Monthly Dividend Stocks Discounts - July 2018

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Includes: AVGO, FL, OMC, PII, TDS
by: Torsten Tiedt
Summary

Your stock’s purchase price determines your initial dividend yield.

A price decline may be an opportunity to start with an increased initial dividend yield.

A monthly scan for the most significant price declines helps you finding these opportunities.

Welcome to a new series called “Monthly Dividend Stock Discounts”. I created a list of US dividend stocks with the more than 5% discount in the last month. The purpose is to identify potential bargains for dividend investors. As you may know, a dropping stock price typically means one of two things: either it’s an opportunity to get more bang for your buck, or it is a warning sign that the company faces serious headwinds and future dividends may be in trouble.

In addition, I give you an introduction into the 5 dividend stocks with highest discounts. Don’t expect an in-depth analysis. Instead, I try to give you an overview of what I think to be the most essential to give you an idea if it’s worth digging deeper. This is done by:

  • mentioning the latest earnings result of the company.
  • checking if dividends are endangered by looking at cash-flows and optionally debts and assets if necessary.
  • comparing current to historic dividend yield to determine valuation from a dividend focused perspective.This is done by what I call the relative dividend yield which is based on the logic of the implied volatility rank used in option trading. In short, the relative dividend yield examines the current dividend yield in relation to its historical context. The metric's value ranges from 0 to 100. 100 means the current dividend yield is on all-time-high. If the current dividend yield is on all-time-low the relative dividend yield is 0.

The analysis considers more than 300 of the most popular dividend stocks in the US. To ensure a minimum quality and attractiveness all stocks, each stock needs to match the following criterion:

  • Dividend increase of at least 5 years (dividend contender)
  • Current dividend yield of at least 2%
  • Market capitalization of at least 1 billion USD

Dividend stocks with highest discounts in July

The table below contains the US dividend stocks with highest discounts in July.

Symbol

Company

Discount %

Years of dividend increase

Yield %

Relative Dividend Yield

PII

Polaris Industries

-13.7

21

2.2

11

OMC

Omnicom

-9.8

8

3.4

93

AVGO

Broadcom

-8.6

6

2.8

100

TDS

Telephone & Data Systems

-7.9

44

2.5

86

FL

Foot Locker

-7.3

6

2.7

10

SIR

Select Income REIT

-7.2

5

9.8

80

CBRL

Cracker Barrel Old Cty. St.

-6.2

7

3.3

38

US dividend stocks with highest discounts in July 2018. Source: DividendStocks.Cash.

Polaris Industries (NYSE:PII)

The “top discount” of the month presented solid quarterly results. Reported sales increased by 10% and net income was boosted by as much as 49% - which did not prevent the stock to sink. Yet, focusing on cash-flows, there is no need to worry about either the future of the company nor the dividends paid.

Dividends, operating and free-cash-flows of Polaris Industries

Despite the price drop of 13.6%, the current dividend yield of 2.2% is rather low in its historical context due to a peeking dividend yield during the financial crisis, where dividends reached 4.7%:

Relative dividend yield of only 11 points out of 100 for Polaris Industries

In depth articles of Polaris Industries on Seeking Alpha are available here.

Omnicom (NYSE:OMC)

The media industry faces hard times, and Omnicom makes no exception. The stock lost nearly 10% last month. According to latest quarterly earnings released in July, Omnicom managed to increase revenues and profits . Cash-flows show that there is no need to worry about future dividend increases. Expect about 9% yearly dividend increase which is the average of the last 5 years.

Dividends, operating and free-cash-flows of Omnicom

In contrast to Polaris, the relative dividend yield of Omnicom indicates a bargain. 93 out of 100 points mean that the current yield of 3.4% is near all-time-high.

Relative dividend yield of Omnicom

In depth articles of Omnicom on Seeking Alpha are available here.

Broadcom (NASDAQ:AVGO)

Broadcom lost 8% in July. According to latest quarterly results released on 7th of June, Net revenue and income were up significantly compared to the same quarter in previous year. The pain point is the planned acquisition of CA Tech for a price considered too high by many analysts.

Broadcom started paying dividends in 2011 and increases them at rapid pace. The average dividend increase within the last 5 years was 55% (!).

Dividends, operating and free-cash-flows of Broadcom

At the time of this writing, Broadcom’s relative dividend yield is at all-time-high with 100 points. Thanks to high dividend increase, the current dividend yield of 2.8% is expected to become 4.2% till October 2019 at next business year end.

Relative dividend yield of Broadcom.

If things look to good to be true, it’s advisable to search for the flip side of the medal. A quick check of the most important balance sheet items reveals that goodwill accounts for more than half of all total assets. This is the result of Avago acquiring Broadcom in 2016 and does not necessarily mean there is a problem – after all amortization power is constantly growing and the volume of total debts substantially declined in the last months. Yet, goodwill in this size needs to be constantly checked for sanity.

Core balance sheet items related to debts and assets of Broadcom

In depth articles of Broadcom on Seeking Alpha are available here.

Telephone & Data Systems (NYSE:TDS)

Because of missing long-term profit growth, this dividend aristocrat is a notorious under-performer. According to current free-cash-flow the dividends are not endangered, yet free-cash-flow may change considerably from year to year.

Dividends, operating and free-cash-flows of Telephone & Data Systems

In case of unreliable cash-flows the balance sheets should be considered as well to examine the dividend’s safety.

Core balance sheet items related to debts and assets of Telephone & Data Systems

First thing to notice is that according to a very low amortization power the company will never get rid of its debt based on operating income. Yet, cash and cash-equivalents including marketable securities of 779 million USD are enough to cover the coming dividend payments of yearly 70 million USD for some time if free-cash-flow turns negative once again.

With 87 out of 100 the relative dividend yield is high. Yet, lacking long-term profit growth turns this stock into a disputable investment.

Relative dividend yield of Telephone and Data Systems

In depth articles of Telephone and Data Systems on Seeking Alpha are available here.

Foot Locker (NYSE:FL)

In the latest past Foot Locker is a highly volatile stock in the retail industry. In July it went down by 7.7%.

The company started paying dividends in 2003, increasing them by yearly 12% in the last 5 years. Cash-flows indicate further dividend increases to be safe. In the first quarter, sales went up but net income declined primarily due to shrinking margins.

Dividends, operating and free-cash-flows of Foot Locker

Today’s relative dividend yield is only 10 out of 100 points. Within the last 12 months, the dividend yield’s high was 4.5%. A courageous buy in 2009 was rewarded with dividend yield of nearly 14%.

Relative dividend yield of Foot Locker

In depth articles of Foot Locker on Seeking Alpha are available here.

Conclusion

I presented a list of US dividend stocks with highest “discounts” in July and tried to introduce you to the "top 5" stocks to give you an idea if they are worth for further analysis. What do you think? Does this format help you finding interesting dividend stocks? Do you even consider buying any of these stocks or did you already seize the opportunity?

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.