Welcome back to this series on the market and finding undervalued dividend growth stocks to research.
Market Commentary:
Will the consumer save the market or be its downfall?
This past week saw multiple economic reports, including the Consumer Price Index (CPI) number come in at a historic 9.1%, and Producers Price Index at 11.3%. These reports caused volatility in the price movements of stocks, but the surprise Retail Spending report issued on Friday sparked a rally that was broad across most stocks. The Commerce Department noted that U.S. retail sales went up 1%.
While this figure might seem small, many economists and armchair pontificators were expecting a decline in retail sales due to the higher inflation numbers, higher gas prices, and overall consumer sentiment. This surprise increase shows that while consumers are facing these headwinds, they are still spending, and spending more. The U.S. economy is approximately 70% based on consumer spending, so a positive number like this gave some confidence to the market that maybe a deep recession may not be on the table.
So will the consumer save the market? That is still to be determined. Some cracks in that argument include the personal savings rate dropping to 5.4%, which is the lowest it has been in decades, indicating that consumers are being stretched to meet needs.
Additional red flags include the report from the Federal Reserve stating the credit card balances increased 8.1% in May 2022, the most recent data available. Lastly, the Conference Board Consumer Confidence Index® decreased in June, following a decline in May. The Index fell to 98.7 (1985=100)—down 4.5 points from 103.2 in May—and now stands at its lowest level since February 2021.
While consumers are still spending and supporting the economy in the short run, will the tap run dry soon? Increased credit card balances will soon need to be paid and with the higher interest rates, these costs will continue to put pressure on the consumer spending patterns. These same consumers have less in savings to pay for these expenses. This combination may shift the ‘consumer saves the market’ mindset to the ‘consumer tanks the market’ reality.
Market Results:
While the day to day market volatility is gut wrenching at times, did you know that the indices are actually up for the past month? Hard to believe but the Dow is +2.02%, the S&P 500 is +1.93%, and Nasdaq is +3.18%. While a month is insignificant to long term investors, we need to take a step back from the day to day. This week didn’t help that rally though, as over the past 5 business days the Dow was essentially flat at -0.16%, the S&P 500 was down 0.93%, and the Nasdaq down 1.57%. This week would have seen further losses if not for the rally on Friday. The markets are now down 13.90%, 18.95%, and 26.80% year to date, respectively.
Dividend News This Coming Week:
Earnings season really picks up this week, with many dividend growth companies reporting, including: Bank of America (BAC), Charles Schwab (SCHW), Goldman Sachs (GS), IBM (IBM), and Prologis (PLD) on Monday, Johnson & Johnson (JNJ), Lockheed Martin (LMT), and Hasbro (HAS) on Tuesday, Abbott Labs (ABT), Crown Castle (CCI), CSX (CSX) and Kinder Morgan (KMI) on Wednesday, AT&T (T), Dominos (DPZ), Dow (DOW), and Philip Morris (PM) on Thursday, and American Express (AXP) and NextEra Energy (NEE) on Friday. Expect some surprises and variability in the forecasts from some of these important companies in the economy.
Upcoming Ex-Dividend Dates. Note: you must own the stock before the ex-dividend date to receive the payment.
| Company | Amount | Yield | Ex-Dividend Date | Record Date | Payable Date |
| ATCO Atlas | $0.13 | 4.82% | 7/19/2022 | 7/20/2022 | 8/1/2022 |
| CAT Caterpillar | $1.20 | 2.09% | 7/19/2022 | 7/20/2022 | 8/19/2022 |
| DELL Dell Technologies | $0.33 | 2.62% | 7/19/2022 | 7/20/2022 | 7/29/2022 |
| LOW Lowe’s Companies | $1.05 | 2.12% | 7/19/2022 | 7/20/2022 | 8/3/2022 |
| CL Colgate-Palmolive | $0.47 | 2.45% | 7/20/2022 | 7/21/2022 | 8/15/2022 |
| LTC LTC Properties | $0.19 | 5.87% | 7/20/2022 | 7/21/2022 | 7/29/2022 |
| ZTS Zoetis | $0.33 | 0.80% | 7/20/2022 | 7/21/2022 | 9/1/2022 |
| CVS CVS Health | $0.55 | 2.37% | 7/21/2022 | 7/22/2022 | 8/1/2022 |
| GLAD Gladstone Capital | $0.07 | 7.83% | 7/21/2022 | 7/22/2022 | 7/29/2022 |
| GOOD Gladstone Commercial | $0.13 | 8.01% | 7/21/2022 | 7/22/2022 | 7/29/2022 |
| GAIN Gladstone Investment | $0.08 | 6.27% | 7/21/2022 | 7/22/2022 | 7/29/2022 |
| LAND Gladstone Land | $0.05 | 2.35% | 7/21/2022 | 7/22/2022 | 7/29/2022 |
| PNR Pentair | $0.21 | 1.69% | 7/21/2022 | 7/22/2022 | 8/5/2022 |
| PG Proctor & Gamble | $0.91 | 2.51% | 7/21/2022 | 7/22/2022 | 8/15/2022 |
| WSM Williams-Sonoma | $0.78 | 2.62% | 7/21/2022 | 7/22/2022 | 8/26/2022 |
| CE Celanese | $0.68 | 2.51% | 7/22/2022 | 7/25/2022 | 8/8/2022 |
| PBA Pembina Pipeline | $0.16 | 5.53% | 7/22/2022 | 7/25/2022 | 8/15/2022 |
| BK Bank of New York Mellon | $0.37 | 3.66% | 7/22/2022 | 7/25/2022 | 8/5/2022 |
Undervalued Dividend Stocks:
This week’s results of the valuation screening shows 45 companies on my tracker are now undervalued based on my 5 criteria.
- Discount to Analyst Price Target
- 10% or more off the 52-week high
- Discounted Cash Flow (DCF)
- P/E Mean Reversion
- Dividend Yield Theory (DYT)
For information on how these valuation methods are calculated, please check out my valuation post here.
Here are the quality dividend growth stocks that are appearing undervalued based on all 5 of my valuation methods:
Stocks Listed: ABT, AOS, APD, AVGO, AXP, BAC, BLK, BMO, BR, CAT, CNI, DLR, DOW, ECL, HBI, HD, IIPR, INTC, IP, ITW, JPM, LEG, LOW, MDT, MMM, MSM, NKE, RY, SBUX, SMG, SPG, STOR, SWK, TD, TGT, TROW, TSCO, TU, TXN, UGI, UNP, V, WBA
This list should be used to begin your research to determine if the stock meets all of your investment goals and criteria. Valuation should only be one of many aspects you look at when deciding to make an investment.
Best of luck, happy investing, and check back next week for more undervalued stock ideas!