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Dividend Kings Analysis: 3M Is The Most Undervalued

Dividend Kings Analysis: 3M Is The Most Undervalued

Introduction

In this article I analyze the 30 Dividend Kings, an exclusive group of stocks that have increased their dividend for 50+ consecutive years. The top five stocks in the ranking model in order are Commerce Bancshares (CBSH) [DP Score = 9.09], Target (TGT) [DP Score = 9.07], Stepan Company (SCL) [DP Score = 9.05], Hormel Foods (HRL) [DP Score = 9.04], and Cincinnati Financial (CINF) [DP Score = 9.03]. The highest yielding Dividend King at the moment is Altria (MO). The two gas utilities in the Dividend Kings, Northwest Natural Gas (NWN) and National Fuel Gas (NFG) have yields over 4%and may represent good value at this time. The most undervalued Dividend King from the perspective of earnings multiple is 3M Company (MMM). I view 3M as a buy at a stock price below $160 per share.

Dividend KingsSource: Pixabay

Background

In these analyses I use nine criteria that permits rapid quantitative screening based on the dividend, earnings growth, dividend growth, dividend safety, and valuation. The nine criteria used in quantitative screening are:

  • History of increasing dividends
  • Dividend yield
  • 5-year EPS growth rate
  • 5-year dividend growth rate
  • 10-year dividend growth rate
  • Payout ratio
  • Long-term debt-to-equity ratio (D/E)
  • 5-year beta
  • P/E Ratio for trailing twelve months

The goal here is to identify stocks for further research not make buy or sell decisions. There are often qualitative factors for each stock that must be researched before making an investment decision. For instance, I also evaluate P/E ratio relative to past 5-years or 10-years and dividend-to-free cash flow ratio. Other qualitative factors can also include management history, recent M&A activity, cost cutting, etc.

Top 5 Dividend Kings In Each Criteria

The table below lists the 30 Dividend Kings in order of number of years of paying a growing dividend. These stocks come from

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With Its Restored Dividend, MFA Financial Stock Is Deeply Undervalued

With Its Restored Dividend, MFA Financial Stock Is Deeply Undervalued



background pattern: a person in a suit holds a tiny house to represent reits to buy


© Source: Shutterstock
a person in a suit holds a tiny house to represent reits to buy

MFA Financial (NYSE:MFA) is a real estate investment trust (“REIT”) that has had a rough year. To date, MFA stock is down more than 62% as of Oct. 9, but it is likely to have a significant turnaround.



a person posing for the camera: a person in a suit holds a tiny house to represent reits to buy


© Provided by InvestorPlace
a person in a suit holds a tiny house to represent reits to buy

I suspect that the REIT has reached an inflection point in its finances and is likely to do much better for the rest of this year and next.

One important fact to note right at the start is that MFA stock is selling well below its book value. Most of the company’s assets are real estate securities, rather than actual real estate.

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For example, as of June 30, the company said that its “economic” book value, or a market-related assessment of its residential whole loans, is $4.46 per share. Therefore, MFA stock is trading for around 60% of its economic book value.

Moreover, this implies that the stock could rise over 55% if it were to begin trading for the true value of its residential whole loans. This is because $4.46 per share divided by $2.87 is 1.554, or 55.4% above $2.87.

Other Catalysts for MFA Stock

In the company’s Aug. 6 letter to shareholders, MFA Financial’s management indicated that it had made big changes. For one, it completely restructured its leverage and asset portfolios.

For example, instead of owning mortgage-backed securities, its portfolio now mainly consists of residential whole loans. In other words, it had gotten rid of derivative type securities, which require lots of daily “mark-to-market” collateral. That means that it collects the interest from mortgages directly, and the loans don’t

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Taiwan Semiconductor Manufacturing Company: An Undervalued Market Leader With A Multi-Year Growth Runway (NYSE:TSM)

Taiwan Semiconductor Manufacturing Company: An Undervalued Market Leader With A Multi-Year Growth Runway (NYSE:TSM)

The Taiwan Semiconductor Manufacturing Company Ltd. (TSM) is the world’s first and largest dedicated semiconductor foundry. It is also the lead player with a market share estimate of between 51.5% and 53.9%. In distant second place is Samsung Electronics (OTC:SSNLF) (OTC:SSNNF), with an estimated 17.4% to 18.8% share of the market. What makes TSMC unique is that it has managed to stay ahead of the pack since it was founded in 1987, and it continues to invest heavily in advanced wafer technologies and processes to maintain its lead and strengthen its position in a growing segment.

Source: Statista

How Big is the Foundry Market and How Fast is TMSC Growing?

The global semiconductor foundry market is projected to grow from around $42 billion in 2019 to over $62 billion in 2025 at a CAGR of 6.75%.

By comparison, TSMC grew its Q2-20 revenue by 28.9% and H1-20 revenue by 35.2%, both over their prior periods in terms of NT$ (New Taiwan dollars.) Although there was a prolonged decline until Q1-19 in quarterly YoY revenue growth, positive growth returned in Q2-19 and double-digit YoY revenue growth has been reported since Q3-19 in NT$ terms. It’s clear that TSMC is outperforming the overall market by a significant margin in recent quarters, specifically in H1-20.

Source: AnandTech

As of H1-20, TSMC had the highest EUV or Extreme Ultraviolet installed base at 50%, as well as 60% of global wafer capacity, which shows its dominance of the semiconductor foundry market.

Short-term Growth Indicators

H2-20 is also shaping up to be a period of strong revenue growth, and there are a couple of reasons for this:

First of all, Apple, Inc. (AAPL) has tapped TSMC’s entire 5nm capacity for its A14 Bionic chip in the upcoming iPhone 12 and other devices, in addition to future

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