5 High-Yield ESG Blue-Chips For A Safe And Prosperous Retirement
Summary
- ESG investing has become red hot in recent years, and $20 trillion of assets are expected to flow into ESG funds in the next two decades.
- Some think ESG is the newest alpha factor. Thus far, studies show it's merely an indicator of overall fundamental risk and quality, similar to credit ratings.
- In other words, successful long-term ESG investing is no different than successful high-yield, value, growth, low volatility, or dividend investing.
- Sound portfolio risk management, safety, quality, yield, growth, and valuation are the only six fundamental principles that determine whether you retire rich, in comfort, or not at all.
- ENB, PM, ABBV, PRU, and MFC are the 5 highest yielding strong ESG blue-chips you can buy at reasonable to attractive valuations today. Each yields between 4% and 7% and offers 12% to 18% annual total returns over the next five years.
- I do much more than just articles at The Dividend Kings: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »
ESG investing, focusing on environmental, social, and governance risks to companies, has been red hot in recent years.
From $20 billion in AUM in 2019, ESG funds have gone parabolic.
Sustainability-focused funds attracted record inflows during the first quarter, pushing global assets under management in ESG funds to nearly $2 trillion, according to a report from Morningstar released Friday...
The rise underscores the momentum behind ESG investing, or when environmental, social and governance factors are considered. Assets in these types of funds first topped $1 trillion in the second quarter of 2020.
Global sustainable funds attracted a record $185.3 billion during the first quarter of 2021, up 17% quarter over quarter. Overall, assets in ESG funds jumped 17.8% compared to the fourth quarter of 2020." - CNBC
Today almost 3,000 asset managers running over $80 trillion in assets at least partially consider ESG risk in their investment decisions.
Based on demographics, we conservatively estimate over $20 trillion of asset growth in ESG funds over the next two decades-equivalent to the S&P 500 today."
Similarly, an Accenture study concluded that US$30 trillion in assets will change hands, a staggering amount which, at its peak between 2031 and 2045, will witness 10% of total US wealth transferred every five years." - Research Affiliates (emphasis added)
ESG is expected to see major secular fund flows in the coming decades, as Millennials and Gen Z inherit $30 trillion in the coming 20 years.
A 2018 survey indicated that 87% of high net worth (HNW) millennials considered a company's ESG track record an important consideration in their decision about whether to invest in it or not, while another found that 90% of millennials wanted to tailor their investments to their values." - MSCI
Over the next 20 years, global inheritance among Millennials and Gen Z is estimated to be $65 trillion. So the fact that the ultra-rich of these generations are very interested in ESG could result in even larger long-term fund flows.
But just because something is popular doesn't necessarily mean it's worth pursuing. After all, every bubble in history has been popular for a time, before ending in tears and lots of shattered dreams.
Today some think that ESG is the next alpha factor.
Alpha factors are those fundamental characteristics of companies that have proven over time, to outperform the market.
In 2019, Research Affiliates, one of the pioneers in alpha-factor investing, did a study looking at whether or not historical market data shows that strong ESG on its own, is likely to deliver superior long-term results.
Factors are stock characteristics associated with a long-term risk-adjusted return premium...
Popular factors, such as value, low beta, quality, and momentum, have been well documented and vetted by both academics and practitioners. Research by Beck et al. (2016) provides a useful framework for determining if a factor is robust. For ESG to be a factor, it should satisfy these three critical requirements:
A factor should be grounded in a long and deep academic literature.
A factor should be robust across definitions.
A factor should be robust across geographies." - Research Affiliates
What was RA's conclusion?
ESG is not an equity return factor in the traditional, academic sense... ESG does not need to be a factor for investors to achieve their ESG and performance goals... This is classic thematic investing, following in the footsteps of cloud, artificial intelligence, and robotics themes, but it's not factor investing. " - Research Affiliates (emphasis original)
For now, there isn't enough statistically significant evidence to say that strong ESG ratings lead to stronger returns over time.
Unfortunately, none of the simulated strategies we tested has a long track record because the ESG data history is quite short...
Only after several decades of quality ESG data will it be possible to accurately test the claim that ESG is a robust factor." - Research affiliates
A recent study from NYU came to the same conclusion.
A recent NYU paper found that the majority of more than 200 studies published since 2015 concluded that ESG boosted returns. These studies have helped open the floodgates to ESG investing, with self-proclaimed ESG funds attracting $340bn of inflows over the past two years, according to EPFR.
However, fresh analysis by Scientific Beta, a "smart beta" index provider linked to the Edhec Research Institute, a French academic think-tank, disputes the claims that ESG funds have tended to outperform the wider market, or, in industry jargon, generate "alpha"...
Scientific Beta analyzed 24 ESG strategies that have been shown to outperform in other academic papers. It did find evidence that ESG funds have tended to outperform, with ESG leaders typically beating ESG laggards by almost 3 percentage points a year...
However, in both the US and other developed markets, it found that three-quarters of the outperformance is due to "quality" metrics, such as high profitability and conservative investment...
"Despite relying on the analysis of non-financial information by hundreds of ESG analysts, ESG strategies perform like simple quality strategies mechanically constructed from accounting ratios," the paper said.
"Of the 24 strategies, not one has significantly outperformed when you adjust for this factor and that to me is quite striking," said Goltz. "It's just the case that over the last decade quality has outperformed and if you use ESG scores that inherently tilts [a portfolio] to quality." - Financial Times (emphasis added)
So does this mean ESG should be ignored?
At Research Affiliates, we believe ESG is an important investing consideration despite dismissing it as a factor or lacking confidence in its ability to currently deliver as a theme.
Investors can satisfy their ESG preferences while still maintaining the characteristics of their preferred investment strategy." - Research Affiliates (emphasis added)
And here is what Research Affiliates said about this new study from NYU.
Vitali Kalesnik, director of research in Europe at Research Affiliates, a pioneer in smart beta, said Scientific Beta's conclusion was "quite consistent with much of what we have written. The overlap between ESG, especially measures related to the 'G' [or governance], and quality is pretty large." - Financial Times (emphasis added)
Basically, Research Affiliates and NYU found that ESG is an important fundamental risk measurement and quality metric though not one that by itself is likely to outperform. If you want to outperform over time you need to use proven alpha factors.
If people "want to invest [in ESG] purely because it will drive performance then I think it is bad news. If they want to outperform they should target factors that achieve that goal." - Vitali Kalesnik, director of research in Europe at Research Affiliates (emphasis added)
Basically, use ESG as one of many components to measure quality and risk.
That's backed up by research from MSCI, the global indexing giant.
Companies with strong ESG profiles may be better positioned for future challenges and experience fewer instances of bribery, corruption, and fraud." - MSCI (Emphasis added)
Further evidence of ESG's usefulness as a quality indicator comes from a study conducted by Bank of America's quantitative analysis department.
Punchline: higher ROE, lower risk & lower cost of capital
We find that companies with greater gender diversity at the board/management level typically see higher ROE and lower earnings risk than peers.
Moreover, based on disclosure data from ICE, we find gender diversity in management is associated with a ~20% premium on P/E on an overall and sector-neutral basis.
Ethnic and racial workforce diversity shows similarly strong results: higher ROE, lower risk, and significant premia on P/E and P/BV." - Bank of America (emphasis original)
ESG isn't about political correctness or personal ethics, it's about sound business practices and maximizing long-term profits by avoiding blowing up companies in the long term.
And don't just take my word for it.
According to the world's best risk assessors, ESG metrics are a critical component of a company's overall risk profile. Here's who considers ESG important and builds it into their safety models and ratings.
BlackRock - #1 asset manager in the world
MSCI - #1 indexing giant
Morningstar
Reuters/Refinitiv
ISS (Institutional Shareholder Services) - #1 corporate proxy firm on earth
S&P
Fitch
Moody's
DBRS (Canadian credit rating agency)
AM Best (insurance industry rating agency)
Bank of America- one of the 16 most accurate economic/analyst teams in the world according to Market Watch
Bloomberg
FactSet Research
- State Street - one of the largest custodial banks on earth
- Wells Fargo - one of the 16 most accurate economic/analyst teams in the world according to Market Watch
- NAREIT
However, there is a major issue to point out about ESG risk ratings.
Complicating socially conscious investing is the fact the Securities and Exchange Commission doesn't regulate how the ESG label is applied, though it's considering adding rules for funds that call themselves ESG or sustainable.
Independent ESG rating companies around the world have sprung up to fill the gap. But they don't always see eye-to-eye. A 2019 paper from MIT Sloan School of Management found the correlation of five raters' ESG scores averaged 0.61, compared with a 0.99 correlation of credit ratings from Moody's Investor Services and S&P Global Ratings." - Bloomberg
There is no definition for how to measure ESG risk. Every institutional and rating agency has their own model.
- Morningstar looks at 20 fundamental metrics
- MSCI at 37
- Reuters/Refinitiv over 500
- S&P over 1,000
That's why the correlation between different agencies and institutions can be so wide. Credit ratings are built around models with over 100 years of default data.
Almost every credit rating agency's models are very similar with nearly identical safety guidelines for things like leverage, interest coverage, debt to capital, etc.
ESG risk models are useful, but any given one has limited utility. But combining several together, to get a consensus ESG risk score, using industry percentiles, can help us assess long-term fundamental risk in a far more useful way.
23% of the Dividend Kings' safety and quality model is built around ESG ratings and trends, from MSCI, Morningstar, Reuters, and S&P.
It's part of our comprehensive quality assessment.
Our overall quality scores factor in 143 fundamental metrics covering
- dividend safety
- balance sheet strength
- short and long-term bankruptcy risk
- accounting and corporate fraud risk
- profitability and business model
- cost of capital
- long-term sustainability (ESG scores and trends from MSCI, Morningstar, S&P, and Reuters/Refinitiv)
- management quality
- dividend friendly corporate culture/income dependability
- long-term total returns (a Ben Graham sign of quality)
It actually includes over 1,000 metrics if you count everything factored in by eight rating agencies we use to assess fundamental risk.
Every metric was selected based on
- decades of empirical data
- the experience of the greatest investors in history
- eight rating agencies
- and what blue-chip economists and analyst firms consider most closely correlated to a company's long-term success.
The Smart Way To Think About ESG
Research from all of these leading asset managers and global institutions shows one thing to be very clear. ESG is a measure of fundamental risk, and an important component to a company's overall quality.
Think of it as a credit rating. Johnson & Johnson (JNJ) is AAA-rated, meaning S&P and Moody's estimate it has a 0.07% 30-year default/bankruptcy risk. Or to put it another way, if you buy JNJ, there is a 1 in 1,429 chance you'll lose all your money over the next three decades because the company goes to zero.
Credit ratings are a qualitative measure of risk and quality. But just because JNJ is AAA-rated, doesn't mean JNJ is going to beat the market over time, especially if you buy it without regard to valuation.
The average dividend aristocrat is A- stable rated, meaning a 0.66% 30-year default/bankruptcy risk. The dividend aristocrats historically significantly outperform the S&P 500 over time.
But that's because consistent dividend growth is a sign of quality according to Ben Graham. It's also a proven alpha factor.
A-credit ratings are associated with more dependable dividends, more conservatively and better managed blue-chip businesses, and that is what explains why aristocrats tend to be market beaters.
Credit ratings are not something a reasonable and prudent investor will ever ignore, but you don't necessarily want to build your entire portfolio around just credit ratings.
However, the aristocrats also tend to score well on ESG risk.
(Source: etfdb.com)
I don't know how ETFdb rates ESG but I do know Morningstar's rating system which gives similar results.
(Source: Morningstar)
There does appear to be a correlation with ESG risk ratings and the income dependability, safety, and overall quality of the dividend aristocrats. Along with studies from various leading institutions and asset managers, this is why ESG risk ratings and trends are included in the DK safety, and dependability scores, which make up the vast majority of our overall quality scores.
However, there are just three direct drivers of total returns over the long term.
Starting yield, growth, and valuation are all that matters when it comes to returns. I call them the holy trinity of long-term total returns.
Does that mean that quality metrics don't matter? Absolutely they do.
According to the 2017 study Do Stocks Outperform Treasury Bills? by Hendrik Bessembinder of Arizona State University's W. P. Carey School of Business 52% of all stocks, lose money over time.
This study looked at 26,000 companies from 1926 to 2016 and found that about 12% went to zero.
(Source: Bessembinder et al)
From 1926 to 2016 over 3,000 US companies listed on US exchanges went bankrupt. 1,100 or about 4%, delivered 100% of net positive returns. Just 48% of stocks delivered positive returns.
In other words, safety and quality are what can help you avoid the value traps that don't make any money or even go out of business.
Only a fool ignores quality metrics like credit ratings, profitability over time, dividend track records (according to Ben Graham), and long-term returns.
ESG, as MSCI and Bank of America's (BAC) studies show, is a quality and risk metric.
In 2006 financials were flying high. 40X leverage with credit default swaps was allowing traditionally slow-growing businesses to grow at 20+% per year.
Did these companies have a good yield? Some did. Did they have strong growth? Absolutely. Did some have reasonable valuations? Sure.
Did investors, for a few years, make a killing? Yes...until the risk profile exploded and nearly destroyed the global economy.
That is the right way to think about ESG. Not as something that is going to make you rich in the short term, but something that will help you stay rich over the long-term.
By avoiding companies with elevated risk of fraud, corruption, or general long-term implosion, you practice sound risk management.
In order to win the game, first you must not lose it." - Chuck Noll
Remember what Research Affiliates says about using ESG.
Investors can satisfy their ESG preferences while still maintaining the characteristics of their preferred investment strategy...
If they want to outperform they should target factors that achieve that goal."
In other words, RA is saying that ESG is a fine screening tool, but should be used as part of a fundamentals-driven portfolio designed around your specific needs.
Dividend Kings Strong ESG Watchlist: ESG Investing Made Easy
(Source: DK Strong ESG Watchlist) sorted by highest yield
- green = potentially good buy or better
- blue = potentially reasonable buy
- yellow = hold
The safety and quality of this watchlist are equal to that of the dividend aristocrats.
The average dividend growth streak is 22 years, above the Ben Graham standard of excellence of 20 years.
The average yield is 2.4%, above the aristocrats 2.3% and S&P 500's 1.4%.
The average Long-term consensus growth rate is 10.6% vs 8.9% for the aristocrats and 6.4% for the S&P 500.
The average valuation is 22% overvalued compared to the aristocrats 26% overvaluation and 36% for the S&P 500.
Over the long term, meaning 30+ years according to a study from Princeton, when valuation changes tend to cancel out, these 113 companies are likely to outperform the aristocrats and S&P 500.
- 7.8% CAGR S&P 500
- 10.8% CAGR aristocrats
- 2.3% yield + 10.6% growth = 12.9% CAGR LT consensus return potential
The DK Strong ESG watchlist is based on the consensus ESG risk rating from Morningstar, MSCI, Reuters/Refinitiv, and S&P. If a company is in the 70th industry percentile it makes the list.
Strong ESG scores aren't why these companies are likely to outperform, superior fundamentals are.
This brings us to the smart way to practice ESG investing.
ESG Investing Can Make You Rich... If You Focus On The Fundamentals
The idea behind the DK Phoenix ESG portfolio is simple. Superior long-term safe income and total returns courtesy of superior fundamentals.
- start with the strong ESG watchlist
- then sort by LT consensus total returns
- buy a starter position in anything with double-digit long-term return forecasts
- as long as it's at a reasonable or attractive valuation
- and 9/12 blue-chip quality or better
This is how I run all DK portfolios, including real money Phoenix (where my life savings are invested).
Start with a specialty watchlist, and then buy reasonably to attractively valued blue-chips optimizing whatever your fundamental goal.
- Yield
- value
- total return
- quality
- safety
- ESG
- low volatility
It doesn't matter, fundamentals drive 91% of long-term results. And if your fundamentals are strong, then success becomes a matter of time and patience.
DK Phoenix ESG is similar to our Fortress portfolio which is 100% Ultra SWANs. It's a focus on ultra-high quality and a balance between growth and yield.
(Source: Morningstar)
34% value, 54% core and 13% growth.
- core basically means aristocrat quality blue-chips
(Source: Morningstar) PRU is the only "distressed" holding and it has an A-credit rating from all 4 rating agencies
The best economy in almost 40 years means it's a good time to overweight cyclical growth.
(Source: Morningstar)
DK Phoenix ESG combines superior
- size (smaller than S&P 500)
- valuation (exactly fair value per Morningstar's estimate)
- quality (higher profitability)
- yield (more than 2X the S&P 500)
- growth (12.5% vs 8.9% aristocrats and 6.4% S&P 500)
Guess what we just did. Stacked the deck with five alpha factors.
If these companies grow as Morningstar expects, then over time this portfolio would deliver about 15.6% total returns.
- S&P 500 can't hope to match that
- aristocrats can't hope to match that
- Nasdaq can't hope to match that
- 99% of funds can't hope to match that
The 30% historical margin of error for the Gordon Dividend Growth Model means that 10% to 21% annual total returns are actually likely from this portfolio.
- even 10% annual returns over time will outperform 90% of all mutual funds on earth
- and likely TGPEX, TROW's brand new global ESG fund
- which is up 4.8% YTD
Morningstar rates TROW as the #1 risk-adjusted active manager in America.
If you want to be the best you have to beat the best.
(Source: Morningstar) TGPEX is up 3.2% YTD
8 weeks is not statistically significant of course. However, we're experiencing fundamentally justified luck with 10.1% returns to start which beats both the S&P 500 and TROW's ESG fund.
- beating our benchmark by 6.9% so far
- because TGPEX likely owns a lot of overvalued tech
- most mutual funds/ETFs don't care about valuation
Guess what happens when you ignore blue-chip valuations? You'll experience lower returns because 80% of blue-chip returns over time are a function of valuation mean reversion.
The point is that whatever kind of investor you are, yield, growth, value, total returns, ESG, volatility, it doesn't matter. You always need to apply disciplined financial science to every single investment you buy.
5 High-Yield ESG Blue-Chips For A Rich Retirement
Here are the five highest-yielding strong ESG blue-chips trading at fair value or better.
Enbridge (ENB)
Further Research (Including Full Risk Analysis)
Enbridge Consensus ESG Risk Rating
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI | 85.0% | A, Above-Average |
| Morningstar/Sustainalytics | 98.0% | 20.3/100 Medium Risk |
| Reuters/Refinitiv (Combined ESG Rating) | 93.5% | Excellent |
| S&P | 75.0% | Good |
| Consensus | 87.9% | Very Good |
(Sources: MSCI, Morningstar, Reuters/Refinitiv, S&P)
According to Morningstar, MSCI, S&P, and Reuters ENB's overall long-term financial ESG risk management is very good, in the top 12% of its peers.
According to Morningstar's model, ENB's ESG risk management is better than all but three of its peers. It's also in the top 22% of all companies Morningstar rates, nearly 14,000 global firms.
(Source: Reuters/Refinitiv)
Enbridge's over 5 billion CAD investments into renewable energy are likely why it receives top marks on environmental risk from Reuters, and its community outreach and labor relations are also excellent.
(Source: S&P)
S&P also ranks ENB as one of the best in its industry, especially on governance and management quality. As far as environment risk it's #2 out of 12 rated pipeline companies.
Enbridge Valuation
| Metric | Bear Market Fair Value Multiples (9-Year time frame) | 2020 | 2021 | 2022 | 2023 | 2024 |
| 5-Year Average Yield | 6.01% | $40 | $44 | $46 | $48 | $46 |
| Operating Cash Flow | 10.0 | $36 | $44 | $48 | $46 | $41 |
| EBITDA | 8.2 | $34 | $45 | $49 | $50 | $49 |
| EBIT (Operating income) | 12.5 | $35 | $46 | $54 | $56 | NA |
| Average | $36 | $45 | $49 | $50 | $45 | |
| Current Price | $38.57 | |||||
Discount To Fair Value | -7% | 14% | 21% | 22% | 14% | |
| Upside To Fair Value | -6% | 16% | 27% | 29% | 17% |
(Source: F.A.S.T. Graphs, FactSet Research)
Enbridge is a potentially good buy thanks to its 14% discount to fair value. That's based on its 12/12 Ultra SWAN quality.
(Source: F.A.S.T. Graphs, FactSet Research)
It offers 13% annual consensus total return potential through 2023, which is far better than the 36% overvalued S&P 500.
S&P 500 2026 Consensus Return Potential
(Source: F.A.S.T. Graphs, FactSet Research)
Philip Morris International (PM)
Further Research (Including Full Risk Analysis)
Philip Morris Consensus ESG Risk Rating
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI | 58.0% | BBB Average |
| Morningstar/Sustainalytics | 92.3% | 23.3/100 Medium Risk |
| Reuters/Refinitiv (Combined ESG Rating) | 99.1% | Excellent |
| S&P | 74.0% | Good |
| Consensus | 80.8% | Very Good |
(Sources: MSCI, Morningstar, Reuters/Refinitiv, S&P)
According to Morningstar, MSCI, S&P, and Reuters PM's overall long-term financial ESG risk management is very good, in the top 19% of its peers.
Morningstar considers PM's ESG risk management to be the lowest among tobacco companies. It's also in the top 32% of all rated companies.
(Source: Reuters/Refinitiv)
Reuters, which analyzed over 500 total fundamental metrics, rates PM 90/100 on ESG risk management, and in the 99th industry percentile.
(Source: S&P)
S&P, which looks at over 1,000 fundamental metrics, rated PM in the 36th percentile (poor) in 2016. That's now 74th percentile, (good).
Valuation
| Metric | Historical Fair Value Multiples (12 years) | 2020 | 2021 | 2022 | 2023 | 2024 |
| 5-Year Average Yield | 5.32% | $90.23 | $91.54 | $95.11 | $100.38 | $106.02 |
| 12-Year Median Yield | 4.35% | $110.34 | $111.95 | $116.32 | $122.76 | $129.66 |
| 12-Year Average Yield | 4.66% | $103.00 | $104.51 | $108.58 | $114.59 | $121.03 |
| Earnings | 17.2 | $88.66 | $103.66 | $113.61 | $123.98 | $129.31 |
| Owner Earnings (Buffett smoothed out FCF) | 16.0 | $89.77 | $101.06 | NA | NA | NA |
| Operating Cash Flow | 15.0 | $94.25 | $103.44 | $109.98 | $116.96 | $127.69 |
| EBITDA | 10.3 | $86.18 | $95.13 | $102.38 | $110.26 | $118.64 |
| EBIT (operating income) | 11.0 | $85.40 | $94.74 | $102.03 | $109.96 | $116.70 |
| Average | $92.81 | $100.37 | $106.41 | $113.61 | $120.75 | |
| Current Price | $94.67 | |||||
Discount To Fair Value | -2% | 6% | 11% | 17% | 22% | |
Upside To Fair Value (Not including dividends) | -2% | 6% | 12% | 20% | 28% |
(Source: F.A.S.T. Graphs, FactSet Research)
Philip Morris is a potentially good buy at a modest discount to fair value. That's based on its 12/12 Ultra SWAN quality.
(Source: F.A.S.T. Graphs, FactSet Research)
If PM grows as analysts expect through 2023, and returns to historical fair value, then analysts expect
- 46% total returns
- 15.3% CAGR returns
- vs -1.3% CAGR S&P 500
From its modest discount, PM has the potential to outperform the 36% overvalued S&P 500 by 49% over the next three years.
AbbVie (ABBV)
Further Research (Including Full Risk Analysis)
AbbVie Consensus ESG Risk Rating
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI | 82.0% | BBB Average |
| Morningstar/Sustainalytics | 84.3% | 29.1/100 Medium Risk |
| Reuters/Refinitiv (Combined ESG Rating) | 93.9% | Excellent |
| S&P | 81.0% | Very Good |
| Consensus | 85.3% | Very Good |
(Sources: MSCI, Morningstar, Reuters/Refinitiv, S&P)
According to Morningstar, MSCI, S&P, and Reuters ABBV's overall long-term financial ESG risk management is very good, in the top 15% of its peers.
Pharma is a complex industry with high regulatory risk. According to Morningstar, AbbVie manages that risk very well, better than 84% of drug makers. Compared to all companies, its ESG risk management is in the 54th percentile.
(Source: Reuters/Refinitiv)
Reuters also considers AbbVie's risk management excellent, better than all but 17 other drugmakers.
(Source: S&P)
According to S&P, out of the 17 big drug makers it rates on ESG, ABBV is the 2nd best at managing its long-term risk.
Valuation
| Metric | Historical Fair Value Multiple (all years) | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 |
| 5-Year Average Yield | 4.37% | $108 | $119 | $125 | $127 | $130 | $134 |
| 8-Year Median Yield | 3.41% | $138 | $152 | $160 | $163 | $167 | $172 |
| 8-Year Average Yield | 3.99% | $118 | $130 | $137 | $139 | $143 | $147 |
| Earnings | 13.3 | $140 | $165 | $184 | $160 | $160 | $178 |
| Owner Earnings (Buffett smoothed out FCF) | 13.3 | $187 | $202 | $180 | NA | NA | NA |
| Operating Cash Flow | 12.5 | $131 | $153 | $186 | $163 | $161 | NA |
| Free Cash Flow | 13.2 | $133 | $145 | $172 | NA | NA | NA |
| EBITDA | 10.1 | $134 | $164 | $177 | $159 | $155 | NA |
| EBIT (operating Income) | 11.8 | $110 | $184 | $199 | $174 | $175 | NA |
| Average | $130 | $154 | $165 | $154 | $155 | $156 | |
| Current Price | $110.85 | ||||||
Discount To Fair Value | 15% | 28% | 33% | 28% | 28% | 29% | |
Upside To Fair Value (Not Including Dividends) | 17% | 39% | 49% | 39% | 39% | 40% |
(Source: F.A.S.T. Graphs, FactSet Research)
AbbVie's 11/12 Super SWAN quality means that a 10% discount would make it a potentially good buy. At a 28% margin of safety, it's a potentially strong buy.
(Source: F.A.S.T. Graphs, FactSet Research)
And capable of delivering 18% annualized returns over the next three years, even factoring in the Humira patent cliff in 2023.
Prudential (PRU)
Further Research (Including Full Risk Analysis)
Prudential Consensus ESG Risk Rating
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI | 79.0% | A, Above-Average |
| Morningstar/Sustainalytics | 94.2% | 17.4 Low Risk |
| Reuters/Refinitiv (Combined ESG Rating) | 84.1% | Good |
| S&P | 30.0% | Poor |
| Consensus | 71.8% | Good |
(Sources: MSCI, Morningstar, Reuters/Refinitiv, S&P)
According to Morningstar, MSCI, S&P, and Reuters PRU's overall long-term financial ESG risk management is good, in the top 28% of its peers.
Morningstar considers PRU's long-term risk management to be exceptional. In fact, according to its model, PRU's risk management is in the top 13% of all rated companies.
(Source: Reuters/Refinitiv)
Prudential scores good on Reuters model that looks at over 500 fundamental metrics. The biggest concern it has is with management's structure (independence, diversity, committees) and compensation.
Valuation
| Metric | Historical Fair Value Multiples (10 years) | 2020 | 2021 | 2022 | 2023 |
| 5-Year Average Yield | 3.82% | $115 | $120 | $129 | $144 |
| 13-Year Median Yield | 2.85% | $154 | $161 | $173 | $193 |
| 20- Year Average Yield | 3.03% | $145 | $152 | $163 | $181 |
| Earnings | 9.0 | $92 | $104 | $115 | $123 |
| EBITDA | 9.3 | NA | $153 | $164 | $165 |
| EBIT (Operating Income) | 7.7 | NA | $111 | $120 | $129 |
| Average | $122 | $130 | $140 | $151 | |
| Current Price | $101.05 | ||||
Discount To Fair Value | 17% | 22% | 28% | 33% | |
Upside To Fair Value (Not Including Dividends) | 20% | 28% | 39% | 50% |
(Source: F.A.S.T. Graphs, FactSet Research)
For 9/12 blue-chips like Prudential, a 20% margin of safety makes it a potentially good buy.
PRU is currently 22% undervalued, so a potentially good buy.
(Source: F.A.S.T. Graphs, FactSet Research)
Prudential has recovered magnificently in recent months, as interest rates have soared. But it's still capable of delivering 12% annual total returns over the next three years, and around 10% to 11% CAGR over the next decade.
The S&P 500 is likely to deliver about 5% to 6% returns over the next 10 years.
Manulife Financial (MFC)
Further Research (Including Full Risk Analysis)
Manulife Financial Consensus ESG Risk Rating
| Rating Agency | Industry Percentile | Rating Agency Classification |
| MSCI | 96.0% | AA, Good |
| Morningstar/Sustainalytics | 87.8% | 19.4/100 Low Risk |
| Reuters/Refinitiv (Combined ESG Rating) | 91.7% | Good |
| S&P | 55.0% | Good |
| Consensus | 82.6% | Very Good |
(Sources: MSCI, Morningstar, Reuters/Refinitiv, S&P)
According to Morningstar, MSCI, S&P, and Reuters MFC's overall long-term financial ESG risk management is very good, in the top 17% of its peers.
Morningstar considers MFC's risk management not only excellent for an insurance company but in the top 19% of all the companies it rates.
(Source: Reuters/Refinitiv)
Reuters considers MFC's risk management to be excellent. In fact, just 23 out of 276 insurance companies it rates do it better.
(Source: S&P)
S&P assigns MFC a good score of 55, which's been very stable for the last four years.
Valuation
| Metric | Historical Fair Value Multiple (7-years) | 2020 | 2021 | 2022 |
| 5-Year Average Yield | 3.94% | $22 | $22 | $24 |
| 13-Year Median Yield | 3.50% | $25 | $25 | $27 |
| Earnings | 10.3 | $22 | $25 | $27 |
| EBITDA | 7.8 | $21 | $24 | $25 |
| EBIT (Operating Income) | 8.5 | $19 | $21 | $23 |
| Average | $22 | $23 | $25 | |
| Current Price | $21.97 | |||
Discount To Fair Value | -2% | 6% | 12% | |
| Upside To Fair Value | -2% | 6% | 14% |
(Source: F.A.S.T. Graphs, FactSet Research)
For 10/12 SWAN quality companies, a 15% margin of safety makes them a potentially good buy. MFC is a reasonable buy at a 6% discount.
(Source: F.A.S.T. Graphs, FactSet Research)
Analysts believe MFC has the potential to deliver nearly 15% annual returns over the next 15 years.
For context, 15% returns are what Cathy Woods at ARK strives for. It's what private equity and hedge funds attempt to deliver. It's what Brookfield has spent decades delivering.
It's on par with the greatest investors in history. And today, it's what 4.1% yielding and rapidly growing MFC is offering.
Bottom Line: Successful ESG Investing Is No Different Than Any Other Kind
Fundamentals drive the success or failure of all investing strategies, and ESG investing is no different.
ESG has become controversial because many people misunderstand it. They think it's a hippy metric or political or ethical BS that is not based on anything tangible or materially relevant to business.
According to studies from MSCI, Bank of America, and dozens of leading analyst firms and research institutions, ESG is absolutely material to business success or failure.
It's a measure of risk, and over time is correlated with lower fraud, corruption, financial failure, and in many cases, superior profitability, and long-term growth.
But, just like A credit ratings are merely a sign of quality and long-term dependability with dividend stocks, for now, ESG is not an official alpha factor.
It still matters, but if you're going to succeed as an ESG investor, you can't count purely on risk ratings to determine long-term success. Just as with any strategy, your fundamentals will drive returns over time.
- starting yield
- growth
- valuation changes
ESG can help you to screen out low-quality value traps, the 52% of all companies that lose money over time.
But it takes strong fundamentals to achieve returns sufficient for your personal goals.
Enbridge, Philip Morris, AbbVie, Prudential, and Manulife Financial, are the five highest-yielding strong ESG blue-chips you can buy at reasonable to attractive valuations.
Each offers 4% to 7% very safe yield, that's growing steadily over time, in all economic and market conditions.
Each also offers 12% to 18% CAGR total return potential over the next three years. Those are strong return potentials in any market, but especially in this one, where the S&P 500 offers basically zero fundamental upside through 2023.
Every investor has different goals. Their risk profiles vary, as do their time horizons. Whatever kind of investor you are, it's never too late to take charge of your financial destiny.
It's time to stop praying for luck on Wall Street and start making your own.
If you focus on quality first, and prudent valuation, and sound risk management always, then over time, you can earn the safe and prosperous retirement you deserve.
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This article was written by
Adam Galas is a co-founder of Wide Moat Research ("WMR"), a subscription-based publisher of financial information, serving over 5,000 investors around the world. WMR has a team of experienced multi-disciplined analysts covering all dividend categories, including REITs, MLPs, BDCs, and traditional C-Corps.
The WMR brands include: (1) The Intelligent REIT Investor (newsletter), (2) The Intelligent Dividend Investor (newsletter), (3) iREIT on Alpha (Seeking Alpha), and (4) The Dividend Kings (Seeking Alpha).
I'm a proud Army veteran and have seven years of experience as an analyst/investment writer for Dividend Kings, iREIT, The Intelligent Dividend Investor, The Motley Fool, Simply Safe Dividends, Seeking Alpha, and the Adam Mesh Trading Group. I'm proud to be one of the founders of The Dividend Kings, joining forces with Brad Thomas, Chuck Carnevale, and other leading income writers to offer the best premium service on Seeking Alpha's Market Place.
My goal is to help all people learn how to harness the awesome power of dividend growth investing to achieve their financial dreams and enrich their lives.
With 24 years of investing experience, I've learned what works and more importantly, what doesn't, when it comes to building long-term wealth and safe and dependable income streams in all economic and market conditions.
Analyst’s Disclosure: I am/we are long ENB, PM, ABBV, PRU, MFC, JNJ. 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.
Dividend Kings own ENB, PM, ABBV, PRU, MFC, and JNJ in our portfolios.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.