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Thursday, April 9, 2020

36 Dividend Aristocrats On My Shopping List

With the stock market staying in a bear market, I have been monitoring the list of dividend aristocrats for bargains. Unfortunately, bear markets move pretty quickly, which makes it imperative to be prepared for the right opportunity.

Preparation involves getting familiar with different businesses, and understanding whether they have some sort of a competitive advantage. Preparation also involves getting familiar with company fundamentals, and reviewing trends in those fundamentals over time.

During a recession, fundamentals tend to lag by a large margin. This is why I find it helpful to focus on companies where I can get comfortable with the qualitative side, as well as the quantitative side.

In order to prepare, I downloaded the list of dividend aristocrats and reviewed their earnings histories over the past decade. I reviewed those histories, without knowing the company behind them. I did this in order to avoid letting my biases towards certain companies influence me towards them, even if the fundamentals do not look as hot today. One of the risks behind investing include situations where investors fall in love with a company, and are willing to ignore every red flag, until it is too late. Other times, the investor may have a negative opinion on a company, which may be incorrect. Looking at information from a distance  may help them see things more objectively.

As a result of this exercise, I ended up with a list of 36 companies, which are worth reviewing further. I have these companies on my list for potential investment ( or addition to existing positions). I just need to make sure that I acquire these companies at the right price of course.

Ticker
Name
 Price
Forward 
P/E
Annual 
Dividend
Dividend Yield
Years of Annual Dividend Increases
10 year Dividend Growth
ABBV
AbbVie Inc.
78.56
      8.24
4.72
6.01%
47
14%
ADP
Automatic Data Processing
138.53
    22.94
3.64
2.63%
45
11%
AFL
AFLAC Inc
37.77
      8.56
1.12
2.97%
38
7%
ALB
Albemarle Corp.
61.82
    13.89
1.54
2.49%
26
11%
AOS
Smith A.O. Corp
40.22
    19.62
0.96
2.39%
26
22%
APD
Air Products & Chemicals Inc
215.76
    23.71
5.36
2.48%
38
10%
ATO
Atmos Energy
102.65
    21.93
2.3
2.24%
36
5%
BF-B
Brown-Forman
61.22
    34.98
0.7
1.14%
36
8%
CAH
Cardinal Health Inc
49.4
      9.22
1.92
3.89%
24
18%
CLX
Clorox Co
181.04
    28.29
4.24
2.34%
42
8%
CTAS
Cintas Corp
192.41
    23.93
2.55
1.33%
37
18%
ECL
Ecolab Inc
170.81
    30.13
1.88
1.10%
28
13%
EXPD
Expeditors International
72.47
    22.09
1
1.38%
25
11%
GD
General Dynamics
137.39
    11.04
4.4
3.20%
29
10%
GPC
Genuine Parts Co
73.25
    13.77
3.16
4.31%
64
7%
GWW
Grainger W.W. Inc
270.4
    16.94
5.76
2.13%
48
12%
HRL
Hormel Foods Corp
47.37
    27.22
0.93
1.96%
54
16%
ITW
Illinois Tool Works Inc
158.8
    23.46
4.28
2.70%
45
13%
KMB
Kimberly-Clark
132.64
    18.19
4.28
3.23%
48
6%
LEG
Leggett & Platt
28.77
    14.98
1.6
5.56%
48
4%
LOW
Lowe's Cos Inc
94.35
    15.67
2.2
2.33%
57
19%
MCD
McDonald's Corp
177.49
    24.86
5
2.82%
44
9%
MKC
McCormick & Co
149.1
    28.78
2.48
1.66%
62
9%
MMM
3M Co
148.99
    17.28
5.88
3.95%
61
11%
NUE
Nucor Corp
39.05
    17.05
1.61
4.12%
47
1%
PBCT
People's United Financial
11.2
      9.74
0.71
6.34%
27
2%
PPG
PPG Industries Inc
93.35
    16.15
2.04
2.19%
48
6%
ROP
Roper Technologies, Inc
318.08
    24.54
2.05
0.64%
27
19%
ROST
Ross Stores Inc.
89.05
    23.25
1.14
1.28%
25
25%
SHW
Sherwin-Williams Co
488.31
    22.18
5.36
1.10%
42
12%
SPGI
S&P Global
261.51
    25.89
2.68
1.02%
47
10%
SYY
Sysco Corp
47.25
    15.10
1.8
3.81%
50
5%
TGT
Target Corp
104.63
    15.76
2.64
2.52%
52
14%
TROW
T Rowe Price Group Inc
105.51
    14.97
3.6
3.41%
34
12%
VFC
VF Corp
57.99
    18.47
1.92
3.31%
47
12%
WBA
Walgreens Boots Alliance Inc
43.09
      7.83
1.83
4.25%
44
14%

I have listed the companies below, along with some fundamental data that I find to be relevant. This includes price, yield, P/E ratio, Dividend Payout Ratio and 10 year annualized dividend growth rate. It also includes the dividend streak as well.

I try to avoid paying more than 20 times forward earnings for companies. At this stage of this recession, a lot of companies are withdrawing guidance and a lot of analysts are playing catch up to the downward revision trend for earnings per share for 2020. The problem during a recession is that you need to think beyond the numbers you are seeing. I am reminded by the old joke that in a recession your value stocks have no value, and your growth stocks have no growth. As long-term investors, we need to 

Perhaps forward earnings for 2021 should be the guiding estimate for future earnings. Another guide may be using earnings for 2019. 

The quality of earnings will also drive the dividend payout ratio as well. Once we end up with the earnings figure to use, calculate the payout ratio with it.

This is the type of analysis I may do to come up with a potential shopping list. It is possible that stock prices go up from here. It is also possible that stock prices go down further from here. As an investor, my goal is to uncover quality companies, selling at attractive valuations, and to be prepared to invest when I find what I am looking for. If I invest regularly with a long-term focus, keep investment costs low, keep diversified and keep activity low, I have an edge over most everyone else.

Whether the stock market is going up or going down, I stick to my plan. We may get a lot of dividend cuts, or not, but I will continue sticking to my plan. So far, most dividend cuts have been in cyclical companies, which tend to cut dividends. 

Again, this is just a list for further research, not a recommendation to buy or sell. It is imperative to stay diversified, and not overweight a single company or sector too much. However, it is equally important to know what you own, and determine how resilient that business is under most probable scenarios out there. 

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