5 Dividend Stocks On Sale For Your Retirement Portfolio - September 2018

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Includes: BCE, BTI, BUD, F, ING
by: Financially Free Investor
Summary

In markets, there are always some assets/stocks that are expensive, while some others are trading at cheaper valuations.

This article is part of our periodic series, where we highlight five companies that are large-cap, safe, dividend-paying companies and also trading at relatively cheap valuations.

We go over the filtering process to select just five such stocks from over 7500 companies that are traded on the US exchanges, including Over-The-Counter (OTC) networks.

The selected five companies as a group would offer an average discount of 23% in the price and 34% more dividends compared to the beginning of 2018.

In this series, we start with a fairly simple question. If we were to invest in five large-cap, relatively safe, and dividend-paying companies trading at cheap valuations, which companies would make the cut at the given moment? The objective here is to highlight and bring to the notice of the value-oriented readers, some of the DGI companies that may be offering juicy dividends due to a temporary decline in their share prices. The decline may be due to industry-wide decline or some kind of one-time setback like missing quarterly earnings expectations.

Note: Please notice that we said “relatively safe” and not “safe because nothing is absolutely safe. Also, in our opinion, for a well-diversified portfolio, one should have 15-20 stocks at a minimum.

Goals for the selection process

We want to emphasize our goals before we get to the actual selection process. Our primary goal is income, and the secondary goal is to grow the capital. These goals are by and large in alignment with most income investors as well as DGI investors. A balanced DGI portfolio should keep a mix of high-yield, low-growth stocks along with some high-growth but low-yield stocks. However, how you mix the two will depend upon your personal situation, income needs, and time horizon.

A well-diversified portfolio would normally consist of many more than just five stocks and preferably a few stocks from each sector of the economy. However, in this article, we are trying to shortlist and highlight just five stocks that may fit most income and DGI investors, but at the same time are trading at attractive valuations. However, as always, we recommend you do your due diligence before making any decision on them.

Selection Process

The S&P 500 yields less than 2%. If we are dividend investors, we should logically look for companies which pay yields that are at least higher than the S&P 500. Of course, higher the better, but at the same time, we should not try to chase high yield. If we try to filter for dividend stocks paying 2.0% plus dividend yield, there are more than 1500 such companies trading on US exchanges including OTC networks. If we further limit our choices to companies which have a market cap of at least $30 Billion and daily trading volume in excess of 100,000 shares, the number comes down to just 185 companies.

We also want stocks that are trading at reasonable or cheap valuations, so we will apply an additional filter with a forward P/E of no more than 20. After applying the additional criteria, we will still get a list of 139 companies. We may like to point out that a P/E of 20 is not essentially cheap. However, with the current P/E for the S&P 500 hovering around 25, a P/E of 20 is relatively cheap. But that’s not all. In our quest for not paying too high a price, we add one more criterion that the close price is at least 15% below the 52-week high. After applying these additional criteria, we get a set of 42 companies.

Out of a list of 42 companies, the final step to narrow down the list to five stocks is subjective. We will need to do further research on factors like dividend safety, growth prospects and economic-moat of the company. We selected five companies (out of 42), from different sectors/industries. Though, as always, each company comes with certain risks and concerns, but we think they are temporary. We think these companies as a group would be appealing to income-seeking investors or anyone above 50 years of age since their average dividend at this time is 5.69%. As we get closer to retirement, our focus changes from the growth of capital to income. Though we selected five stocks, however, there are other stocks on this list that may be equally appealing. In fact, there may be quite a few others.

Criteria to Shortlist the Companies

  • Market-cap >= 30 billion
  • Dividend yield >= 2.0%
  • Dividend growth past 5-years >= 0%
  • Forward P/E <= 20
  • Distance from 52-Week High < -15%.

Below is the complete list of 42 companies that we got by using the above criteria. Out of these, we selected five companies (highlighted) from different sectors/ industry segments.

Company Name

Ticker

Market Cap

Trailing Div. Yield %

Volume

P/E

Close Price

52 Week High

Perf comp. with the S&P 500

Distance from 52-wk high

Bayer Aktiengesellschaft

BAYRY

73.7

2.55%

1290673

13.15

22.45

35.29

-34.24

-36.38%

British American Tobacco PLC.

BTI

99.0

4.05%

1760880

12.21

46.68

71.36

-36.39

-34.59%

ING Group, N.V.

ING

53.0

3.25%

2686752

8.63

13.55

20.57

-32.24

-34.13%

The Kraft Heinz Company

KHC

67.9

4.49%

6157503

15

55.17

81.92

-34.36

-32.65%

Vodafone Group PLC

VOD

60.1

10.42%

7221481

16.04

22.2

32.67

-35.21

-32.05%

Philip Morris International Inc.

PM

124.2

5.71%

5437257

15.88

80.5

115.17

-30.64

-30.10%

Ford Motor Company

F

37.3

6.39%

40958648

6.8

9.27

13.23

-31.06

-29.93%

Anheuser-Busch InBev SA/NV

BUD

153.3

4.10%

1834364

19.85

89.67

126.02

-25.6

-28.84%

Intesa Sanpaolo SpA

ISNPY

46.0

5.91%

305821

11.37

17.09

23.75

-20.09

-28.04%

General Motors Company

GM

47.3

4.53%

11675635

5.64

33.73

46.48

-24.94

-27.43%

Deutsche Post AG

DPSGY

45.8

3.69%

112685

17.41

36.56

50.13

-28.54

-27.07%

Las Vegas Sands Corp.

LVS

47.8

4.95%

4897961

17.18

59.82

81.27

-19.95

-26.39%

BNP Paribas SA

BNPQY

80.3

4.62%

237036

8.3

32.02

42.6

-21.03

-24.84%

Southern Copper Corporation

SCCO

33.9

3.65%

901620

18.1

43.54

57.34

-15.35

-24.07%

Societe Generale Group

SCGLY

36.3

4.62%

148830

8.21

8.97

11.77

-20.43

-23.79%

Westpac Banking Corporation

WBK

67.5

6.82%

394905

11.33

20.05

26.27

-24.13

-23.68%

AbbVie Inc.

ABBV

142.0

4.09%

4906154

11.93

94.18

123.21

-11.08

-23.56%

Enbridge Inc

ENB

56.8

6.15%

2758774

15.86

32.42

41.97

-22.32

-22.75%

Imperial Tobacco Group PLC

IMBBY

33.0

4.40%

140764

10.29

35.03

45.05

-25.64

-22.24%

UBS Group AG

UBS

62.9

4.23%

1334150

10.81

16.32

20.89

-18.57

-21.88%

National Grid Transco, PLC

NGG

34.1

8.04%

497217

12.92

50.55

64.7

-20.8

-21.87%

Canon, Inc.

CAJ

34.7

3.61%

264691

13.93

31.97

40.22

-22.15

-20.51%

Illinois Tool Works Inc.

ITW

48.1

2.17%

1333471

18.79

142.93

178.88

-21.13

-20.10%

Nordea Bank AB

NRBAY

44.2

6.28%

1029825

12.85

11.04

13.8

-17.31

-20.00%

BlackRock, Inc.

BLK

76.5

2.61%

498633

17.28

474.83

593.26

-14.48

-19.96%

Intel Corporation

INTC

214.8

2.61%

21177376

11.05

45.7

57.08

-8.8

-19.94%

Southern Company (The)

SO

43.3

5.62%

7188143

14.38

42.66

53.25

-18.52

-19.89%

Prudential Financial, Inc.

PRU

42.8

3.51%

1720186

8.45

101.1

126.02

-18.21

-19.77%

Wells Fargo & Company

WFC

264.5

3.17%

19573900

12.57

53.16

65.93

-18.03

-19.37%

Morgan Stanley

MS

84.2

2.49%

8214767

10.06

47.7

58.91

-15.62

-19.03%

Dominion Energy Inc.

D

45.5

4.80%

2803363

16.9

68.82

84.91

-21.32

-18.95%

Axa Sa

AXAHY

67.3

4.46%

137161

9.04

27.76

33.84

-14.81

-17.97%

Comcast Corporation

CMCSA

164.4

2.15%

21816920

13.95

35.37

42.99

-18.95

-17.73%

Altria Group, Inc.

MO

114.4

5.27%

6575101

15.18

60.81

73.9

-22.04

-17.71%

Manulife Financial Corp

MFC

36.0

3.73%

1720765

8.94

18.17

21.99

-20.3

-17.37%

American International Group, Inc.

AIG

48.3

2.35%

4291088

11.93

54.05

65.13

-16.26

-17.01%

ABB Ltd

ABB

51.0

2.11%

2090532

17.27

23.75

28.6

-18.52

-16.96%

BCE, Inc.

BCE

36.1

5.77%

692119

15.01

40.65

48.91

-23.31

-16.89%

Johnson Controls International plc

JCI

33.1

2.91%

5243032

12.73

35.68

42.41

-13.91

-15.87%

AT&T Inc.

T

207.3

5.92%

33376378

9.58

33.35

39.51

-20.37

-15.59%

MetLife, Inc.

MET

47.7

3.51%

4685089

9.18

47.19

55.73

-13.09

-15.32%

Siemens AG

SIEGY

111.1

2.59%

127389

15.83

65.31

77.05

-13.46

-15.24%

The last step in this selection process (choosing five companies out of 42) is selective and based on our research and opinion. We also try to avoid the names that may have appeared on our list in the previous couple of months. Please note there are possibly several other companies on the list that may be equally compelling; that’s why we provided the complete list for the benefit of readers. Someone else could look at this extended list and may come up with some different names than ours.

The five names that are dividend stocks in their own right and are trading cheap right are:

BTI, ING, F, BUD, BCE

Symbol

Close prices as of Jan. 2nd, 2018

Close prices as of 9/26/2018

Difference

BTI

67.18

46.68

-30.52%

ING

18.48

13.55

-26.68%

F

12.66

9.27

-26.78%

BUD

112.42

89.67

-20.24%

BCE

47.8

40.65

-14.96%

Avearge

51.708

39.964

-22.71%

S&P 500 (SPY)

268.77

289.88

7.85%

All of the above companies, except one, are from Europe and Canada. However, it should not come as a surprise because European markets have lagged the US markets and there are many bargains to be found.

British American Tobacco PLC (BTI):

BTI is a British multinational tobacco company headquartered in London, United Kingdom. BTI is the third largest publicly traded tobacco company in the world, after Philip Morris (PM) and Altria (MO).

BTI has a market-leading position in over 50 countries and operations in around 180 countries. Four of its largest-selling brands are its native brand Dunhill, the US brands Lucky Strike, Kent and Pall Mall. Other brands include Benson & Hedges and Rothmans.

BTI has a primary listing on the London Stock Exchange and is a constituent of the FTSE 100 Index.

Risk factors and other concerns: Stagnant or declining revenues, slower growth of e-cig and vaping products than expected and continued pressure from regulators. Also, the relatively high debt level is a concern, but S&P credit rating is respectable at BBB+.

The ING Group (ING):

ING is a Dutch multinational banking and financial services corporation headquartered in Amsterdam. Its primary business segments are retail banking, commercial banking, direct banking, investment banking, asset management, and insurance services. (ING is an abbreviation for International Netherlands Group). ING is considered one of the global systemically important banks. It is also a member of the Inter-Alpha Group of banks, a consortium of 11 prominent European banks.

As of the year 2017, ING served over 37 million clients in more than 40 countries. The company is a component of the Euro Stoxx 50 stock market index.

Risk factors and other concerns: One risk with ING that investors need to be aware of is that it has a large exposure to Turkey (roughly EUR 15 Billion). It also draws nearly 5% of its profits from Turkey, whose currency was in turmoil recently and faces continued economic and monetary challenges.

Ford Motor Co (F):

Ford Motor Company is the second largest U.S. automaker headquartered in Dearborn, Michigan. It was founded by Henry Ford and incorporated in 1903. Ford is known to have introduced the concept of “moving assembly lines” and large-scale manufacturing of cars and automobiles.

The company sells automobiles and commercial vehicles under the Ford brand and most luxury cars under the Lincoln brand. The company is still controlled by the Ford family with the majority of the voting power.

During the financial crisis of 2008, unlike the other two major automakers in the US, Ford was able to avoid bankruptcy and did not require the Federal bailouts. It has since returned to profitability.

Risk factors and other concerns: Stagnant revenues, lack of growth catalysts, high dividend yield but lack of future dividend growth, and not much success to speak of in the large Chinese market. Adding to the worry is that we may probably be in the late stage in the automobile boom cycle.

Anheuser-Busch InBev SA/NV (BUD):

Anheuser-Busch InBev SA/NV (also known as AB InBev) is a multinational drink and brewing company based in Belgium. Additional main offices are located in São Paulo, New York City, London, St. Louis, Mexico City, Johannesburg, and others. AB InBev was formed through a merger between InBev and Anheuser-Busch from the United States. Subsequently, it acquired and concluded the merger of SABMiller in October 2016. The combined entity has approximately 500 beer brands in over 100 countries. It has been the world's largest brewer even prior to the merger of SABMiller. The annual sales for the company in 2017 were US$56.4 billion. The company is expected to have a 28 percent market share of global beer sales in 2017.

Anheuser-Busch InBev has its primary listing on the Euronext Brussels. It has secondary listings on the New York Stock Exchange, Mexican Stock Exchange, and the Johannesburg Stock Exchange.

Risk factors and other concerns: AB InBev has been growing on the back of large-scale acquisitions and increasing levels of debts. Even though it has grown the dividends at a very fast clip in the last 5 years, but that growth may not be sustainable in future due to the high payout ratio.

BCE Inc. (BCE):

BCE Inc. (formerly Bell Canada Enterprises), is the largest telecommunications holding company in Canada. Founded through a corporate reorganization in 1983 the company remains one of Canada's largest corporations. It was ranked as Canada's ninth-largest corporation by market capitalization in 2015.

It has two major subsidiaries, Bell Canada, and Bell Media. Bell Canada includes telecommunication assets such as Bell Aliant, Bell Mobility, Bell TV, Bell Fiber TV, Virgin Mobile Canada, and Lucky Mobile. Bell Media holds the media companies and assets such as CTV Television Network, CTV Two system, CP24 Toronto. Besides, it owns several regional and local telecommunications companies as independent subsidiaries.

Risk factors and other concerns: Telecom sector has been generally out of favor due to lack of growth. Generally, these companies have high levels of debt due to large investments in spectrum and infrastructure, and this has been a drag as well in a rising interest rate environment.

Financial and Valuation Data:

Below is the comparison of valuation and other data for the five companies.

(All data as of 09/26/2018):

BTI

ING

F

BUD

BCE

Share Price

46.47

13.64

9.39

90.51

40.15

Percent below the 52-week high

-34.5%

-34.10%

-29.9%

-28.8%

-16.9%

Market-cap

106.5 B

53.05 B

37.42 B

177.0 B

36.05 B

Forward P/E (1 yr)

11.15

8.26

6.22

16.89

14.45

Price/Book

1.31

0.95

1.03

2.58

2.87

PEG Ratio

1.42

1.03

1.77

2.41

NA

LT Debt

57.4 B

154.5 B

92.9 B

110.9 B

13.9 B

Debt/Total-Asset Ratio

0.30

0.15

0.36

0.47

0.33

Forward Dividend Yield

5.85%

5.18%

6.39%

5.28%

5.76%

5-Year Dividend Yield Ave.

3.82%

4.34%**

(4 yr avg)

4.24%

3.21%

4.89%

5-Year Dividend growth

8.90%

NA

21.8%

22.5%

5.30%

No of years of dividend growth

10

3

0

8

10

Dividend Payout Ratio

70.8%

28.0%

43.5%

104.8%

85.9%

Past 3-yr / 5-yr EPS growth

41.0%

22.5%

1.30%

-9.7%

2.10%

5-Year Future EPS Growth Estimates

8.0%

5.02%

5.3%

8.27%

3.5%

5-Year Revenue Growth

3.20%

5.10%

2.90%

6.60%

-0.80%

S&P Credit Rating

BBB+

A-

BBB

A-

BBB+

Conclusion:

As of January 2018, the average dividend yield of these five stocks was 4.23%. Not bad at all for dividends stocks. However, if you were to buy these five companies today at much lower prices and invest equal amounts, you would get roughly 5.69% dividend, nearly 34% more. Again, not much has changed with regards to the quality of these companies. The broader market is trading at record levels recently, and it is difficult to find bargains. What has changed with these companies is the market perception. Some of these sectors, especially the Tobacco, Telecommunications and Beverage segments, have been hammered this year and continue to remain out of favor. So we think that we should take advantage of lower prices. These five companies as a group, since the beginning of the year, the average yield is up by 34% to 5.69%, and the average price is lower by 23%.

One note of caution though. Many of these companies are foreign-based and withhold taxes on dividends, especially ING, and BUD. So, for this reason, they may not be suitable for tax-deferred accounts. Please do your due diligence before investing.

Disclaimer: The information presented in this article is for informational purposes only and in no way should be construed as financial advice or recommendation to buy or sell any stock. Please always do further research and do your own due diligence before making any investments. Every effort has been made to present the data/information accurately; however, the author does not claim 100% accuracy. Any stock portfolio or strategy presented here is only for demonstration purposes.

Disclosure: I am/we are long BUD. 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.