.
Shell: 7%+ Dividend Growth Is Possible
- Management's updated strategy plan will improve free cash flow profile.
- 7%+ annual dividend growth and cumulative $7.5B share buyback through 2016 is achievable.
- Current share price only reflects 4-5% dividend growth potential.
- Valuation gap to global oil majors should shrink if capital return can be improved.
Coca-Cola: Downside Is Less Than 5%
- Improved volume trend should sustain strong cash generation.
- KO has sufficient capacity to support ~8% dividend growth and $1-$2B share buyback per annum.
- Dividend growth and yield ceiling should limit price downside, and $37 appears to be the bottom price.
- Current valuation is reasonable relative to S&P 500's level and only reflects less than 6% annual dividend growth rate.
Kodiak Oil & Gas: Don't Miss A 20%+ Upside Opportunity
- Healthy production prospects and improved capital efficiency should drive strong cash flow generation.
- Free cash flow should turn positive by 2015/2016.
- Conservative DCF model suggests a 20%+ upside.
- Valuation multiple should expand on higher visibility for deleveraging potential.
BP: Dividend Outlook Is Better Than What Is Being Reflected
- As reorganization is approaching an end, BP will soon see improved cash flow generation.
- BP's discounted valuation is exaggerated given its cash flow profile, sustainable dividend yield, and well-contained exposure to Macondo litigation.
- BP is able to grow dividend by 5% per annum through 2018, while current valuation only implies 3-4%.
Potash Corp.: Improved Potash Prices And Dividend Growth To Drive Upside
- Global potash prices continue to recover and potential Uralkali/Belarus union would further strengthen the prices.
- With conservative assumptions, POT has capacity to drive an 8%-10% annual dividend growth through 2016.
- POT trades at a reasonable valuation relative to its peers, making the stock a buy.
Seadrill: Valuation Doesn't Make Sense If You Believe In The Stock
- There are multiple reasons suggesting that Seadrill can safely navigate through the current industry downturn.
- Trading at a large discount to the market and a modest premium over peers, valuation appears to be attractive on relative basis.
- Current valuation implies about 1% dividend growth rate, which is too pessimistic.
Microsoft: A Technology Dividend Champ With Sustainable 20%-Plus Dividend Growth
- Transition to cloud-based offerings should ensure continued strong cash flow generation and improve financial visibility.
- Even with conservative assumptions, the company has a capacity to support 20% annual dividend growth and $25B share buybacks through fiscal 2016.
- Trading at a large discount to market, the stock is a solid buy as the valuation gap is expected to shrink.
AT&T: Still Solid But Better Opportunities Elsewhere
- Share buyback in 2014 will drop largely due to large dividend commitment and limited borrowing capacity (owing to leverage target).
- The total authorized 425M share repurchase plan will likely take at least 3 years to complete.
- Debt level may increase modestly over the coming years due to large cash distribution commitment and spectrum acquisitions.
- Trading at 20% discount to S&P 500, the shares are inexpensive but better value can be found elsewhere.
Verizon: Valuation Is At Buy Level, Supported By Dividend And Deleveraging
- Given multiple opportunities, Verizon should see healthy wireless growth ahead.
- Conservative assumptions show that Verizon can continue driving 3%+ annual dividend growth and $10-$15B debt reduction through 2016.
- Trading below market and AT&T's valuations, Verizon offers great value at current level.
Altria Is In Buying Zone With High Visibility On Cash Distribution
- Altria has long been a robust cash generator with 20%+ free cash flow margin.
- Solid fundamentals and growth prospects should support 8%+ annual dividend growth and $1B share buyback through 2015.
- Valuation trades favorably relative to the market and peers, making this dividend champ a strong buy.
Johnson & Johnson: Here Is How Healthy Dividend Growth Can Be Sustained
- JNJ is a cash flow champ with free cash flow margin growing by almost 200 bps to 19.4% in 2013.
- Annual dividend growth from 2013 to 2016 is expected to be at least 5-6% even with very conservative financial estimates.
- JNJ's valuation still trades below market and peer average, making the stock a solid dividend buy.
Schlumberger: The 28% Dividend Growth Is Repeatable
- The company's operating cash flow growth would be buttressed by strong business and industry fundamentals.
- A scenario of 20%/10% annual dividend/share buyback growth through 2016 is sustainable even with very conservative growth assumptions.
- Relative valuation remains inexpensive, supporting a strong buy thesis.
SolarCity: Fears Are Overblown And Valuation Is Inexpensive
- The price of SolarCity has plummeted by almost 29% since February, presenting a buying opportunity.
- Concerns over higher operating expense and government policies on net metering and tax incentives are overdone.
- Valuation is inexpensive from a retained value perspective.
First Solar: Upside Momentum To Continue
- FSLR's strong fundamental trend (i.e. efficiency improvement and cost reduction) should ensure healthy organic growth.
- Balance sheet strength provides significant capacity for future M&A which would drive incremental growth that has not been factored in.
- Trading below peer average on EV/EBITDA basis, FSLR's valuation is inexpensive and the stock is a buy.
Goldcorp: Buy The Gold Champ On The Pullback
- Goldcorp has leading fundamentals among senior gold miners in North America.
- There remains a good chance for the potential acquisition of Osisko to be closed.
- Trading at a modest premium over its peers, Goldcorp offers long-term shareholder value.