This week’s Weekly is a continuation of our free report titled "5 Dividend Aristocrats Worth Considering," but in this member-only version we have included the Top 3. We currently own two of the Top 3 stocks on the list. Also, one of the stocks is this week’s members-only new investment idea (it’s an attractive big-dividend Industrial company that’s gotten even more attractive this month and this week following some very interesting news). Without further ado, here is the list...
5. Archer Daniels Midland (ADM, 2.8% Yield)
Not only does ADM pay a big 2.8% dividend, but the shares have under-performed over the last year as global economic conditions have been weak and the strong dollar has been a drag on sales. In our view this is part of the normal economic cycle, and creates an attractive buying opportunity for long-term investors.
If you don’t know, ADM buys agricultural commodities (oilseeds, corn, wheat), processes them, and then sells them as protein meal, vegetable oil, corn sweeteners, flour, biodiesel, ethanol, and other food and feed ingredients. The company has no pricing power (their product is a commodity), but they do have economies of scale based on their global network of processing, storing and transporting capacity. Additionally, the company should benefit from growing worldwide demand for animal feed as emerging markets consume more meat.
On a price to earnings basis, ADM is particular attractive relative to its own history, especially as we expect the market cycle and economic conditions to improve (i.e. we’re at a low point in the cycle, making now an attractive time to consider a purchase).
4. HCP Inc. (HCP, 5.8% Yield)
As we’ve written in the past, HCP Inc. is an attractive big-dividend (6.0%) healthcare REIT that has been plagued by ongoing challenges with its largest tenant, HCR ManorCare. We recently received new information on HCP’s plans to spinoff HCR ManorCare into a separate REIT (Quality Care Properties). We continue to believe the spinoff is a smart decision that will unlock value by giving HCP shareholders exactly what they want, while simultaneously buying time and options for HCR ManorCare. You can read our full write-up on this very attractive dividend aristocrat here.
3. Johnson & Johnson (JNJ, 2.7% Yield)
Despite Johnson & Johnson’s relatively strong performance over the last year, it still offers an attractive dividend yield (2.7%) and continued price appreciation potential. The company’s diversified exposure across the healthcare sector insulates the it from some of the market cycle downturns, and it also eliminates some of the idiosyncratic risks faced by other large companies in the sector. The diversification also reduces volatility relative to the rest of the market (JNJ’s beta is only 0.56).
JNJ’s price to earnings ratio is reasonable by historical standards. However, the current low interest rate environment makes low volatility dividend paying equities (like JNJ) particularly attractive.
We continue to own JNJ in both our Blue Harbinger Income Equity and Disciplined Growth strategies. Given the challenges other large healthcare companies are facing (healthcare law changes and big patent expirations), JNJ’s diversification is an attractive, low risk, way to get exposure to the healthcare sector, along with a big safe dividend.
2. McDonald’s (MCD, 3.1% Yield)
McDonald’s has declined roughly 10% since it announced somewhat disappointing earnings near the end of July, and we believe this makes now a more attractive time to purchase this big dividend (3.1%) blue chip (i.e. buy when prices are low). From a price to earnings standpoint (see chart below) now is not a particularly unattractive time to own. However, it is the resuming global growth opportunities that make McDonald’s particularly attractive.
New CEO Steve Easterbrook took over in 2015, and is successfully turning around the company. Easterbrook has improved ingredients, introduced all day breakfast, continues to re-image restaurants, and continues to grow the franchise in China. The stock is up significantly since Easterbrook took over, but the pullback over the last few weeks provides an attractive entry point to buy shares. We continue to own McDonald’s in our Blue Harbinger Disciplined Growth Strategy.
1. Emerson Electric (EMR, 3.6% Yield)
Emerson Electric (EMR) is a big dividend (3.6%) industrial engineering company that is currently trading at an attractive price. The stock has recently under-performed the market for a variety of reasons, but it continues to easily maintain its “dividend aristocrat” status. We believe Emerson has significant growth prospects ahead, and current market conditions have created a very attractive buying opportunity for long-term investors. Emerson is this week’s members-only new investment idea, and you can read our full write-up here.