In the past few days, I have noticed that a couple of dividend growth stocks have been selling at lower prices than before. Those are companies that have managed to grow earnings, and dividends over time. These companies are usually overvalued, but recent weakness has brought them closer to fair value territory. I would be interested in each one of those companies on dips below 20 times earnings. The companies include:
V.F. Corporation (VFC) engages in the design, production, procurement, marketing, and distribution of branded lifestyle apparel, footwear, and related products in the United States and Europe.
This dividend champion has increased dividends for 43 years in a row. Over the past decade, it has managed to boost dividends at a rate of 17.10%/year.
The company earned $2.85/share in 2015, and is expected to grow earnings to $3.20 in 2016 and $3.57 in 2017.
Currently, the stock is selling for 17.10 times expected earnings and yields 2.40%. Check my last analysis of V.F. Corporation for more information about the company.
Novo Nordisk A/S (NVO), a healthcare company, engages in the discovery, development, manufacture, and marketing of pharmaceutical products worldwide. It operates in two segments, Diabetes and Obesity Care, and Biopharmaceuticals. This company is based in Denmark, and as a result there will be fluctuations due to currency when earnings and dividends are translated into US dollars. For international dividend growth stocks, you want to look at the payment in local currency, not in US dollars when determining track record of annual dividend increases. Novo Nordisk is a leader in the diabetes market. Unfortunately, given the increasing number of overweight individuals eating unhealthy foods worldwide, diabetes is expected to spread in the future. This may work well for companies like Novo Nordisk.
On the other hand, the stock has taken a beating, due to increased competition from other drug makers, the company reducing its near term growth forecast by a notch, and cutbacks affecting 2.5% of its global staff. Near term pressures on its drug pricing may also be raising fears that the future may not be as rosy as in the past.
The company earned $2.01/share in 2015, and is expected to grow earnings to $2.28 in 2016 and $2.43 in 2017.
Novo Nordisk is an international dividend achiever that has increased dividends every year since 1995. Over the past decade, it has managed to boost dividends by a factor of 10.
Currently, the stock is selling for 20.30 times earnings and yields 2.40%. I would be interested in initiating a small position on dips below $40/share. I may be even more interested in the company at lower prices.
As a side note, dividends paid by Danish companies to US investors are subject to a 27% withholding tax at the source. There is a lengthy process for US investors to reclaim some of the excess withheld, which is described here. If you decide to invest in Novo Nordisk, it makes sense to do so in a taxable account.
As usual, I am interested in building out positions in those companies slowly. This would insulate me in case stock prices fall further from here. I would try to post a more detailed analysis of each company within the next few weeks.
Full Disclosure: Long VFC
- Why do I use a P/E below 20 for valuation purposes?
- International Dividend Stocks – Pros and Cons
- A Costly Misconception about foreign dividend stocks
- International Over Diversification
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