3 Dividend Aristocrats Near 52-Week Lows

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Includes: DCI, HCP, PG
by: Shelby Cardozo
Summary

Dividend aristocrats are companies that have been growing their dividends for 25 years or more.

Long term dividend growth with this kind of history typically sells at a premium.

Here are 3 aristocrats near their 52-week lows worth a closer look.

Bottom fishing can sometimes be a big mistake for novice investors. In the past, I found it easy to convince myself that buying a stock at the 52-week low is not a risky proposition because of that stock's low price relative to past earnings, dividend yield, or some other metric of value. But in reality, buying a downtrending stock is always risky, as you are betting against the market itself.

In order to profit from such a strategy, you need to be right about two things. First, you need to be sure that the stock's downward trend will end. Secondly, you need to be right about the timing of when the stock's slide will end. Alternatively, you may be investing in a company due to one time events which are negatively impacting earnings on a short term basis and which do not change your long term investing thesis.

There are some things you can do if you decide to wade into the shallows of the 52-week low list. Picking a dividend grower, specifically a dividend aristocrat may provide some comfort to someone willing to take on more risk. Dividend aristocrats are companies that have been growing their dividends for 25 years or more. With that said, here are companies that may be worth an additional look if your stomach is strong and your horizon is long enough.

Proctor & Gamble (NYSE:PG)

The Procter & Gamble company is extremely well known, having paid a growing dividend for more than 59 years. PG operates in five segments: Beauty, which offers a range of products ranging from deodorants to cosmetics to skin care; Grooming, which includes blades, razors and electronic hair removal devices; Health Care, which includes oral care and personal health care products; Fabric and Home Care, which consists of a range of fabric care products, home care products and batteries.

5-Year Avg. Current Minimum Average Maximum
Price 78.17 58.51 72.39 93.46
Dividend 3.39 2.71 3.06 3.61
P/E 25.51 14.37 19.53 28.50

The current low share price definitely suggests low expectations for future growth. Currently the stock is trading at the lower end of its 52-week range of $77.29-93.89. Despite the above average dividend yield, the current price is premium to the P/E ratio average. Weak results in two key segments, a strong dollar and pressure from white label store brands have pushed the stock down.

During the past 3 years, the average dividend growth rate was 7.50% per year. During the past 5 years, the average dividend growth rate was 8.30% per year. The 10-year rate was closer to 10.5%.

Considering the previous growth rate and dividend history, this puts the stock on track for a $0.70 per quarter dividend in 2016. This would be a 3.6% dividend yield if you purchased the stock today, the high end of the 5-year average.

Price objectives from analysts are varied. Merrill Edge has a price objective of $91.00, Capital IQ $78.39 and Morning Star $90.00. Though it's worth mentioning that the current fair value price from Capital IQ is $69.50.

Bob Ciura recently posted an article which highlights in greater detail these specific issues. PG is a quality name, with quality history, but is currently facing headwinds as their premium products compete in a global economy in which arguably has required a variety of monetary loosening policies. Efforts to generate better returns are underway, but PG is a very large company to try and trim or steer and it will take time.

HCP Inc. (NYSE:HCP)

HCP Inc . invests in real estate serving the healthcare industry in the United States. The company is a self-administered real estate investment trust (REIT). The company's portfolio is comprised of investments in the five healthcare segments: senior housing, post-acute skilled nursing facilities, medical office buildings and hospitals. The company makes investments in healthcare segments using five investment products: properties under lease, debt investments, developments and redevelopments, investment management and investments in senior housing operations. Senior housing facilities include assisted living facilities, independent living facilities and continuing care retirement communities.

5-Year Avg. Current Minimum Average Maximum
Price 38.29 28.77 40.80 55.28
Dividend 5.90 3.71 4.97 6.62

Price objectives from analysts are varied. Merrill Edge has a price objective of $41.00, Capital IQ $43.00 and Morning Star $51.00.The current price is 23% drop from its 52-week high and reflective of issues related increased regulatory scruitiny in the sector, increased performance based lease arrangements, fears surrounding an interest rate hike, lower than normal dividend growth and recent rent forgiveness issues with their largest tenet. The company while certainly pretty on the outside has given the market plenty of reasons for which to trade close to its 52-week lows.

Donaldson Company, Inc (DCI)

Donaldson Company is a somewhat less well known company compared to the previous two. DCI is a provider and manufacturer of filtration systems and replacement parts. The company sells to customers in the industrial and engine markets. They provide products focused on dust collection, power generation, specialty filtration, compressed air purification, off-road equipment, industrial compressors, and parts for heavy trucks and light vehicles. The company has two reporting segments: Engine Products and Industrial Products. DCI has also been a dividend grower for 29 years.

5-Year Avg. Current Minimum Average Maximum
Price 35.78 20.52 34.54 43.58
Dividend % 1.89 0.79 1.13 1.88
P/E 20.77 15.98 22.01 26.75

Obviously with a lower dividend percentage people may be wondering why this stock might merit being watched. DCI's dividend growth has been nothing short of stellar. During the past 3 years, the average dividend growth rate was 29.00% per year. During the past 5 years, the average dividend growth rate was 20.30% per year.

Unfortunately, that kind of growth might not be sustainable forever. Even with good free cash flow, the recent stock price decline was prompted by decreased year-over-year sales. DCI recently delivered underwhelming revenue numbers with the largest weakness in Industrial segment's organic growth. Their industrial product segment was dragged down 6% year-over-year by delays in Gas Turbines and overall weak industrial capex trends. Their engine segment organic growth numbers also turned negative. Down 1% year-over-year, as weak OEM demand came in lower than expected. The company outlook implies no bottom in sight, as the underlying demand isn't showing sights of picking back up this year.

The price objective from Merrill Lynch is $36.00, but the Capital IQ fair value is $31.60. One put the stock price at objective, the other puts it over fair value. In either care there doesn't seem to be the kind of discount in place that I like to see with my initial purchases.

Seeking Alpha author The Value Investor recently covered the stock and the issues DCI is facing pretty well.

Bottom-Fishing

In order to profit with these companies once need only buy close to the bottom or have a long enough horizon in which you see the stock prices returning to former glory. Myself, I'm watching PG and HCP for additional weakness. DCI will have to come down quite a bit more before I take an initial position in the stock.

Disclosure: The author is long PG, HCP. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: If you folks like quick picks like this let me know in the comments. If you hate quick pick lists like this, shove off. I'm kidding though, let me know in the comments. Have a great weekend!