3 High-Yield Dividend Aristocrats To Buy During The September Sell-Off

Sep. 28, 2021 12:56 AM ETEnbridge Inc. (ENB), PM, VFC78 Comments43 Likes

Summary

  • The September market dip so far has been a 4% decline and has been followed by a nice relief rally.
  • However, the debt ceiling crisis is looming, and could potentially trigger another global financial crisis according to Moody's.
  • The good news is that the threat of a 33% market crash, which could destroy $13.5 trillion of rich people's wealth, is likely to force Congress to act.
  • Today ENB, PM, and VFC are three 13/13 Ultra SWAN quality dividend aristocrats yielding between 3% and 6.6% yield.
  • They all offer the potential to double your money (or better) in the next five years. And in a short December 2018 style correction of 10% to 20%, you might be able to double down on them at mouthwatering valuations that could triple your investment in the following five years.
  • This idea was discussed in more depth with members of my private investing community, The Dividend Kings. Learn More »

Stack of $100 bills on a white background
Sezeryadigar/E+ via Getty Images

September is historically the worst month for stocks and so far this September has lived up to its reputation.

Mind you after Monday's 1.7% decline, the worst daily fall since May, the market was down just 4% from record highs.

Historically speaking, this is still just a dip, not even a pullback. With the market now staging a relief rally after Evergrande avoided a default (for now), and the Fed reiterating its slow taper plans, some investors think the worst might be behind us.

Why The September Sell-Off Might Not Be Over

We actually face numerous risk factors right now, that could combine into a historically healthy and normal 10% to 15% correction. Most economists and analysts expect one this year, and Morgan Stanley says it might be as large as 20%.

A 20% decline would bring the S&P back to historical fair value according to JPMorgan.

Perhaps the biggest reason to expect a correction in the next few weeks is the debt ceiling drama playing out in Washington.

Moody's estimates that by October 20th the US treasury will begin defaulting on its obligations.

Deutsche Bank thinks the drop-dead date might be in early November. However, whenever we start to default, the implications could be very dire indeed.

In the last half of October, $80 billion will be due, ranging from social security payments to Medicare and Medicaid and defensive contractor payments.

The US government has never defaulted on its debt, which is why US treasuries are the most popular "risk-free" asset on earth.

The entire global economy has been built on the notion that US bonds are risk-less investments and the ultimate safe-haven asset.

Moody's has crunched the numbers and here's its summary of the worst-case scenario for a debt default.

This economic scenario is cataclysmic.

Based on simulations of Moody’s Analytics model of the U.S. economy, the downturn would be comparable to that suffered during the financial crisis.

That means real GDP would decline almost 4% peak to trough, nearly 6 million jobs would be lost, and the unemployment rate would surge back to close to 9% (see Table).

Stock prices would be cut almost in one-third at the worst of the selloff, wiping out $15 trillion in household wealth.

Treasury yields, mortgage rates, and other consumer and corporate borrowing rates spike, at least until the debt limit is resolved and Treasury payments resume.

Even then, rates never fall back to where they were previously. Since U.S. Treasury securities no longer would be risk-free, future generations of Americans would pay a steep economic price." - Moody's

Basically, if the US defaults on its debt because Congress doesn't raise the debt ceiling as it's done almost annually for nearly 70 years, then we are likely facing another global financial crisis.

At the peak of the crisis Moody's estimates that US GDP would plunge 6.5%, and 8.5 million Americans would lose their jobs.

For context, during the Great Recession, we lost 8 million jobs over 2 years. This time we could lose more in just six months.

The stock market, according to Moody's model, could fall 33%, wiping out $15 trillion in wealth, again, over just six months.

Fortunately, this is the worst-case scenario, and Moody's, most blue-chip economists, and analysts don't expect this catastrophe to actually happen.

It is unimaginable that lawmakers would allow things to get to this point, but as the TARP experience highlights, they have done the unimaginable before. Yet, if that experience is a guide, lawmakers would quickly reverse course and resolve the debt limit impasse to allow the Treasury to raise funds and pay its bills. Much damage will have already been done, but markets and the economy would right themselves." - Moody's

The reason why is very simple. Studies show that whatever Americans actually want, 80% of government policy is determined by the richest 20%.

As the saying goes, the golden rule is he who has the gold makes the rules.

Well, guess who owns 90% of US stocks? The richest 20%.

Families in the top 10% of incomes held 70% of the value of all stocks in 2019, with a median portfolio of $432,000. The bottom 60% of earners held only 7% of stocks by value. The median middle-class household-owned $15,000 worth of stock."- US News and World Report

In fact, the top 10% now own over 70% of all stocks. And if that weren't insurance enough, after 2020's strong rally, nearly 50% of the US market is owned by retirees.

(Source: US News and World Report)

Guess who is the most dependable voting block? Retirees.

Guess who pulls the strings in Washington? The richest 20%.

And if the worst-case debt default scenario unfolds as Moody's expects, it's the top 20% who would lose approximately $13.5 trillion in a span of six months.

As Moody's points out, politicians are often stupid and "unthinkable" things happen with disturbing regularity in DC. But remember that long-trail, low probability, worst-case scenarios happen very infrequently.

The intelligent investor is a realist who buys from pessimists and sells to optimists." - Ben Graham

Consider this. In February 2020 we had similar polarization and gridlock in DC as we have now. Democrats and Republicans often refused to speak with each other, much less work together.

Then COVID hit and the market fell 34% in a month. The first stimulus package was passed in record time, in bi-partisan fashion, largely because the rich were losing mountains of money every day.

So why haven't we seen better progress on the debt ceiling so far? Precisely because the market has been flat and the rich are not excessively worried and lobbying Congress to gets its act together.

But as the doomsday clock continues to tick, the risks of a 10% to 20% correction mount. And while Senate Minority leader McConnell is telling the GOP caucus to vote "no" on any debt ceiling increase today, if the market falls 15% to 20% there is a very high probability that he'll change his tune.

Why? Because the rich donors that pull the strings in DC will all be screaming for Congress to prevent the stupidest recession in history.

So the good news is that we're not likely to experience a financial catastrophe. The bad news, from the perspective of some investors, is that it might take December 2018 style correction (a 20% drop) to force Congress to get off its butt and do its job.

Basically, price fluctuations have only one significant meaning for the true investor.

They provide him with an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal.” - Benjamin Graham

The volatility that frightens most investors can make you rich. And that's where today's three high-yield dividend aristocrat recommendations come in.

3 High-Yield Aristocrats To Buy During The September Sell-Off

In today's yield-starved world Vanguard's "high-yield" ETF yields 2.7%, the S&P 1.5%, and a 60/40 portfolio 1.8%. So I define "high-yield" as 3+% or double the yield of the market.

Enbridge (NYSE:ENB): The Quality King Of Midstream

Further Research Including Comprehensive Risk Analysis

This is an exclusive comprehensive deep-dive analysis of ENB's safety, dependability, quality, valuation, and short, medium, and long-term return potential.

This video article provides a comprehensive analysis of the risk profile, courtesy of 32 experts who have studied this business for decades and know it better than anyone other than management.

Business Summary

Enbridge owns extensive midstream assets that transport hydrocarbons across the U.S. and Canada. Its pipeline network consists of the Canadian Mainline system, regional oil sands pipelines, and natural gas pipelines. The company also owns and operates a regulated natural gas utility and Canada's largest natural gas distribution company. Finally, the firm has a small renewables portfolio primarily focused on onshore and offshore wind projects." - Morningstar

Business Update

Enbridge Adds Leading Corpus Christi Oil Export Terminal at Fair Price With Moda Buy

Enbridge has agreed to acquire Moda Midstream for $3 billion in cash in what we think is a fairly priced deal. The crown jewel of the acquisition is Ingleside Energy Center, which loaded 25% of all U.S. Gulf Coast oil exports in 2020. The asset can export 1.5 million barrels per day and has over 15 million barrels of storage. At 8 times forward EBITDA, the price looks fair to us, as it already reflects nearly all of the center’s earnings potential. With an earnings contribution of $375 million, the deal represents only about 3.5% of Enbridge’s expected 2021 EBITDA of just over $10.5 billion...

Since Moda Midstream acquired the asset from Occidental Petroleum in 2018, it has expanded the storage capacity to 15.6 million barrels from 2.1 million and increased the ability for its berths to handle very large crude carriers, materially improving its cost competitiveness. There’s still room to expand, but more modestly, as storage expansions to over 20 million barrels have been permitted as well as the incremental export capacity of 0.3 million barrels per day.

Oil exports have been one of the most attractive areas in U.S. midstream for some time, and with this robust near-term oil price environment, we think there’s little chance that Enbridge would have secured any type of bargain purchase. Indeed, we expect the asset would have attracted considerable interest from numerous midstream competitors." - Morningstar

ENB Fundamentals

Dividend Safety score: 84% - 5/5- very safe (0.5% average recession cut risk, 1.9% pandemic level recession cut risk)

Dependability score: 83% - 5/5 - exceptional dependability

Quality score: 82% - 13/13 Ultra SWAN (Sleep Well At Night) - global aristocrat

Long-term risk management consensus: 87th industry percentile - very good

2021 average fair value: $44.52

2022 average fair value: $48.47

12-month blended forward harmonic average fair value: $47.41

Current Price: $40.05

Discount To Fair Value/Margin of safety: 16%

DK rating: potential strong buy

Yield: 6.6% vs 2.7% Vanguard high-yield ETF

Long-term growth consensus: 6.6%

Long-term consensus total return potential: 13.2% (vs. 9.9% for the S&P 500 and 11.2% aristocrats)

ENB isn't just the quality king of midstream, it's also the growth king.

Safe Midstream List Sorted By Quality

Company Ticker Safety Score Quality Score ESG/Long-Term Risk Management Consensus Industry Percentile Longest Maturing Bond

Longest Maturing Bond Yield To Maturity

Magellan Midstream Partners (uses K-1) MMP 82% 82% NA 2050 3.4%
Enbridge ENB 84% 82% 87% 2112 5.0%
Enterprise Products Partners (uses K-1 tax form) EPD 83% 82% 60% 2078 4.5%
TC Energy TRP 82% 81% 68% 2081 5.0%
National Fuel Gas NFG 83% 78% 40% 2031 2.7%
Pembina Pipeline Corp. PBA 82% 76% 69% 2081 5.9%
Brookfield Infrastructure Corp. BIPC 78% 75% 44% 2032 3.0%
Brookfield Infrastructure Partners (Uses K1 tax form) BIP 78% 75% 44% 2032 3.0%
ONEOK OKE 75% 73% 76% 2051 4.3%
Kinder Morgan KMI 76% 72% 79% 2098 4.9%
NextEra Energy Partners NEP 66% 70% 80% 2026 2.8%
MPLX (uses K-1) MPLX 74% 69% NA 2058 3.9%
Williams Companies WMB 67% 65% 65% 2050 3.3%
Average 77% - safe 75% SWAN 65% - Above-Average 2060 4.0%

(Source: Dividend Kings Safe Midstream List)

That's thanks to Enbridge's 20-year lead on most of its rivals when it comes to investing in renewables.

(Source: June Investor Presentation)

Floating offshore wind is a 9,450 GW investable opportunity, representing approximately a $10 trillion addressable market. That's 2100X larger than ENB's current wind assets.

(Source: June Investor Presentation)

This is why management thinks it can grow at about 6% over time, not just for few years, but decades to come.

(Source: FactSet Research Terminal)

The bond market, the so-called "smart money" on Wall Street, is willing to lend to ENB for 91 years at under 5%, showing their confidence in the ability to transition to a green energy future.

(Source: June investor presentation)

A transition that Enbridge thinks it can achieve while becoming the first dividend king in midstream.

ENB Valuation

Metric Historical Fair Value Multiples (9-Years, 100% worst bear market in industry history) 2020 2021 2022 2023

12-Month Forward Fair Value

5-Year Average Yield 6.17% $41.33 $43.16 $43.16 $46.68
Operating Cash Flow 9.85 $38.11 $41.41 $47.61 $45.07
EBITDA 8.18 $33.94 $45.22 $49.38 $50.26
EBIT (operating income) 12.45 $34.61 $48.96 $55.26 $55.54
Average $36.77 $44.52 $48.47 $49.07 $47.41
Current Price $40.05

Discount To Fair Value

-8.93% 10.03% 17.38% 18.39% 15.52%

Upside To Fair Value (NOT Including Dividends)

-8.20% 11.15% 21.03% 22.53% 18.37%
2021 OCF 2022 OCF 2021 Weighted OCF 2022 Weighted OCF 12-Month Forward OCF 12-Month Average Fair Value Forward P/OCF

Current Forward P/OCF

4.2 4.83 $1.13 $3.53 $4.66 10.17 8.59

ENB is trading at just 8.6X forward cash flow, pricing in approximately zero growth according to the Graham/Dodd fair value formula.

(Source: FactSet Research)

And analysts expect ENB to grow at 6.6% CAGR (a range of 4% to 11%).

This creates the potential for 10.6% to 17.6% CAGR long-term returns, which ENB has achieved historically and could possibly maintain for the next 50 years.

(Source: Portfolio Visualizer)

ENB Vs. S&P 500 Vs Aristocrats Inflation-Adjusted Long-Term Return Forecast: $1,000 Investment

Time Frame (Years) 7.9% LT Inflation-Adjusted Returns (S&P Consensus) 9.2% Inflation-Adjusted Returns (Aristocrat consensus) 11.3% Inflation-Adjusted ENB Consensus
5 $1,325.65 $1,552.79 $1,707.95
10 $1,757.34 $2,411.16 $2,917.10
15 $2,329.62 $3,744.03 $4,982.27
20 $3,088.26 $5,813.70 $8,509.49
25 $4,093.94 $9,027.47 $14,533.80
30 $5,427.13 $14,017.78 $24,823.04
35 $7,194.46 $21,766.69 $42,396.57
40 $9,537.33 $33,799.13 $72,411.34
45 $12,643.14 $52,483.01 $123,675.14
50 $16,760.36 $81,495.18 $211,231.27

My personal $64,000 ENB investment could be worth $13.5 million, adjusted for inflation, in 50 years and be paying me $838,000 in very safe annual income.

That's my ENB retirement plan.

Time Frame (Years) Ratio S&P vs Aristocrat Consensus Ratio S&P vs ENB Consensus
5 1.17 1.29
10 1.37 1.66
15 1.61 2.14
20 1.88 2.76
25 2.21 3.55
30 2.58 4.57
35 3.03 5.89
40 3.54 7.59
45 4.15 9.78
50 4.86 12.60

But you don't have to wait decades to enjoy the benefits of this classic Buffett-style high-yield blue-chip bargain.

ENB Consensus Return Potential

For context, here's the return potential of the 27% overvalued S&P 500.

S&P 500 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Goldman Sachs doesn't think analysts are yet pricing in higher corporate taxes (25%) in 2022. This could potentially reduce 2022 EPS growth by 7%. BlackRock agrees with these estimates.

S&P 500 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

Aristocrats are expected to deliver about 6.4% CAGR returns over the next five years.

And here's what ENB can realistically deliver.

ENB 2023 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

ENB 2026 Consensus Total Return Potential

(Source: FAST Graphs, FactSet Research)

ENB Investment Decision Score

Ticker ENB DK Quality Rating 13 82% Investment Grade A
Sector Energy Safety 5 84% Investment Score 97%
Industry Oil, Gas & Consumable Fuels Dependability 5 83% 5-Year Dividend Return 39.83%
Sub-Industry Oil & Gas Storage & Transportation Business Model 3 Today's 5+ Year Risk-Adjusted Expected Return 10.30%
Ultra SWAN, Phoenix, Top Buy, Safe Midstream, Strong ESG
Goal Scores Scale Interpretation
Valuation 4 Strong Buy ENB's 15.52% discount to fair value earns it a 4-of-4 score for valuation timeliness
Preservation of Capital 6 Above Average ENB's credit rating of BBB+ implies a 5% chance of bankruptcy risk and earns it a 6-of-7 score for Preservation of Capital
Return of Capital 10 Exceptional ENB's 39.83% vs. the S&P's 9.04% 5-year potential for return via dividends earns it a 10-of-10 Return of Capital score
Return on Capital 10 Exceptional ENB's 10.30% vs. the S&P's 3.62% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score
Total Score 30 Max score of 31 S&P's Score
Investment Score 97%

Excellent

73/100 = C(Market Average)
Investment Letter Grade A

(Source: DK Automated Investment Decision Tool)

ENB is one of the most reasonable and prudent high-yield blue chips you can buy today. In fact, it represents

  • high-yield investing done right
  • aristocrat investing done right
  • foreign dividend investing done right
  • total return investing done right
  • ESG investing done right

Basically, Enbridge today represents smart investing, done right.

Philip Morris International (NYSE:PM): The Growth King Of Nicotine

Further Research Including Comprehensive Risk Analysis

This is an exclusive comprehensive deep-dive analysis of PM's safety, dependability, quality, valuation, and short, medium, and long-term return potential.

This video article provides a comprehensive analysis of the risk profile, courtesy of 26 experts who have studied this business for decades and know it better than anyone other than management.

Business Summary

Philip Morris International is a leading international tobacco company engaged in the manufacture and sale of cigarettes and other nicotine-containing products in markets outside the United States. Through multidisciplinary capabilities in product development, state-of-the-art facilities, and scientific substantiation, the company aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Management's vision is that these products ultimately replace cigarettes." - Morningstar

Business Update

Philip Morris International's Leadership of RRPs will Drive Highly Profitable Medium-Term Growth

Philip Morris International's, or PMI's, Unsmoke campaign signals an intent to go further in replacing cigarettes with reduced-risk alternatives. The latest medium-term targets from management imply strong growth over the next three to five years, and the company aims to generate over half of its revenue from non combustibles by 2025.

We regard this as ambitious, perhaps a stretch goal, but we are in no doubt that if events go its way, PMI could be the first Big Tobacco firm since the 1990s to diversify half of its cash flow away from cigarettes. We regard this as a sound strategy from an environmental, social, and governance, or, ESG perspective, and because it's likely to accelerate profitable medium-term growth.

Under current market conditions, heatsticks, the cigarette-like sticks that are used in the iQOS device, are generally taxed at lower rates than cigarettes. The economics of the distribution of heatsticks, therefore, is highly favorable to the manufacturer. Net revenue per pack is 2.4 times that of a pack of cigarettes, and the gross margin is a whopping 10 percentage points higher than cigarettes, at about 75%. Selling and overhead expenses are likely to be higher than cigarettes at current volumes, but at scale, we think heatsticks can more than replicate premium cigarette EBIT margins.

Much depends on current taxation regimes remaining in place. If heatsticks are taxed as cigarettes in most markets, PMI will be forced to absorb some of the tax incidences. However, the strategy to take only very limited pricing on heatsticks in order to establish a price discount to cigarettes is the right one, in our view. First, it offers an incentive to smokers to migrate to a reduced-risk product. Second, it could dissuade governments from closing the price gap to cigarettes by raising taxes.

To deliver on its medium-term target of heatsticks volume of 140 billion to 160 billion by 2023, we believe PMI must now focus on the growth drivers of the category. New products will be critical to reigniting consumer adoption, in our view, and we think TEEPS, the disposable pipeline product, could be exactly what is needed to unlock the upside potential in PMI's market value." - Morningstar (emphasis added)

PM Credit Rating Consensus

Rating Agency Credit Rating 30-Year Default/Bankruptcy Risk Chance of Losing 100% Of Your Investment 1 In
S&P A+ stable 0.60% 166.7
Fitch A stable 0.66% 151.5
Moody's A2 (A Equivalent) stable 0.60% 166.7
Consensus A+ stable 0.62% 161.3

(Sources: S&P, Fitch, Moody's)

PM enjoys the strongest balance sheet in its industry.

(Source: FactSet Research Terminal)

The bond market disagrees that PM is a "dying business" and thinks it will be around for decades to come.

Tobacco company revenues are up 17X since 1960 despite a steady decline in volumes.

In the future zero cigarettes will be sold and dividend kings like PM will continue to pay generous, safe and growing dividends.

PM Profit Margin Consensus Forecast

Year FCF Margin EBITDA Margin EBIT (Operating) Margin Net Margin Return On Capital Expansion

Return On Capital Forecast

2020 30.8% 44.1% 40.8% 28.1% 1.18
2021 25.7% 46.5% 43.1% 30.3% TTM ROC 207.0%
2022 27.1% 47.6% 44.4% 31.4% Latest ROC 205.8%
2023 32.9% 48.4% 44.6% 32.0% 2025 ROC 244.0%
2024 NA 49.3% 47.9% 33.4% 2025 ROC 242.7%
2025 NA NA 48.1% 33.9% Average 243.3%
2026 NA NA NA NA Industry Median 48.9%
Annualized Growth 2.27% 2.82% 3.35% 3.82% PM/Peers 5.0
Vs S&P 18.7

(Source: FactSet Research Terminal)

Analysts expect that as PM shifts to a smoke-free future, its margins will continue to improve, hitting 243% by 2025, 19X that of the S&P 500.

PM Profit Growth Consensus Forecast

Year Sales FCF EBITDA EBIT (Operating Income) Net Income
2020 $28,694 $8,827 $12,651 $11,698 $8,055
2021 $31,214 $8,028 $14,505 $13,445 $9,462
2022 $32,865 $8,903 $15,636 $14,603 $10,317
2023 $34,741 $11,430 $16,812 $15,509 $11,119
2024 $35,887 NA $17,684 $17,205 $11,984
2025 $37,981 NA NA $18,256 $12,862
Annualized Growth 5.77% 9.00% 8.73% 9.31% 9.81%

(Source: FactSet Research Terminal)

Does this look like a dying company to you?

PM Dividend Growth Consensus Forecast

Year Dividend Consensus EPS/Share Consensus Payout Ratio Retained Cash Flow (After Distributions) Buyback Potential Debt Repayment Potential
2021 $4.88 $6.09 80.1% $1,886 1.18% 6.3%
2022 $5.07 $6.68 75.9% $2,510 1.57% 8.6%
2023 $5.43 $7.34 74.0% $2,978 1.87% 10.2%
2024 $5.76 $7.90 72.9% $3,336 2.09% 10.5%
2025 NA $8.48 NA NA NA 39.5%
Total 2021 Through 2024 $21.14 $36.49 75.5% $10,710.33 15.00% 35.54%
Annualized Rate 5.68% 9.06% -3.10% 20.93% 20.93% 18.63%

(Source: FactSet Research Terminal)

Management's goal is a 75% payout ratio which will make for a very safe and steadily growing dividend (52-year growth streak from this dividend king spin-off from MO). It will also allow PM to potentially buy back up to 2% of its stock every year.

Management's guidance is for "9+% CAGR growth" and analysts are even more bullish.

(Source: FactSet Research Terminal)

Do you know how many 5% yielding companies are expected to grow at 12% CAGR over time? Very few. How many are also Ultra SWAN quality dividend kings? Only Philip Morris.

PM Fundamentals

Dividend Safety score: 86% - 5/5- very safe (0.5% average recession cut risk, 1.7% pandemic level recession cut risk)

Dependability score: 82% - 5/5 - exceptional dependability

Quality score: 84% - 13/13 Super SWAN (Sleep Well At Night)

Long-term risk management consensus: 77th industry percentile - good

2021 average fair value: $101.60

2022 average fair value: $107.17

12-month blended forward harmonic average fair value: $105.67

Current Price: $101.52

Discount To Fair Value/Margin of safety: 4%

DK rating: potential reasonable buy

Yield: 4.9% vs 2.7% Vanguard high-yield ETF

Long-term growth consensus: 12.1%

Long-term consensus total return potential: 17.0% (vs. 9.9% for the S&P 500 and 11.2% aristocrats)

PM Valuation

Metric Historical Fair Value Multiples (12-Years) 2020 2021 2022 2023 2024

12-Month Forward Fair Value

5-Year Average Yield 5.32% $89.10 $90.23 $90.23 $102.07 $108.27
13-Year Median Yield 4.36% $108.72 $110.09 $110.09 $124.54 $132.11
13-year Average Yield 4.66% $101.72 $103.00 $103.00 $116.52 $123.61
Earnings 17.15 $88.66 $104.60 $115.75 $125.01 $135.49
Owner Earnings (Buffett Smoothed Out FCF) 16.03 $89.77 $101.06 NA NA NA
Operating Cash Flow 14.97 $94.25 $102.71 $115.61 $123.64 $139.67
EBITDA 10.29 $86.18 $95.98 $103.60 $111.06 $117.82
EBIT (operating income) 11.03 $85.40 $95.66 $103.14 $111.63 $118.79
Average $92.38 $100.08 $105.24 $115.78 $124.24 $105.67
Current Price $101.52

Discount To Fair Value

-9.89% -1.44% 3.54% 12.32% 18.29% 3.93%

Upside To Fair Value (NOT Including Dividends)

-9.00% -1.42% 3.67% 14.05% 22.38% 4.09%
2021 EPS 2022 EPS 2021 Weighted EPS 2022 Weighted EPS 12-Month Forward EPS 12-Month Average Fair Value Forward PE

Current Forward PE

$6.10 $6.75 $1.64 $4.93 $6.58 15.8 15.4

PM is a classic Buffett-style "wonderful company at a fair price". One that could help you retire rich, and your grandchildren even richer.

PM Vs. S&P 500 Vs Aristocrats Inflation-Adjusted Long-Term Return Forecast: $1,000 Investment

Time Frame (Years) 7.9% LT Inflation-Adjusted Returns (S&P Consensus) 9.2% Inflation-Adjusted Returns (Aristocrat consensus) 11.7% Inflation-Adjusted Low End PM Management Guidance 15.0% Inflation-Adjusted Returns PM Consensus
5 $1,462.54 $1,552.79 $1,738.86 $2,011.36
10 $2,139.02 $2,411.16 $3,023.65 $4,045.56
15 $3,128.40 $3,744.03 $5,257.72 $8,137.06
20 $4,575.40 $5,813.70 $9,142.47 $16,366.54
25 $6,691.69 $9,027.47 $15,897.52 $32,918.95
30 $9,786.86 $14,017.78 $27,643.64 $66,211.77
35 $14,313.66 $21,766.69 $48,068.55 $133,175.52
40 $20,934.27 $33,799.13 $83,584.73 $267,863.55
45 $30,617.17 $52,483.01 $145,342.55 $538,769.27
50 $44,778.78 $81,495.18 $252,731.08 $1,083,657.44

My PM investment of nearly $8,000 could be worth about $2 million, adjusted for inflation, in 50 years, based on management's long-term guidance.

It could be paying $88,000 in annual inflation-adjusted and growing dividends.

This is my PM retirement plan.

Time Frame (Years) Ratio Aristocrats Vs S&P Ratio Low-End PM Management Guidance Vs S&P

Ratio PM Consensus Vs S&P

5 1.06 1.19 1.38
10 1.13 1.41 1.89
15 1.20 1.68 2.60
20 1.27 2.00 3.58
25 1.35 2.38 4.92
30 1.43 2.82 6.77
35 1.52 3.36 9.30
40 1.61 3.99 12.80
45 1.71 4.75 17.60
50 1.82 5.64 24.20

PM could not only outperform the aristocrats but even the Nasdaq if it grows as expected.

2023 PM Consensus Return Potential

(Source: FAST Graphs, FactSet Research)

2026 PM Consensus Return Potential

(Source: FAST Graphs, FactSet Research)

PM could nearly double your money in the next five years.

PM Investment Decision Score

Ticker PM DK Quality Rating 13 84% Investment Grade A
Sector Consumer Staples Safety 5 86% Investment Score 97%
Industry Tobacco Dependability 5 82% 5-Year Dividend Return 31.69%
Sub-Industry Tobacco Business Model 3 Today's 5+ Year Risk-Adjusted Expected Return 9.80%
Ultra SWAN, Phoenix, Top Buy, Strong ESG
Goal Scores Scale Interpretation
Valuation 3 Reasonable Buy PM's 3.94% discount to fair value earns it a 3-of-4 score for valuation timeliness
Preservation of Capital 7 Excellent PM's credit rating of A implies a 0.66% chance of bankruptcy risk, and earns it a 7-of-7 score for Preservation of Capital
Return of Capital 10 Exceptional PM's 31.69% vs. the S&P's 9.03% 5-year potential for return via dividends earns it a 10-of-10 Return of Capital score
Return on Capital 10 Exceptional PM's 9.80% vs. the S&P's 3.61% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score
Total Score 30 Max score of 31 S&P's Score
Investment Score 97%

Excellent

73/100 = C(Market Average)
Investment Letter Grade A

(Source: DK Automated Investment Decision Tool)

PM is one of the best high-yield aristocrats you can buy today.

V.F. Corp. (NYSE:VFC): Possibly The Nike Of Tomorrow, Trading At A Good Price Today

Further Research Including Comprehensive Risk Analysis

This is an exclusive comprehensive deep-dive analysis of VFC's safety, dependability, quality, valuation, and short, medium, and long-term return potential.

This video article provides a comprehensive analysis of the risk profile, courtesy of 31 experts who have studied this business for decades and know it better than anyone other than management.

Business Description

VF designs produces and distributes branded apparel and accessories. Its largest apparel categories include action sports, outdoor, and workwear. Its portfolio of about 15 brands includes Vans, The North Face, Timberland, Supreme, and Dickies. VF markets its products in the Americas, Europe, and Asia-Pacific through wholesale sales to retailers, e-commerce, and branded stores owned by the company and partners. The company has grown through multiple acquisitions and traces its roots to 1899." - Morningstar

Business Summary

VF Has Not Been Immune to COVID-19’s Effects, but Its Brands Provide a Competitive Advantage

VF has performed well for shareholders and built a portfolio of strong brands in multiple apparel categories. We view the three brands that make up a large majority of VF's sales (Vans, Timberland, and The North Face) as supporting VF's narrow moat based on a brand intangible asset. Despite short-term disruption from the COVID-19 crisis, we believe VF will grow faster than most competitors in the long run and maintain its competitive advantage.

We forecast VF’s active segment (includes Vans and Supreme) will generate 61% of its segment operating income in its (March-ending) fiscal 2022. Vans has grown from its roots as an action sports brand into an everyday brand. Internal research by VF suggests the typical Vans customer, once a male skateboarder, is more interested in music and fashion than action sports. In fact, 60% of Vans apparel is now purchased by females, and it is one of the most popular shoe brands for teens of both sexes. It is viewed as less of a sports brand than a brand for creative people. Vans, like wide-moat Nike and others, offers customization options that are very popular among consumers aged 13-24. We think Vans has strong potential as it is still relatively small (approximately $3.5 billion in fiscal 2021 revenue) compared with global brands like Nike (about 10 times larger).

We believe The North Face will benefit from its new FutureLight waterproof fabric, brand extensions, and expansions of its direct-to-consumer business. VF plans 8%-9% annual growth for The North Face, which may be possible after the coronavirus crisis has passed. We are less certain of VF’s long-term growth targets for Timberland and Dickies of 3%-4% and 5%-6%, respectively, given inconsistent results.

VF laid out fiscal 2024 goals of a gross margin above 55.5%, and operating margin above 15%, and an ROIC above 20% at its 2019 investor event. We think these targets are aggressive but achievable. Indeed, we forecast an operating margin of 15% in fiscal 2024, up from an estimated 13% in fiscal 2022. To achieve this, VF will need continuing strong growth from high-margin brands Vans and Supreme as the virus fades." - Morningstar

VFC Fundamentals

Dividend Safety score: 81% - 5/5- very safe (0.5% average recession cut risk, 2.0% pandemic level recession cut risk)

Dependability score: 93% - 5/5 - exceptional dependability

Quality score: 84% - 13/13 Ultra SWAN (Sleep Well At Night)

Long-term risk management consensus: 90th industry percentile - exceptional

2021 average fair value: $66.36

2022 average fair value: $80.42

12-month blended forward harmonic average fair value: $76.63

Current Price: $67.66

Discount To Fair Value/Margin of safety: 12%

DK rating: potential good buy

Yield: 3.0% vs 2.7% Vanguard high-yield ETF

Long-term growth consensus: 20.1% (low end of consensus range)

management guidance: 12% to 14% CAGR growth

Long-term consensus total return potential (management guidance): 16.0% (vs. 9.9% for the S&P 500 and 11.2% aristocrats)

(Source: Investor presentation)

VFC owns some of the best brands in its industry and has an exceptional track record of buying new brands and turbocharging them.

  • it grew Vans shoes from $300 million sales (and operating losses) to $3.5 billion in annual sales and operating margins of nearly 25%
  • it bought North Face out of bankruptcy for $25 million and that brand now sells $500 million per year

(Source: Investor Presentation)

The $2.7 billion acquisition of Supreme is part of management's plans to deliver 12% to 14% CAGR growth and 15% to 17% CAGR total returns.

(Source: Investor Presentation)

Analysts are even more bullish, potentially expecting VFC to become the Nike of tomorrow.

(Source: FactSet Research Terminal)

And along the way, this future dividend king (it hits a 50-year streak in a few weeks), is offering some of the best risk management in the industry.

VFC Credit Ratings

Rating Agency Credit Rating 30-Year Default/Bankruptcy Risk Chance of Losing 100% Of Your Investment 1 In
S&P A- stable outlook 2.50% 40.0
Moody's Baa1 (BBB+ equivalent) stable outlook 5.00% 20.0
Consensus BBB+ To A- Stable 3.75% 26.7

(Source: S&P, Moody's)

VFC Long-Term Risk Management Consensus

Rating Agency Industry Percentile

Rating Agency Classification

MSCI 82.0%

AA Industry Leader

Morningstar/Sustainalytics 90.2%

12.7/100 Low Risk

Reuters'/Refinitiv 94.6% Excellent
Just Capital 92.1% Excellent
Consensus 89.7% Exceptional
FactSet Qualitative Assessment Average Positive Trend

(Sources: MSCI, Morningstar, Reuters', Just Capital, FactSet Research)

And one of the world's highest quality companies is also on sale.

VFC Valuation

Metric Historical Fair Value Multiples (11-Years) 2021 2022 2023 2024 2025 12-Month Forward Fair Value
13-Year Median P/S 2.26 $69.16 $74.81 $79.78 $88.82 $94.47
5-Year Average Yield 2.47% $79.35 $79.35 $83.81 $90.69 $110.53
13-Year Median Yield 2.28% $85.96 $85.96 $90.79 $98.25 $119.74
25- Year Average Yield 2.46% $79.67 $79.67 $84.15 $91.06 $110.98
Earnings 20.51 $66.45 $77.52 $86.55 $105.83 NA
Owner Earnings (Buffett Smoothed Out FCF) 21.44 $89.84 $115.86 NA NA NA
Operating Cash Flow 18.66 $57.47 $78.37 $86.77 $134.73 NA
Free Cash Flow 22.82 $39.48 $75.30 $86.26 NA NA
EBITDA 13.35 $64.40 $73.09 $78.36 $94.65 NA
EBIT (operating income) 16.34 $66.64 $77.27 $84.97 $99.84 NA
Average $66.36 $80.42 $84.45 $98.89 $108.12 $76.63
Current Price $67.66

Discount To Fair Value

-1.96% 15.87% 19.89% 31.58% 37.42% 11.71%

Upside To Fair Value (NOT Including Dividends)

-1.92% 18.86% 24.82% 46.15% 59.80% 13.26%
2021 EPS 2022 EPS 2022 Weighted EPS 12-Month Forward EPS 12-Month Average Fair Value Forward PE

Current Forward PE

$3.24 $3.78 $2.76 $3.63 21.1 18.6

When you can earn management guidance total returns of 16% CAGR over time from one of the highest-quality companies on earth, then buying at even fair value is a potentially very reasonable decision.

At a 12% discount, VFC is a potentially good buy for anyone comfortable with its risk profile.

2023 VFC Consensus Return Potential

(Source: FAST Graphs, FactSet Research)

2026 VFC Consensus Return Potential

(Source: FAST Graphs, FactSet Research)

VFC Investment Decision Score

Ticker VFC DK Quality Rating 13 84% Investment Grade A
Sector Consumer Discretionary Safety 5 81% Investment Score 97%
Industry Textiles, Apparel & Luxury Goods Dependability 5 93% 5-Year Dividend Return 18.03%
Sub-Industry Apparel, Accessories & Luxury Goods Business Model 3 Today's 5+ Year Risk-Adjusted Expected Return 11.99%
Ultra SWAN, Phoenix, Hyper-Growth, Strong ESG
Goal Scores Scale Interpretation
Valuation 4 Good Buy VFC's 11.40% discount to fair value earns it a 4-of-4 score for valuation timeliness
Preservation of Capital 7 Excellent VFC's credit rating of A- implies a 2.5% chance of bankruptcy risk, and earns it a 7-of-7 score for Preservation of Capital
Return of Capital 9 Excellent VFC's 18.03% vs. the S&P's 9.02% 5-year potential for return via dividends earns it a 9-of-10 Return of Capital score
Return on Capital 10 Exceptional VFC's 11.99% vs. the S&P's 3.60% 5-year risk-adjusted expected return (RAER) earns it a 10-of-10 Return on Capital score
Total Score 30 Max score of 31 S&P's Score
Investment Score 97%

Excellent

73/100 = C (Market Average)
Investment Letter Grade A

(Source: DK Automated Investment Decision Tool)

VFC is one of the best fast-growing aristocrats you can buy today.

Bottom Line: Be Ready To Profit From Any Short-Term Corrections With The World's Best High-Yield Aristocrats

Is it possible the market avoids a pullback, much less a correction in the coming weeks? Sure.

However, the risks are certainly on the downside. On October 1st, the government will shut down unless Congress acts.

3 weeks later, the US government starts to default on its debts, unless Congress acts.

Unless Congress acts, a severe recession and bear market are all but a certainty according to Moody's.

These are just two of the biggest short-term risks facing the economy right now.

The good news is that it's highly unlikely that we will face the actual doomsday scenario that Moody's expects from a prolonged debt default.

The better news is that the very thing that is likely to light a fire under the butts of Congress, could be a sharp and severe market correction, similar to what we saw in December 2018 when the market fell 17% in three weeks.

And of course, that correction was followed by the best year for stocks in almost four decades.

Remember the pandemic crash? The one that forced Congress to pass one of the biggest stimulus bills in history in record time?

While I'd love to believe that Congress acted out of genuine concern for the wellbeing of Americans, it's likely that a big reason for the speed and bi-partisanship of the pandemic response was because rich people were losing trillions.

And today those same rich people are even richer and could lose $13.5 trillion in six months if we default on our debt.

Currently, Enbridge, Philip Morris, and V.F. Corp. already represent Ultra SWAN high-yield aristocrats, classic Buffett-style "wonderful companies at fair prices".

In a sharp Dec 2018 style correction, they might be scooped up at even better valuations, allowing you to potentially double or triple your money in the following five years.

All while enjoying very safe and growing 3% to 6.6% yields that are the stuff rich retirement dreams are made of.

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This article was written by

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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.


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Disclosure: I/we have a beneficial long position in the shares of ENB, PM, VFC either through stock ownership, options, or other derivatives. 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.

Additional disclosure: Dividend Kings owns ENB, PM, and VFC in our portfolios.

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