- Value has dramatically underperformed growth both recently and over 3 and 5 year periods.
- The recent market swoon has pushed many value names to 52 week lows.
- High, sustainable dividend yields can be had on these names.
In an environment starved for yield, recent market action as well as the last few years of market dynamics has revealed a number of solid dividend plays.
The primary dynamic is the dramatic underperformance of value versus growth so far this year, as well as the last 3 and 5 years:
Many are proclaiming the death of value. That said, valuation differences between value and growth are reaching levels not seen since the late 1990s, and we believe it's more a question of "when" than "if" value has its moment in the sun.
Below are five income ideas: an equal weighted portfolio of the five would throw off a dividend yield of 4.4% versus 0.99% on the 10-year Treasury, & 1.85% on the S&P 500.
H&R Block, 5.2% yield
H&R Block sits near 52 week lows. The company earned $1.98 on a trailing twelve month basis, putting its P/E at 10.6x. HRB is a perennial name on the "magic formula" list given their high ROIC and asset light business.
Exxon Mobil, 6.8% yield
Exxon Mobil stock is down 40% in the last year, along with an energy sector which is seemingly the most out of favor industry in the market. The stock trades at a 15.3x P/E to trailing twelve month earnings. Exxon earned nearly $10 in 2012 when energy prices were higher. Exxon claims to have replaced 313% of their reserves in 2018, and to have 17 years of reserves as of 2019.
Hamilton Beach, 3.1% yield
A spin-off from NAACO industries in late 2017, HBB stock has performed horribly since. HBB curates and sells low and mid priced consumer appliances such as blenders, coffee makers, air fryers, and others. HBB had a money-losing retail operation, Kitchen Collection, which they shut down in late 2019 after years of attempting to turn around. The absence of KC will provide a significant earnings tailwind going forward: KC lost a large amount in 2019, largely due to over $15 mil in lease terminations, however HBB maintains that they did not guarantee any of KC's obligations and that the loss will reverse this fiscal year. HBB had $37 mil in operating income against $58 mil in debt at the end of 2019. Earnings from continuing ops were $1.83/shr in 2019, putting HBB at a pro forma P/E of 6.4x. The company has a stock repurchase authorization as well and has repurchased shares in the past.
ViacomCBS, 4.2% yield
ViacomCBS stock has been murdered since Viacom and CBS re-merged a few months ago, and the stock tanked on 4Q earnings as adjusted OIBDA was down 32% in the quarter. The quarter wasn't great, as cord cutting is hurting the company, but there were a couple of "kitchen sink" type items such as writing down theatrical content and impairment of intangibles. VIAC has a large library of content and continues to be one of the biggest networks. With a current market cap of $14 billion against $5.5 billion in adjusted OIBDA in 2019, the stock is statistically very cheap. Analysts are pretty sour on the stock at present.
DuPont: 2.8% yield
We believe DD is getting interesting at these levels in light of their pending transaction to merge their N&B business with IFF. Since that deal was announced, DD stock has fallen by 33% while IFF stock is down 9%:
This effectively means that "remaining" DuPont has become much cheaper. N&B contributed 25.3% of total company operating EBITDA in 2019, while DD stands to get ~ $16 billion in IFF stock for the deal, or half of DD's current market cap. That leaves the "stub" at an implied $16 billion market cap against $4.2 billion in 2019 operating EBITDA for DD's remaining divisions. DD also stands to get a $7.3 billion cash payment in the merger, which would put their net debt under $12 billion. That implies a 6.7x EV/EBITDA for the remainder, post the IFF deal.
While not exactly FAANG stocks, the above names all have dividend yields well above prevailing interest rates and market dividend yields. All names are between reasonable and quite cheap on statistical valuation methods.
This article was written by
Analyst’s Disclosure: I am/we are long DD, HRB, XOM, HBB, VIAC. 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.
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