Dividend Aristocrats On Sale

| July 6, 2015 | 0 Comments

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After all these years, I’m still infatuated.

And I still can’t figure out why back in 1963, only 21,513 Corvette Sting Rays came off the line.

Devoted Corvette guys don’t always gush about the ’63 the way I figure they might, but that’s their call, and they’re probably thinking more about mechanics than styling.

But that divided rear window was styling genius.

Today, you can easily pay more than $100K for a ‘63 Corvette.  The most you could pay for one, fully loaded, in 1963, was $6,200.  Base price was $4,257.  Talk about premium pricing.

But when it comes to cars, you don’t have to look at classics and collectibles to see premium pricing at work.

After all, there seem to be plenty of people happy to shell out a few extra bucks for a Lincoln Navigator, built on the Ford Expedition platform.

So when you cough up a premium for the best dividend paying stocks, there’s usually something more at stake than leather upholstery and a subwoofer.

You’re paying for safety, and this kind of safety comes in the form of a long-term track record of paying growing dividends.

This is what makes the S&P 500 Dividend Aristocrats such appealing stocks.  They’re big companies that have been steadily paying out dividends that grow for the past 25 years.

Can You Find the Dividend Aristocrats On Sale?

Not often.  The P/E Ratio, (Price Earnings Ratio), which measures how much you pay for earnings, is usually steep.  You’ll typically pay a higher P/E for the Aristocrats than for the overall market because of the safety factor.

Track records of performance come with a price.  But not always, and this is why now and then you might turn up one of the Dividend Aristocrats on sale.

Sometimes, you’ll be able to find a fairly high yield at a low P/E.  When this happens, there are usually a couple of different things going on.

First, the stock price has taken a hit.  Investor sentiment has soured, and the stock has lost its fan base.  There could be worries about future revenues and the company’s ability to keep profits strong enough to cover the dividend.

This is what we’ve seen with two S&P 500 Dividend Aristocrats in the energy business this year, Exxon Mobil $XOM and Chevron $CVX.

There’s nothing to say these two companies couldn’t cut the dividend and be cut from the lineup of Aristocrats.  They wouldn’t be the first good companies to suffer this fate.  GE $GE, IBM $IBM, all kinds of solid companies have been cut after shanking a dividend payment.

So the challenge is to pick up an Aristocrat on sale that isn’t about to be thrown off the list, and this is where you want to do some digging.

Look Into the Future of The Dividend Aristocrats

You are investing in income.

You don’t want to chase high yield, but you do want to make sure you’re not paying too much for a low yield.

An example of that would be Cintas $CTAS.

The yield is 1% and the P/E ratio is 23.

Another example… PPG Industries.  The yield is 2.4% and the P/E ratio is 28.

Those are some steep prices.

When I took a look at the Aristocrats the other day, 15 of them were paying a yield of more than 3%.

This got me wondering…

“Are any of these top dividend stocks on sale?  Am I getting lured into making a bad deal because of a good looking yield, or is there an opportunity here?”

Well, these 15 Aristocrats bring to mind something Warren Buffet wrote…

Be fearful when others are greedy and greedy when others are fearful.

It seems obvious that people are fearful when it comes to energy stocks, and just about wherever you turn, there’s an energy stock that ignites fear.

Two Troubled Dividend Aristocrats On Sale

A lot of people are worried about the future of two solid companies right now, both Dividend Aristocrats and both good dividend stocks.

One is McDonald’s $MCD and the other is Procter & Gamble $PG.

Investors are worried about the sluggish sales at the golden arches and what the new CEO will do to light up revenues.  There are all sorts of rumors and uncertainties.

One of the more intriguing McDonald’s rumors I’ve heard…. the company might actually spin off a new stock, a Real Estate Invest Trust (REIT) that is made up of the company’s real estate assets.

Who knows if this might happen… what we do know is that same-store sales are slipping.

Is McDonald’s one of the good dividend stocks to pick up right now?  Probably not, even though the yield is over 3%.  It’s still a little rich for my blood.

What about Procter & Gamble?  Pretty much the same story… definitely a contender to be one of the best dividend stocks, but too expensive.

It started the year at $90.44 and now it’s at $79.91, but the P/E is high at 25.  I’d let Procter slide a bit before jumping in.  The past month it’s been in the high 70s.  Maybe you take a look if it gets down below $75.

It’s a terrific company and has created fortunes for dividend investors, but this year it’s been stung – really stung – by the strong U.S. dollar.  It’s not selling as much outside U.S. markets.


You’ve got these Dividend Aristocrats on sale.  McDonalds, which traded at 93.26 and P&G at $90.44.

And I’m not fired up about either one… before the end of the summer, they’ll probably be cheaper.  So what gives?

Both terrific stocks to own, but right now, both still a bit too expensive.

And if you pushed me to show you one of the Dividend Aristocrats hanging on the sale rack that you should pick up right now, here’s what I’d say.

Never buy a stock just because it’s hit a 52-week low or because it’s come off its recent highs.

Compare the P/E ratio of the stock to its peers – other companies in the same business – and to the market as a whole.

Take a look at the dividend payout ratio, which is typically fine for the Dividend Aristocrats.

And don’t sour on good companies that run into some headwinds.

The Dividend Aristocrat Knocked To The Canvas That Got Back Up

Remember what terrible shape Target Corp. $TGT was in not too long ago?

All the bad publicity about the 40 million credit cards compromised by hackers in late 2013?

And then, how Target bungled its expansion into Canada and had to bail out?

No wonder Target dumped CEO Gregg Steinhafel.  And no wonder investors beat up the stock, which was at $72 before the credit card hack and plunged to $55 less than a year later.

Well… Target’s back.   The dividend was protected and has now been on a 47-year growth run.

This summer, the stock is trading at all time highs.  Take a look at what’s happened…

Target Corp. $TGT Dividend Stock Chart

So when you see a good company like Target take a hit, don’t bail early.  Don’t bail on a solid stock when it hits a rough stretch.

Do you think McDonald’s or Procter & Gamble are about to vanish?  No way.

Don’t listen to all the noise and don’t overreact to bad news.  (Or overreact to good news.)

Put the performance of these companies in perspective and you’ll find some Dividend Aristocrats on sale.

And who knows?  They could be a better deal than a ’63 Vette.


Paul Duke

Note:  Paul Duke writes and edits DividendStocksResearch.com.  Sign up for our free dividend reports and dividend newsletter at https://www.dividendstocksresearch.com/free-sign-up.  We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.

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Category: Cheap Dividend Stocks

About the Author ()

Paul “Dividend” Duke is a veteran investor with a longstanding interest in dividend stocks. He brings a balance of both technical and fundamental analysis to his work, and focuses on opportunities that provide safety, capital appreciation, and income.

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