Dividend Spectrum September Edition

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Includes: ALIZF, AV, AXAHF, BMO, BNS, CIFAF, CM, CMI, DPSTF, EUHMF, EVKIF, HSBC, IVZ, JNJ, LNT, MFC, MGDDF, NTIOF, QCOM, SBGSF, SJR, SSREF, SYT, TD, UL
by: Iron Value

Summary

I want to buy 2-3 more stocks before the end of the year.

I scan the USA, Germany, France, Switzerland and Canada with the Dividend Spectrum.

See my best stock ideas.

Background

My overall portfolio goal is to achieve a yield on cost of 35%-40% over 25 years. This goal is driven by the following observation: if one was to buy a stock with a starting yield of 3%, and it has average DGR of 8% per year for 25 years, then you will end up with a yield on cost of 35%-40%.

Whilst I am a total return investor at heart, the focus on dividends is more suited to the patient mindset that I need to develop for this long journey. Focusing on a gradually growing dividend stream (versus a volatile stock price) is simply healthier for the mind, and probably my portfolio.

I have summarized all the different paths I can take to my 35%-40% YOC goal in what I call a dividend spectrum. I don't have to take the 3% yield and 8% DGR path to get there. There are other avenues that satisfy the end 35%-40% YOC goal, as follows:

Yield

DGR

Chowder

5.5

2.5

8

4.5

4.7

9.2

4

5.5

9.5

3.5

7

10.5

3

8

11

2.5

9.5

12

2

11

13

1.5

13

14.5

1

15.5

16.5

So how do I get the data?

For US stocks, I source the data from David Fish's CCC List.

For foreign stocks, I use the Google Finance stock screener. Please note that I use the 5-year EPS growth rate instead of the 5-year dividend growth rate for foreign stocks.

Here are the criteria I use for the screen:

Filter

High Yield

Market Cap

min $5B USD, $5B CAD, $5B EUR, 5B CHF

Yield

min 3%

Long Term D/E

<=110%

Payout Ratio

<=70%

ROE + (4 X Earnings Yield)

>=30

5Y EPS Growth

>= 5Y Div Growth Requirement

Finally, I have added a new rule to the Dividend Spectrum: Estimated EPS growth from FYE 2014 to FYE 2015 (per Reuters) should be higher than the 5-year dividend growth requirement.

Having suffered a few losses recently, I want to find stocks that have both good short-term and long-term prospects.

The Dividend Spectrum returned the following candidates from the USA:

Company name Symbol Yield 5 YR EPS Gr Payout P/E ROE D/E EPS Growth 2015 Current Price Price Target Uplift Potential
Alliant Energy Corp. LNT 3.88 28.3 64.33 16.57 10.70 1.2 6% 54.89 60.15 9%
Cummins Inc. CMI 3.20 33.1 40.97 12.79 22.20 0.21 5% 119 128.27 7%
Johnson & Johnson JNJ 3.19 5.3 52.82 16.55 22.60 0.27 9% 92 102.25 10%
Invesco Limited IVZ 3.17 24.6 44.81 14.15 12.60 0.19 7% 32.5 36.66 11%
Qualcomm QCOM 3.39 33.0 53.00 15.50 16.40 0.33 25% 55.00 70.37 22%

I think most investors will be familiar with the US stocks returned from the screen. I admire many of the stocks on the list.

I am long JNJ already and may consider doubling up my position. I need more exposure to healthcare and this is the best of the best. At USD$90, it would be hard to resist. Its forecast EPS growth of 9% for 2015 catches the eye.

I have been wanting to get long Cummins and Qualcomm for a long time now. I think the metrics of both these stocks are fantastic. I would probably favor Cummins as the Qualcomm quarter-on-quarter earnings declines were worrying.... the QCOM balance sheet is still a thing of beauty, however.

For a utility, Alliant has a low debt-to-equity, a useful trait should interest hikes occur sometime soon. Its revenues are also pure 100% US, another useful trait for a stock to have in this volatile market.

To be honest, I haven't heard of Invesco. I tend to steer clear of financials unless they have a great reputation, so probably not too interested in exploring this one further.

The Dividend Spectrum returned the following candidates from Germany:

Company name Symbol Yield 5y EPS growth rate Payout P/E ROE D/E EPS Growth 2015 Current Price Price Target Uplift Potential
Allianz SE OTCPK:ALIZF 4.82 6.04 47.18 9.76 11.52 53.82 1.93 141.5 144.448 2%
Deutsche Post AG OTCPK:DPSTF 3.53 56.38 56.67 15.99 19.9 44.62 12.67 24 27.0231 11%
Evonik Industries AG OTCPK:EVKIF 3.18 55.73 46.30 14.41 14.98 20.02 9.26 31.16 34.0076 8%

I have taken company descriptions from Google Finance for readers who may not be familiar with some of these foreign stocks.

Allianz

Allianz SE is a holding company for Allianz Group. The Company is a financial services provider. It offers products and solutions in insurance and asset management. Its product portfolio includes a range of property-casualty and life/health insurance products for both private and corporate customers. It is a property-casualty insurer. It has approximately 1,800 billion euros assets under management. It runs the asset management business out of two investment management businesses, PIMCO and Allianz Global Investors (AllianzGI). Both units operate under Allianz Asset Management (AAM). Its segments include Property-Casualty, Life/Health, Asset Management and Corporate and Other. Its insurance markets are served by local Allianz companies, while selected business lines are run globally, such as Global Corporate Customers, Credit Insurance, Assistance Services, Worldwide Care, Global Automotive and Reinsurance.

Insurance stocks are on sale in Europe in my opinion. Insurance stocks will benefit from a rise in interest rates. The yields of many European insurers are high but subject to cuts in a crisis. Allianz is one of biggest insurers in Europe. I buy my car insurance from Allianz. It is best of breed, but cut its dividend during the financial crisis. On the other hand, it is one of the few insurers expected to grow EPS in 2015.... just barely though. I am long Munich Re in the insurance space. Munich Re is expecting an EPS decline this year but has not cut its dividend for over 40 years - a rare achievement for an insurance stock.

Deutsche Post

Deutsche Post AG is a Germany-based logistics services provider. The Company operates four main business divisions: Mail; Express; Global Forwarding, Freight, and Supply Chain. The Mail business division comprises the transport and delivery of written communications and serves as an end-to-end service provider for the management of written communications. The Express business division offers international and domestic courier and express services to business and private customers. The Global Forwarding, Freight business division comprises the transportation of goods by rail, road, air and sea. The Supply Chain business division is engaged in contract logistics and provides warehousing and transport services, as well as services along the entire supply chain in the different sectors. The Company diversifies its activities into geographical areas, including Germany, rest of Europe, the Americas, Asia Pacific and Other regions.

Deutsche Post is probably best known to readers as courier giant, DHL. Deutsche Post has had an excellent growth run over last 5 years with 50%+ annualized EPS growth. EPS is expected to still grow 13% this year. The stock price has an 11% uplift potential if the EPS target is hit and you like the PE of 16X. This one has not been on my radar but will be taking a closer look. I am long Union Pacific Corp. (NYSE:UNP) in the transport sector.

Evonik

Evonik Industries AG (Evonik) is a Germany-based company engaged in the specialty chemicals sector. It has five business segments: Consumer Health and Nutrition, Resource Efficiency, Specialty Materials, Services and Real Estate. The Consumer Health and Nutrition produces specialty chemicals, principally for applications in consumer goods, animal nutrition and pharmaceutical sectors. The Resource Efficiency segment provides solutions for environment-friendly and energy-efficient products. The Specialty Materials produces polymer materials and their preproducts, and additives. The Services segment mainly provides services for Evonik's chemicals segments and Corporate Center, but also serves third parties. The Real Estate segment comprises Evonik's portfolio of residential real estate and a 50% stake in THS.

Evonik has not been on my radar at all. Its 5-year EPS annualized growth of 50%+ is impressive, but expected to decline this year to 9%. Its interest in residential real estate is strange given that it's really a chemicals business. I will research it more. I am long Germany's BASF (OTCQX:BASFY) - the world's largest chemicals company.

The Dividend Spectrum returned the following candidates from the UK:

Company name Symbol Yield 5y EPS growth rate Payout P/E ROE D/E EPS Growth 2015 Current Price Price Target Uplift Potential
Aviva plc AV 4.03 4.93 52.78 13.05 9.45 61.51 27.78 466.5 600.00 28%
HSBC Holdings plc HSBC 6.55 15.22 76.19 11.93 6.71 66.23 90.48 505.4 954.00 90%
Unilever plc UL 3.4 9 51.61 20.64 33.21 58.74 6.00 2,556.00 3,770.00 6%

Aviva

Aviva plc is a provider of long-term insurance and savings general and health insurance and fund management products and services. The Company operates across four lines of business: The Company's long-term insurance and savings business, which includes a range of life insurance and savings products; general insurance, which focuses on personal and commercial lines, health insurance and fund management, which manages funds on behalf of its long-term insurance and general insurance businesses, external institutions, pension funds and retail clients. The Company's operating segments include: United Kingdom & Ireland; France; Poland; Italy, Spain and Other; Canada; Asia, and Aviva Investors.

Aviva is a large UK insurer. I have been a life insurance customer of this company in the past. I don't like to see such high payout and debt-equity ratios in an insurer. The ROE is enhanced by the leverage in the balance sheet. The business may well grow its EPS, but I am happier to play the insurance space via Munich Re.

HSBC

HSBC Holdings plc is the banking and financial services company. The Company's principal activities include making payments, holding savings, enabling trade, providing finance and managing risks. The Company operates in four businesses: Retail Banking and Wealth Management (RBWM), Commercial Banking (CMB), Global Banking and Markets (GB&M), and Global Private Banking (GPB). RBWM offers personal banking products and wealth management services. CMB offers a range of commercial financial services and solutions to customers ranging from small and medium-sized enterprises to publicly quoted companies. GB&M provides financial solutions to Government, corporate and institutional clients across the world. GPB offers products and services, which include private banking, investment management and private wealth solutions. It operates in Europe, Asia, Middle East and North Africa, North America and Latin America.

HSBC looks impressive but I am mistrustful of the 6.5% yield, high payout and high debt/equity ratios. HSBC also has massive exposure to emerging markets. I find it difficult to invest in banks. I have no positions in banks in my portfolio, but will take a look at HSBC. The expected EPS growth of nearly 90% in 2015 is not something I can ignore.

Unilever

I won't bother with a description of Unilever. I think most people are aware it's a consumer staples business. I am long Unilever and keen to add more to my position. Unilever has big exposure to emerging markets. Whilst growth could take a hit in the short term, the business will no doubt recover in the long term and the "hit" will be gentle compared to the write-downs that the banking, luxury goods and industrial sectors may need to take in emerging markets. Unilever has a big presence in Africa - it is expected that 50% of the global population will live in Africa come the end of the 21st century. Unilever has a great head start in this important future market.

The Dividend Spectrum returned the following candidates from France:

Company name Symbol Yield 5y EPS growth rate Payout P/E ROE D/E EPS Growth 2015 Current Price Price Target Uplift Potential
Axa SA OTCQX:AXAHF 4.22 4.52 48.50 11.38 7.6 12.66 14.80 22.29 25.61 15%
Euler Hermes Group SA OTC:EUHMF 4.84 73.83 64.40 13.1 12.01 9.74 10.40 89.47 98.77 10%
Schneider Electric SE OTCPK:SBGSF 3.46 13.19 63.50 18.36 9.03 28.17 29.14 55.43 71.60 29%
Michelin OTCPK:MGDDF 3 51 42 14 11.5 22 35.37 82.16 111.44 36%

France has some good candidates.

Axa

AXA SA is a holding company engaged in the business of financial protection. The Company operates in five segments: Life & Savings, Property & Casualty, International Insurance, Asset Management and Banking. The Company offers a range of life and savings products, including individual and group savings retirement products, life and health products. Property & Casualty segment includes a range of products, including motor, property and general liability insurance for both personal and commercial customers. International Insurance segment's operations include insurance products that notably relate to AXA Corporate Solutions Assurance. The Asset Management segment includes diversified asset management (including investment fund management) and related services offered by AXA Investment Managers and AllianceBernstein entities. Banking segment includes banking conducted primarily in France, Belgium and Germany.

Another insurance stock. As stated, my play here is Munich Re, but Axa has an expected EPS growth rate of 15% for 2015. This is impressive for an insurance stock. If this comes in, you could also be looking at a nice price uplift of 15%. Axa has a low D/E ratio and a nice yield of 4.2%.

Euler Hermes

Euler Hermes Group SA, formerly Euler Hermes SA is a France-based credit insurance company. It offers a range of services, including loan assurance, risk assessment, trade debt collection, compensation of losses due to buyer insolvency, bonding and guarantees for companies, reinsurance of loans to individuals and fidelity insurance covering companies against financial loss caused by fraudulent acts. It operates a number of subsidiaries, including Euler Hermes SFAC, Euler Hermes ACI Holding Inc., Euler Hermes Reinsurance AG, among others. On January 1, 2012, the Company completed the simplification of its legal structure in Europe by grouping 13 of its former subsidiaries into one insurance company, Euler Hermes Europe, located in Brussels. In addition, it also operates in South Africa.

Euler Hermes seems to be a specialty insurer in the B2B market. Its near 75%(!!!) 5-year annualized growth rate is impressive. Expected to come back down to earth this year to 10%, though. Uplift potential on current price is also 10%. This ship maybe has sailed.

Schneider Electric

Schneider Electric SE is a France-based company that specializes in electricity distribution, automation management and produces installation components for energy management. The Company has five divisions organized by business: Energy and Infrastructure, which includes medium and low voltage, installation systems and control, renewable energies and includes customer segments in Utilities, Marine, residential and oil & gas sector; Industry, which includes automation & control which includes water treatment and mining, minerals & metals industries; Buildings, which includes building automation and security, whose customers are hotels, hospitals, office and retail buildings; Data centres and networks, and Residential which is engaged in solutions for saving electricity bills by combining lighting and heating control features. On June 19, 2014, it sold its Appliance division to Invesys.

I am quite interested in Schneider Electric as a play into industrials. I am long Emerson (NYSE:EMR), but was taken aback by the bleak outlook that management gave in their recent guidance. The currency headwinds of Emerson are a tailwind for Schneider. I will consider selling my position in Emerson for Schneider. The potential for a price uplift of nearly 30% is appealing (although based off a PE of 18X ... quite high for this sector).

Michelin

Compagnie Generale des Etablissements Michelin SCA (Michelin SCA) is a France-based company, which is mainly engaged in the manufacture and distribution of tires for a variety of vehicles. In addition, it publishes maps and guides, and offers digital products and services. The Company's main activity is the production of tires for passenger cars, two-wheeled vehicles, trucks, agricultural equipment and aircraft, among others, which are sold through such distribution divisions as Euromaster in Europe and TCI in the United States. Michelin SCA also offers travel assistance services, including maps and guides, and digital navigation products and services, via ViaMichelin. In addition, the Company produces a number of lifestyle products, such as car and bike accessories, work, sport and leisure gear, and collectibles. The Company is active domestically and abroad. In September 2014, the Company acquired all outstanding shares of Sascar.

Michelin is one of my favorite ideas from this month's Dividend Spectrum screen. The company has just crossed into 3% yield territory. Its metrics are impressive - a very low debt/equity ratio and a low payout ratio of just over 40%. Its macro factors are impressive too. It has the benefit of a low euro, low oil prices (a key input to rubber) and is starting to build more factories in emerging markets. I will definitely be taking a closer look at Michelin. The price uplift potential is 35% off a reasonable PE multiple of 14X.

The Dividend Spectrum returned the following candidates from Switzerland:

Company name Symbol Yield 5y EPS growth rate Payout P/E ROE D/E EPS Growth 2015 Current Price Price Target Uplift Potential
Swiss Re AG OTCPK:SSREF 8.62 45.27 43.00 9.73 11.15 34.61 4.21 84.25 87.81 4%
Syngenta AG SYT 3.29 3.22 70.00 15.3 15.68 40 20.65 337.8 407.60 21%

The Swiss punch way above their weight when it comes to global mega caps.

Swiss Re

Swiss Re (Swiss Reinsurance Company Ltd), is a diversified global re/insurer. The Company is a wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. The three distinct Business Units of the Swiss Re Group are: Reinsurance, Corporate Solutions and Admin Re. Reinsurance is Swiss Re's largest business in terms of income, providing about 85% of gross premiums and fee income through two segments, Property & Casualty and Life & Health. Corporate Solutions serves mid-sized and large corporations, with product offerings ranging from traditional property and casualty insurance to highly customized solutions. Admin Re provides risk and capital management solutions by which Swiss Re acquires closed books of in-force life and health insurance business.

Yet another insurance stock. Swiss Re is the world's second biggest re-insurer after Munich Re. The yield is scarily high at 8.6%. Historic EPS growth has been impressive but is likely to stall this year. Swiss Re suffered in the financial crisis but seems to be a turnaround success. The high yield is perhaps a warning. I will take a look at it. There may be issues with the new Solvency Ratio requirements. And hard to know what the Swiss Franc will do next.

Syngenta

Syngenta AG (Syngenta) is an agribusiness operating in the crop protection, seeds and lawn and garden markets. The Company operates five operating segments: the four geographic regions, consisting of the integrated Crop Protection and Seeds business, and the global Lawn and Garden business. The Company's Crop Protection segment offers crop protection chemicals, which include herbicides, insecticides, fungicides and seed treatments to control weeds, insects and diseases in crops, and are inputs enabling growers. Its Seeds segment operates in the commercial sectors of field crops, including corn, oilseeds, cereals and sugar beet, and vegetables. The Company's Lawn and Garden segment provides professional growers and consumers with flowers, turf and landscape, and professional pest management products.

Syngenta isn't turning my head. Will probably leave it.

The Dividend Spectrum returned the following candidates from Canada:

Company name Symbol Yield 5y EPS growth rate Payout P/E ROE D/E EPS Growth 2015 Current Price PT Uplift Potential
Bank of Montreal BMO 4.73 15.84 0.52 10.9 12.46 11.6 8.23 68.87 74.56 8%
Bank of Nova Scotia BNS 4.77 11.36 0.52 10.91 13.96 11.98 7.14 58.02 62.19 7%
CI Financial Corp OTCPK:CIFAF 4.38 12.83 0.66 15.16 29.54 19.73 5.56 30 31.68 5%
Canadian Imperial Bank of Commerce CM 4.77 24.32 0.5 10.46 19.24 18.42 5.93 93.55 99.06 6%
Manulife Financial Corp. MFC 3.32 16.94 0.44 13.22 9.32 26.41 13.73 20.28 23.00 12%
National Bank of Canada OTCPK:NTIOF 4.81 11.81 0.46 9.62 17.13 28.8 5.82 43.04 45.50 5%
Shaw Communications Inc SJR 4.51 8.08 0.72 16.05 16.4 96.66 6.17 25.97 27.61 6%
Toronto-Dominion Bank TD 3.92 18.95 0.49 12.42 13.75 13.15 10.34 51.71 57.01 9%

Canada has lots of candidates. Mostly banks though. My favourite play here is TD because TD has a decent presence in the US. Euro investors can still get decent value on the Loonie. A little FX can turbo charge alpha returns.

Shaw Communications was the only non-financial candidate. It has a nice debt-equity ratio for a telco. It's very hard to find a telco with reasonable debt levels. I am very uncomfortable with the high debt levels at most telcos and tend to steer clear. Shaw also has relatively good EPS growth. It has a nice 4.6% yield and probably no exposure to China. I will take a look. Here's a description of the business from Google Finance.

Shaw Communications Inc. (Shaw) is a diversified Canadian communications and media company. Shaw is engaged in the business of providing broadband cable television, High-Speed Internet, Home Phone, telecommunications services (through Shaw Business), satellite direct-to-home services (through Shaw Direct) and engaging programming content (through Shaw Media). The Company operated through three principal business segments such as Cable, consisted of cable television, Internet, Digital Phone and Shaw Business operations; Satellite, consisted of direct-to-home (DTH) and Satellite Services; and Media, consisted of television broadcasting. Shaw Media operates as conventional television networks in Canada, Global Television, and numerous specialty networks. It provides customers with entertainment, information and communications services, utilizing a variety of distribution technologies.

Conclusion

I have the capacity to invest in 2 to 3 full positions for the remainder of 2015. I feel the sensible strategy for me is to wait and invest in a stock on the next flash crash. I feel a further flash crash or two will occur before the end of 2015.

My favorite ideas to fulfill these positions from the above screen are Michelin and Unilever. Michelin has great metrics, and subject to further research, seems to have very good macro headwinds. Unilever is a safe and steady investment that I think will do very well over the long term.

I like the US stocks but the USD is just too expensive, a bad trait for US exporters and myself (as a Euro investor). I would probably look to JNJ if I was to do some USD investing. Alliant makes a lot of sense too. I think Cummins and QCOM may be a little too risky given the premium I would need to pay on the USD. Wal-Mart (NYSE:WMT) is also interesting - it has 70% of its sales and profits in the US.

I am also tempted to maybe rebalance some of my US holdings to Euro equivalents. I will consider exchanging my Emerson Electric position for Schneider Electric.

I also have half positions in BHP Billiton and Royal Dutch Shell. Each is yielding 7%. I will try to fill both these positions out over the coming months.

An investment in a Canadian bank would be nice, but I may leave that to 2016. I know the Canadian banks are the best regulated banks in the world, but bad debts can destroy bank earnings very quickly. I want to look at Shaw Communications closer. Its conservative debt load for a telco is intriguing.

Disclosure: I am/we are long JNJ, UN, BBL, RDS.B.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.