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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


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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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3 Dividend Stocks to Buy and Hold for Decades

3 Dividend Stocks to Buy and Hold for Decades

Although the equity markets are up this month after a pullback in September, the rising COVID-19 cases and weak economic indicators could create headwinds. Also, the low-interest environment has made the yields on the debt instruments non-attractive. So, investors could invest in stocks that pay risk-free dividends to earn stable and predictable income.



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Various Canadian dollars in gray pants pocket

Meanwhile, here are the three dividend stocks that you can buy and hold for decades.

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TELUS

With telecommunication becoming an essential service in today’s digital ecosystem, my first pick would by Telus (TSX:T)(NYSE:TU), which offers a diverse set of telecommunication products and services. Despite the pandemic, the company added 141,000 net new customers in its second quarter, which drove the company’s top-line by 3.6%.

Further, the company generated $511 million of free cash flows, representing year-over-year growth of 57%. Meanwhile, the company’s management expects its free cash flows for this year to come closer to the lower end of the earlier provided range of $1.4 billion to $1.7 billion. So, given its strong cash flows and healthy liquidity of $3.6 billion, I believe the company’s dividends are safe.

The company has announced quarterly dividends of $0.2913 per share for the third quarter, representing a dividend yield of 4.8%. Further, the management has announced to raise its dividends by 7-10% every year from 2020 to 2022, which is encouraging.

Meanwhile, Telus’s growth prospects also healthy, given the launch of its 5G network in five markets across Canada and rising demand for its services amid the structural shift toward remote working and learning. So, I believe Telus would be an excellent buy in this volatile environment.

Canadian Utilities

My second pick would be Canadian Utilities (TSX:CU), which generates 95% of its earnings from regulated

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5 Dividend Stocks That Remain Good Buys In This Roller Coaster Market

5 Dividend Stocks That Remain Good Buys In This Roller Coaster Market

The Stock Market Roller Coaster Ride

The past three months (to say nothing about this year in general) in the stock market have felt distinctly like a roller coaster ride. First climbing upward rapidly from July until early September, then abruptly sliding downward until late September, then bottoming out and angling upward again. Market participants are being pulled and jerked around in their restraints as they hang onto the handles.

The relative lack of volatility from mid-2016 through late 2018 and from early 2019 through February, 2020 felt like a pleasant horse-drawn carriage ride compared to the Covid era.

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Data by YCharts

This has been even truer of many dividend stocks this year, as the risk of dividend cuts has induced yield-starved investors to vacillate wildly between fear and greed. It really is reminiscent of the speedy swings of emotion one feels on a roller coaster ride: anticipation and reward, excitement and terror, exhilaration and panic, laughing and shrieking.

So much happens in seemingly so little time.

6 of the craziest roller coasters across the world

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And then, when it’s over, you’re left thinking, “We waited an hour and a half for a 60 second ride?

One benefit of being a dividend-focused investor is that stock market volatility, while anxiety-inducing, matters less — as long as one remains confident in the safety of one’s dividend income stream. We at High Yield Landlord try to put emotions aside and invest like landlords, paying less attention to asset prices and more to the operations of the business and the stability of cash inflows.

With that in mind, let’s take a look at five dividend growth stocks that remain good buys even as the market has enjoyed an October rebound.

1. Gilead Sciences (GILD)

Admittedly, biopharmaceutical company Gilead Sciences, which invented the drug that treats most HIV patients,

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