U.S. Dividend Stocks On Discount - April 2019

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Includes: ABBV, BMY, EV, IRM, M, MMM, MO, NUS, OXY, SKT, WBA
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 of historically unusually high dividend yields helps you find these opportunities.

A fundamental quick check to determine both long-term profit growth as well as valuation based on profits - instead on dividends - helps you avoid making big mistakes.

Which dividend stocks attract investors with an exceptionally high dividend? In this analysis, the 10 stocks are determined whose current dividend yield is significantly above the average of the last 12 months.

The generation of buy signals is based on the Dividend Turbo, which compares the historical dividend yield with the current dividend yield. Sell signals aren't considered in this analysis.

Buy and sell signals determined by the Dividend Turbo

In a second step, a fundamental check is carried out for the three stocks with the strongest buy signals. On the one hand, we examine the long-term profit growth of the companies because only long-term profit growth leads to long-term growing dividends and capital gains. On the other hand, the buy signal triggered by the high dividend yield can be confirmed or contradicted by calculations of the fair value of the stock. Only if the stock also appears to be favorably valued regarding earnings and cash flows, a purchase seems advisable.

Solid dividend stocks

All stocks are solid dividend stocks that meet the following criteria:

  • The stability of the dividend is at least 0.9 out of a 1.0. As a result, the company was able to increase its dividend with a certain reliability.
  • The analysts expect the dividend to increase in the current business year.

In addition, the current dividend yield must be at least 2% for the stock to be interesting for dividend investors.

10 dividend stocks with the strongest buy signals

Name

Symbol

Dividend Yield

Δ Div. 12 Months

Dividend Stability

Years of Dividends Increase

CAGR 5 Years

Estimated Dividend Increase

Macy's

M

6.23%

1.44%

0.91

0

9.70%

2.70%

AbbVie

ABBV

5.09%

1.19%

0.96

5

20.50%

18.70%

Tanger Factory Outlet

SKT

7.37%

1.16%

0.9

25

9.50%

3.60%

Walgreens Boots Alliance

WBA

3.25%

0.87%

0.97

44

6.80%

9.80%

Occidental Petroleum

OXY

5.07%

0.85%

0.96

16

4.80%

17.40%

Altria Group, Inc.

MO

5.87%

0.78%

0.97

49

11.00%

9.00%

Nu Skin Enterprises

NUS

2.90%

0.76%

0.95

17

4.10%

1.40%

Iron Mountain

IRM

7.39%

0.58%

0.9

8

17.30%

1.70%

Bristol-Myers Squibb

BMY

3.53%

0.54%

0.98

11

2.80%

2.50%

Eaton Vance

EV

3.25%

0.47%

0.99

38

9.10%

10.20%

The 10 dividend stocks with the strongest buy signals

The higher the delta (Δ), the higher the current dividend yield exceeds the average dividend yield of the last 12 months. In the case of Macy's, the current dividend yield of 6.23% is 1.44% higher than the average of the last 12 months.

The three dividend stocks with the strongest buy signal are Macy's, AbbVie, and Tanger Factory Outlet. We will now look at whether these are attractive buying opportunities.

Macy's

Currently, the retailer's current dividend yield for fashion and lifestyle is 6.23%. This is 1.44% above the average of the last 12 months. A clear buy signal.

Macy's dividend analysed in the Dividend Turbo

It is also apparent that the dividend yield has fluctuated strongly over the last few months. The dividend yield in July 2018 was "only" 3.81%, while in October 2017, it was an impressive 8.06%. Since the absolute dividend remained virtually constant, strong price fluctuations are responsible for the ups and downs of the dividend yield. With a currently volatile stock price like this, the right time to buy is very important.

Although the dividend was cut in 2010 and hardly increased in the last two years, analysts expect dividends to continue to grow. With a dividend yield of over 6%, the dividend payments alone can be satisfactory.

Long-term profit growth of Macy's

Long-term profit growth of Macy's

You can see at a glance that at Macy's, the trees don't grow into the sky. In addition, cash flows per share have declined slightly since 2016. However, with a payout ratio of 58.6%, the dividend does not appear to be in danger.

Confirmation of the buy signal

The buy signal based on the dividend yield may be confirmed or contradicted by calculations of the fair value of the stock based on earnings or operating cash flow. In the case of Macy's, the operating cash flow is the most stable and, therefore, best suited for fair value calculation.

Fair value calculation of Macy's

Based on last business year, the stock reaches a fair value of 32.19 USD, a significant undervaluation of 24.6%. The buy signal based on the dividend yield is thus confirmed.

On the other hand, you can see that the fair value of the stock is only moving sideways instead of rising. Price gains are, therefore, not to be expected, so that the bulk of the return will presumably come from the current dividend. The stock is, therefore, primarily interesting for dividend lovers with the intention of generating high cash flows.

AbbVie

At 5.1%, AbbVie's dividend yield is at an all-time high. Anyone who bought the stock in February 2018 started with a rather modest dividend of 2.27% - less than half. In contrast to Macy's, AbbVie - the producer of one of the best selling drugs called Humira - is increasing the dividend rapidly. Over the past 5 years, the dividend has increased by an average of 20%, and analysts predict a similar dividend increase coming.

ABBV's dividend analysed in the Dividend Turbo

Long-term profit growth of ABBV

While Macy's fundamental stagnation is rather boring, AbbVie's margins jumping up and down create suspense. With such a company, strong price swings are generally to be expected if margins move in one direction or the other. The healthcare sector is also on the defensive, similar to the stationary retail sector. This is due to political efforts to reduce health expenditure. With a payout ratio of 49%, however, the dividend appears to be secure.

Revenues and operating margins of ABBV

The long-term profit growth of the company, which went public in 2012, is characterised by the ups and downs of margins, which only partially affect cash flows.

Long-term profit growth of ABBV

Confirmation of the buy signal

As with Macy's, AbbVie's operating cash flow is best suited to evaluate its fair value.

Fair value calculation of ABBV

A fair value of 104.28 USD results in an undervaluation of a similar order of magnitude to Macy's with 23.6%, thus confirming the dividend buy signal.

In addition, the fair value of the stock will continue to rise in subsequent years thanks to forecasted increases in operating cash flow in 2020 and 2021. And as with Macy's, we can see that AbbVie was already significantly overvalued in recent months at a peak of 123 USD.

Tanger Factory Outlet

Tanger is a REIT in the stationary retail sector, which has been under pressure for years. The dividend yield is 7.37%. Iron Mountain is the only other REIT that has a slightly higher dividend yield. It can also be seen that the dividend yield at the beginning of the millennium was even in the double-digit range and then fell continuously.

Tanger Factory Outlet's dividend analysed in the Dividend Turbo

Already, in 2017, the stock generated a buy signal, which is now repeating itself. The reason for the rising dividend yield in recent years is that the stock price has been declining since 2016. In the meantime, the stock has lost more than half of its value from its peak in the same year.

Long-term profit growth of SKT

With such a sharp decline in the stock price, an unfavourable earnings trend is an obvious explanation. In fact, after years of strongly increasing profits, Tanger is now in a phase of consolidation, which, according to forecasts, is reflected in declines in revenues and operating margins.

Revenues and operating margins of Tanger Factory Outlet

However, based on the fund from operations, which are decisive for the dividend payment of a REIT, dividend payments seem to be secured even in the coming years.

Long-term profit growth of Tanger Factory Outlet

Confirmation of the buy signal

As Tanger Factory Outlet's profits are declining, the lower forecasts should be preferred to the current business year when calculating the fair value. This leads to lower fair values for the stock, which are, however, still significantly above the current stock price even on the basis of declining operating cash flows.

Fair value calculation of Tanger Factory Outlet

The lowest fair value is based on the operating cash flow for the business year 2020 and, at 26.79 USD, is still well above the current stock price of 19.06 USD, which corresponds to an undervaluation of around 29%. The buy signal generated by the Dividend Turbo is confirmed once again.

Conclusion

After the confirmed buy-signal of the Dividend Turbo for Macy's, Tanger Factory Outlet, and AbbVie, the green light is given for a deeper analysis if you are interested in one of these stocks. For Macy's and Tanger Factory Outlet, the perspective of stationary retail plays a particularly important role here, while AbbVie is concerned with compensating for the long-term decline in sales of its blockbuster Humira with new drugs.

This time, the fair value calculations confirmed the buy signal for all three stocks. However, this is not always the case. A counterexample is 3M (MMM), whose current dividend yield of almost 3% is high in historical comparison but still seems overvalued based on profit and operating cash flow. A detailed analysis can be found in this video:

What do you think? Did you find any stock of interest? Did you even take the chance to "buy the dip"?

Disclosure: I am/we are long MMM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.