Bargains Do Exist In Just About Any Market

Includes: AFL, BMY, CL, ESRX, KMB, KO, MO, PM, WBA, WM
by: Mike Nadel

With so many investors chasing dividends, good companies have become overvalued. How many times in this low-interest-rate environment have we heard that lament?

Well, if saying "good companies" means only the likes of Altria Group (MO), The Coca-Cola Company (KO) and Kimberly Clark Corporation (KMB), then one certainly could argue that each is selling at a premium price. Thankfully, there's a whole wide world of companies, including plenty of fairly valued (and even undervalued) options.

David Fish's list of Dividend Champions, Challengers and Contenders includes nearly 500 firms that have consistently raised shareholder payouts for at least five consecutive years. More than 100 of those are Champions. These have been raising dividends annually for at least a quarter century, through wars and recessions and terrorist attacks and burst bubbles and Kardashian weddings and oodles of dubious decisions by our elected leaders. While many Champions have been bid up by dividend-hungry investors, I have been able to buy two at attractive prices in the past few weeks: Walgreen Co. (WAG) and Aflac Incorporated (AFL), with a combined 66 years of hiking divvies.

Already suffering because of a seven-month stalemate with pharmacy benefits manager Express Scripts Inc. (ESRX), Walgreen's raised eyebrows on June 19 by paying $6.7 billion for a chain of European pharmacies. The market punished Walgreen's, sending its price near its 52-week low -- even though it also announced it was raising its dividend an eye-popping 22 percent.

A fundamentally sound company and dividend-growing monster suddenly had a sub-$30 entry point and a future yield of 3.7. Come to Papa!

Exactly one month later, Walgreen's and Express Scripts announced they had kissed and made up. Immediately, Walgreen's price soared 14 percent, and it has been rolling ever since. Thanks to that appreciation, it has become one of my biggest holdings.

Then there's Aflac. As respected Seeking Alpha author Chuck Carnevale said in a recent article, the company is an earnings-growing machine that has been raising its dividend significantly. It has been one of the most undervalued good companies out there, perhaps because its outsized presence in Japan has spooked investors. As its price dropped into the low-40s in late July, its dividend yield grew to 3.2 percent. I decided to jump in, and AFL has climbed steadily since.

I had similar recent experiences with Waste Management (WM) and Bristol-Myers Squibb Company (BMY). A Dividend Challenger with nine consecutive years of divvy hikes and a dominant position in its industry, Waste Management was hit with an analyst downgrade on July 11 and its stock immediately fell 5 percent. That turned a traditionally solid yielder into a 4.6 percent titan and, as chronicled here, I grabbed it. As for Bristol-Myers Squibb, a double-dose of bad news -- a failed drug trial combined with an executive accused of insider trading -- caused share price to plummet almost 9 percent on Aug. 2. BMY wasn't even on my wish list but I couldn't resist such a bargain on a historically solid company with a dividend yield that now exceeded 4 percent.

Am I a stock-picking genius? Yeah, sure ... and a Chippendale dancer, too.

Fact is, I am a Dividend Growth Investing neophyte who since the beginning of the year has been on a crash course trying to learn the strategy's ins and outs. My stated goal is to build a portfolio of stable, proven companies that will help support me and my wife with inflation-beating dividend growth down the line. My less-stated goal is to not do anything too stupid with the savings we have spent decades accumulating.

When a mope like me can find value even in a supposedly overvalued market, so can mopes everywhere ... as long as we do our homework and pay attention to the world around us. It's not as if Walgreen's, Aflac, Waste Management and Bristol-Myers Squibb are hidden gems flying under the radar. They are major corporations that have made investors lots of loot for years but, because of one event or another, they were available on sale. And who doesn't love a sale?

Heck, even the likes of Colgate-Palmolive Co. (CL) and Philip Morris International (PM) -- companies that have been called overvalued for quite some time -- might be deemed a wise investment most any time.

When I spent $75 per share to make Philip Morris the first official member of my Dividend Growth portfolio some eight months ago, I supposedly overpaid. It has appreciated more than 20 percent since ... and has paid me a couple of nice dividends, to boot.

Yep, I'm quite the genius. Now if you'll excuse me, I've got to get my bow tie and skin-tight black pants. My fellow Chippendales are counting on me to carry them. Again.

Disclosure: I am long WAG, AFL, WM, BMY, KO, PM.