3 Unstoppable Dividend Blue-Chips I'm Buying In 2022 And So Should You

Jan. 09, 2022 10:03 PM ETLOW, MA, V52 Comments


  • 2022 is likely to be a year of volatility and incredible opportunity in the stock market.
  • Rising interest rates could trigger sell-offs in the world's best companies, such as Ultra SWANs LOW, MA, and V.
  • Today, LOW is trading at fair value, and MA and V are modestly overvalued.
  • But these wide moat hyper-growth Ultra SWANs are expected to deliver 20% long-term annual returns, 14% on a risk-adjusted basis, on par with the greatest investors in history.
  • Maximizing returns while minimizing fundamental risk is how the average investor can retire in safety and splendor.
  • This idea was discussed in more depth with members of my private investing community, The Dividend Kings. Learn More »

Affectionate mature couple at marina

kali9/E+ via Getty Images

What a glorious start to the new year!

So far 2022 is a year when the stock market makes sense.

Overvalued companies, which are the dominant names in the Nasdaq and S&P 500 are down a bit.

Speculative tech is down a lot.

And value is outperforming as it usually does in Fed tightening cycles.

Bloomberg reports that the bond market is now pricing in an 82% probability of six rate hikes in 2022. Just six months ago the Fed was debating whether one was appropriate.

So far this year has seen a return of perfectly normal historical market volatility, which looks like this.

(Source: Jill Mislinksi)

What kind of potential correction should investors expect in 2022?

14% is the average historical peak decline and what investors need to be comfortable within any given year.

That's the cost of owning the best-performing asset in history.

If you want to know the truth about volatility, here it is.

Volatility caused by money managers who speculate irrationality with huge sums will offer the true investor more chance to make intelligent investment moves.

He can be hurt by such volatility only if he is forced, by either financial or psychological pressures, to sell at untoward times." Warren Buffett

"Volatility isn't risk, it's the source of future returns." - Joshua Brown, CEO, Ritholtz Wealth Management

The key to sleeping well at night in 2022, no matter what happens, is having your hard-earned savings in a diversified and prudently risk-managed portfolio.

And when the market sells off? Having the right watchlist of the world's best companies that can help you retire in safety and splendor, can help train you to, in the words of Warren Buffett, "be greedy when others are fearful".

So let me show you why Lowe's (LOW), Visa (V), and Mastercard (MA), are three unstoppable hyper-growth blue-chips that I'm looking forward to buying in a future correction and why you might want to do the same.

3 Ultra SWAN Quality Hyper-Growth Blue-Chips That Can Help You Retire In Safety And Splendor

Company Fair Value

Good Buy Price

Lowe's $258.14 $245.23
Visa $201.70 $191.61
Mastercard $310.91 $295.36

(Source: DK Research Terminal)

You can read more about these hyper-growth Ultra SWANs in the above articles but let me show you a quick summary of why anyone buying these world-beater blue-chips at fair value or better in 2022, is likely to be very happy over the long-term.

First, let's look at quality and safety.

The Dividend King's overall quality scores are based on a 231 point model that includes:

  • dividend safety

  • balance sheet strength

  • credit ratings

  • credit default swap medium-term bankruptcy risk data

  • short and long-term bankruptcy risk

  • accounting and corporate fraud risk

  • profitability and business model

  • growth consensus estimates

  • cost of capital

  • long-term risk-management scores from MSCI, Morningstar, FactSet, S&P, Reuters'/Refinitiv and Just Capital

  • management quality

  • dividend friendly corporate culture/income dependability

  • long-term total returns (a Ben Graham sign of quality)

  • analyst consensus long-term return potential

It actually includes over 1,000 metrics if you count everything factored in by 12 rating agencies we use to assess fundamental risk.

  • credit and risk management ratings make up 41% of the DK safety and quality model

  • dividend/balance sheet/risk ratings make up 83% of the DK safety and quality model

How do we know that our safety and quality model works well?

During the two worst recessions in 75 years, our safety model predicted 87% of blue-chip dividend cuts during the ultimate baptism by fire for any dividend safety model.

Company Quality Rating (out Of 13) Quality Score (Out Of 100) Dividend/Balance Sheet Safety Rating (out of 5) Dependability Score (out Of 100)
Lowe's 13 94% 5 95%
Mastercard 13 86% 5 80%
Visa 13 87% 5 78%
Average 13.0 Ultra SWAN 89.0% Very Safe (1.6% dividend cut risk in the most severe recessions) 5.0 very safe 84.3% exceptional dependability

(Source: DK Research Terminal)

These are as close to perfect quality dividend growth companies as exist on Wall Street.

  • very safe dividends
  • wide and stable moats
  • exceptional dividend and total return dependability
  • world-class management teams
  • industry-leading risk-management
Company Long-Term Risk Management Consensus Industry Percentile Risk-Management Rating Risk Rating
Lowe's 83% Very Good Low
Mastercard 83% Very Good Low
Visa 79% Good Low
Average 81.7% very good

(Source: DK Research Terminal)

Why are these some of the world's safest companies?

Company Dividend Growth Streak (Years) S&P Credit Rating 30-Year Bankruptcy Risk
Lowe's 59 BBB+ 5.00%
Mastercard 9 A+ 0.60%
Visa 12 AA- 0.55%
Average 26.7 - dividend aristocrat A+ Stable 2.05%

(Source: DK Research Terminal)

Ben Graham considered a 20+ year dividend growth streak one of his signs of excellence. And these companies average a 27-year streak are together are effectively a dividend aristocrat.

S&P estimates their risk of defaulting on their debt and going bankrupt in the next 30-years at 2.05%.

  • the probability of all three going to zero in the next three decades is approximately 1 in 116,075

And now let's consider return on capital.

  • annual pre-tax profit divided by operating capital (the money it takes to run the business for a year)

ROC is Joel Greenblatt's gold standard for quality and moatiness.

Using just ROC and valuation, Greenblatt was able to become one of the greatest investors in history.

  • 40% CAGR total returns for 21 years at Gotham Capital

We're buying above-average quality at below-average prices". - Joel Greenblatt

Company ROC (Greenblatt) ROC Industry Percentile 13-Year Median ROC 5-Year ROC Trend (CAGR)
Lowe's 56% 86% 24% 4%
Mastercard 430% 95% 830% -2%
Visa 653% 95% 501% 5%
Average 379.5% 92.0% very wide moat 451.8% 2.3% stable moat

(Source: DK Research Terminal)

These Ultra SWANs have sensational returns on capital, dominating their peers in terms of profitability, which is Wall Street's favorite quality proxy.

And now let's take a look at valuation.

Company Discount To Fair Value 12-Month Consensus Total Return Price 12-Month Consensus Total Return Potential PE/EBITDA/FFO 2021

PEG 2021

Lowe's 0.1% $280.41 8.77% 20.06 1.13
Mastercard -19% $432.31 16.84% 35.17 1.56
Visa -9% $273.33 24.38% 25.14 1.46
Average -9.27% $328.68 16.67% 26.79 1.38

(Source: DK Research Terminal)

Lowe's is a classic Buffett-style "wonderful company at a fair price". In fact, LOW is the 2nd highest quality company on the entire Master List. And given the quality of the Master List, that's saying something.

The DK 500 Master List includes the world's highest quality companies including:

  • All dividend champions

  • All dividend aristocrats

  • All dividend kings

  • All global aristocrats (such as BTI, ENB, and NVS)

  • All 13/13 Ultra Swans (as close to perfect quality as exists on Wall Street)

  • 45 of the world's best growth stocks (on its way to 50)

Overall, these three companies are modestly overvalued, but growing so quickly that their average PEG is just 1.38, close to Peter Lynch's "Growth at a reasonable price".

Analysts are actually bullish on all three, expecting impressive 17% total returns in the next year.

Of course, we don't actually care about 12-month return forecasts.

Time Frame (Years)

Total Returns Explained By Fundamentals/Valuations

1 Day 0.01%
1 month 0.25%
3 month 0.75%
6 months 1.5%
1 3%
2 6%
3 23%
4 31%
5 39%
6 47%
7 55%
8 62%
9 70%
10 78%
11+ 90% to 91%

(Sources: DK S&P 500 Valuation And Total Return Potential Tool, JPMorgan, Bank of America, Princeton, RIA)

  • over 12 months luck is 33X as powerful as fundamentals
  • over 11+ years fundamentals are 11X as powerful as luck

Ok, so the quality and safety of these Ultra SWANs is beyond questioning, but why am I so excited to buy these Ultra SWANs during any downturn in 2022 at fair value or better?

Take a look at their return potential fundamentals.

Company Yield FactSet Long-Term Consensus Growth Rate 12-Month Consensus Total Return Potential Long-Term Consensus Total Return Potential

Long-Term Risk-Adjusted Expected Return

Lowe's 1.24% 17.80% 8.77% 19.0% 13.3%
Mastercard 0.53% 22.50% 16.84% 23.0% 16.1%
Visa 0.68% 17.20% 24.38% 17.9% 12.5%
Average 0.82% 19.17% 16.67% 20.0% 14.0%

(Source: DK Research Terminal)

These Ultra SWANs don't yield much, though 0.8% very safe yield is still better than the 0.5% offered by the Nasdaq.

And over the long-term analysts expect 20% annual returns, which puts the Nasdaq to shame.

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return

Long-Term Inflation And Risk-Adjusted Expected Returns

LOW, MA, V 0.8% 19.2% 20.0% 14.0% 11.7%
Dividend Growth 1.6% 12.6% 14.2% 9.9% 7.7%
Value 2.1% 12.1% 14.1% 9.9% 7.6%
High-Yield 2.8% 11.3% 14.1% 9.8% 7.6%
High-Yield + Growth 1.7% 11.0% 12.7% 8.9% 6.6%
Nasdaq (Growth) 0.7% 10.7% 11.4% 8.0% 5.7%
Dividend Aristocrats 2.2% 8.9% 11.1% 7.8% 5.5%
REITs + Growth 1.8% 8.9% 10.6% 7.4% 5.2%
Safe Midstream + Growth 3.3% 8.5% 11.8% 8.3% 6.0%
S&P 500 1.4% 8.5% 9.9% 6.9% 4.6%
REITs 3.0% 7.0% 9.9% 6.9% 4.7%
Safe Midstream 6.1% 6.2% 12.3% 8.6% 6.3%
60/40 Retirement Portfolio 1.9% 5.1% 7.0% 4.9% 2.6%
10-Year US Treasury 1.7% 0.0% 1.7% 1.2% -1.1%

(Source: Morningstar, FactSet, YCharts)

For context, 20% return potential is literally what Warren Buffett has delivered for 55 years, becoming the greatest long-term investor of all time.

15% long-term returns are what Cathie Wood at ARK and Private Equity strive for.

Even the risk-adjusted expected returns of 14% are on par with the greatest investors in history, such as John Templeton.

And those 14% to 20% returns are not from speculative companies, but three of the world's safest and most dependable Ultra SWANs. Companies with an average credit rating of A+ stable.

OK, this is some very exciting and intriguing math. But what evidence do we have that LOW, V, and MA can actually deliver 14% to 20% long-term annual total returns?

Historical Returns Since 2009 (Annual Rebalancing)

The future doesn't repeat, but it often rhymes" - Mark Twain

Past performance is no guarantee of future results, but studies show that blue-chips with relatively stable fundamentals over time offer predictable returns based on yield, growth, and valuation mean reversion.

So how have these Ultra SWANs done over the last 12 years, when 90% of total returns were a function of fundamentals?

(Source: Portfolio Visualizer Premium)

Even in one of the hottest bull markets in history, these Ultra SWANs beat the red hot Nasdaq.

Mind you in the future 27% returns aren't expected, just 20% returns and 14% risk-adjusted returns. Which is still good enough to approximately double your wealth every five years.

Bottom Line: I'm Buying These Hyper-Growth Ultra SWANs In 2022 And So Should You

2022 has already proven somewhat exciting for investors and the rest of the year is likely to see much more volatility and last year.

But remember for prudent long-term investors volatility = opportunity.

Luck is what happens when preparation meets opportunity." - Roman philosopher, Seneca the Younger

Lowe's, Visa, and Mastercard aren't just hyper-growth blue-chips that deserve to be in almost every diversified, and prudently risk-managed portfolio. They are hyper-growth Ultra SWANs that are among the world's highest quality and most dependable companies.

Lowe's is currently the 2nd best Buffett-style "wonderful company at a fair price" on the Master List.

And collectively LOW, V, and MA are 9% overvalued, and three of the best correction watchlist blue-chips for 2022.

Analysts expect 20% long-term returns from these Ultra SWANs, literally Buffett-like return potential.

I expect 14% long-term returns, on par with the greatest investors in history, with very little fundamental risk.

And combined with the world's best ultra-yield Ultra SWANs LOW, V, and MA can deliver incredible safe income today (4.5%very safe yield), as well as potentially life-changing income and wealth tomorrow.

In the full version of this article, available with a 2-week free trial to Dividend Kings, I show, step-by-step how a typical retired couple could potentially enjoy

  • $450,000 in inflation-adjusted income in the first 15 years
  • an extra $285,000 inflation-adjusted income compared to a 60/40
  • and grow their portfolio from $555,000 to nearly $8 million adjusted for inflation over the course of a traditional 30-year retirement

In other words, retiring in safety and splendor isn't a matter of luck, but merely trusting the world's best blue-chips and prudent risk-management, to help you retire rich, and stay rich in retirement.


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This article was written by

Dividend Sensei profile picture
Maximize your income with the world’s highest-quality dividend investments

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.

Disclosure: I/we have a beneficial long position in the shares of LOW, V, MA 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 LOW, V, and MA in our portfolios.

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