Welcome back to this series on the market and finding undervalued dividend growth stocks to research.
Market Commentary:
Risk On! But should it be?
As the month of July 2022 comes to an end, this has been one of the best months in the market in quite a while. In fact, the S&P 500 gained 8.16% in July, one of the best on record. The average July for the S&P 500 is 1.01% since 1950 and it has gone up 42 years and down 30 years.
The Nasdaq and Dow returned 10.85% and 5.85% respectively in July as well.
Clearly the market is in “Risk On” mode, driving up the prices on a wide selection of companies. After months of declines the market seems to have gotten its appetite to buy equities again. But is it justified? Why are we seeing such a positive mindset?
The U.S. has experienced two quarters of negative GDP growth, the Fed continues to raise interest rates higher than we have seen in some time, gas prices, while going down, are still much higher than typical, inflation continues to remain high, and the ongoing war in Ukraine and the subsequent disruptions in global oil and commodities continue to put pressure on the economy.
With all this backdrop, you would think that the market would continue to push down. Perhaps the market is looking past all of this information today and is looking out in the future. Perhaps the market likes that the Fed is aggressively trying to quell the high inflation. Maybe it is just a bear market rally and we will soon revert to the patterns we have seen so far earlier this year.
One bit of good news that the market seems to like is the earnings reports that companies have been providing the past weeks. Per FactSet’s report on Friday, for Q2 2022, 56% S&P 500 companies reported earnings results and 73% of S&P 500 companies have reported a positive EPS surprise and 66% of S&P 500 companies have reported a positive revenue surprise.
Even with this incredibly challenging backdrop, companies are still reporting generally positive numbers, and in most cases, beating the analyst expectations. This may be reinforcing this Risk On mindset and if the companies reporting over the next 2 weeks follow similar results, this “Risk On” might be justified. Time will tell of course!
One interesting note from the FactSet report is that the forward 12-month P/E ratio for the S&P 500 is 17.1. This P/E ratio is below the 5-year average (18.6) but above the 10-year average (17.0). So this recent upswing in prices looks to have pushed the market back up to moderate valuations and there may not be as much value left out there. This is shown in the number of undervalued dividend stocks further on in this article, going from 44 names last week to only 38 right now.
Market Results:
The market continued to rally this week, with all sectors ending the week in the green, with some sectors rising significantly.
The sectors not doing so well this week are Communications Services, Healthcare, and Consumer Staples. Additionally, some semiconductors in the Technology Sector got hit hard this week. It is interesting to see the differences between companies in the same sector, for instance INTC vs. NVDA and CMCSA vs GOOGL. This market seems to be rewarding quality, but completely abandoning companies that fall short on earnings expectations.
As earnings season continues, I expect to see wide variations of returns for those companies who report positively and those who don’t. While the market appears to be in a “Risk On” mindset, there is little leeway and benefit of the doubt given for companies that don’t hit the targets or give less than stellar guidance. The S&P Heatmap below shows the clear difference.
With an astonishing number of companies reporting earnings this week, maybe somewhat surprisingly the Dow was up 2.97%, the S&P 500 was up 4.26%, and the Nasdaq was up 4.70%. With this rally adding on to last week’s rally, the markets are now only down 9.61%, 13.34%, and 20.80% year to date, respectively.
Dividend News This Coming Week:
Earnings season continues to come on strong with many notable dividend growth companies reporting, including:
Monday:
Aflac (AFL), Activision Blizzard (ATVI), Devon Energy (DVN), Leggett & Platt (LEG), and Simon Property Group (SPG)
Tuesday:
Caterpillar (CAT), Cummins (CMI), Gilead Sciences (GILD), Prudential Financial (PRU), and Starbucks (SBUX)
Wednesday:
Amerisourcebergen (ABC), Allstate (ALL), Clorox (CLX), CVS Health (CVS), Energy Transfer (ET), Metlife (MET), Marathon Oil (MRO), Realty Income (O), and Store Capital (STOR)
Thursday:
Air Products & Chemicals (APD), Amgen (AMGN), CubeSmart (CUBE), Kellogg (K), Public Storage (PSA), and Skyworks Solutions (SWKS)
Friday:
Brookfield Renewable Partners (BEP), Western Digital (WDC),
With so many very important companies reporting, this week will give us a lot of insights on the economy and how our companies are dealing with inflation, supply change, and other economic woes.
Upcoming Ex-Dividend Dates. Note: you must own the stock before the ex-dividend date to receive the payment.
| Upcoming Ex-Dividend Dates | |||||
| Company | Amount | Yield | Ex-Dividend Date | Record Date | Payable Date |
| SRCE 1st Source | $0.32 | 2.77% | 8/1/2022 | 8/2/2022 | 8/12/2022 |
| APLE Apple Hospitality REIT | $0.05 | 3.68% | 8/1/2022 | 8/2/2022 | 8/15/2022 |
| BMO Bank of Montreal | $1.08 | 4.17% | 8/1/2022 | 8/2/2022 | 8/26/2022 |
| CFG Citizens Financial Group | $0.42 | 4.52% | 8/1/2022 | 8/2/2022 | 8/16/2022 |
| MAIN Main Street Capital | $0.22 | 6.50% | 8/1/2022 | 8/2/2022 | 8/15/2022 |
| SHLX Shell Midstream Partners | $0.30 | 8.30% | 8/1/2022 | 8/2/2022 | 8/12/2022 |
| SPH Suburban Propane Partners | $0.33 | 8.15% | 8/1/2022 | 8/2/2022 | 8/9/2022 |
| CAG Conagra Brands | $0.33 | 3.98% | 8/2/2022 | 8/3/2022 | 9/1/2022 |
| IDA IDACORP | $0.75 | 2.83% | 8/2/2022 | 8/3/2022 | 8/31/2022 |
| MKTX MarketAxess | $0.70 | 1.05% | 8/2/2022 | 8/3/2022 | 8/17/2022 |
| DHI D.R. Horton | $0.23 | 1.20% | 8/3/2022 | 8/4/2022 | 8/11/2022 |
| DKL Delek Logistics Partners | $0.99 | 7.77% | 8/3/2022 | 8/4/2022 | 8/11/2022 |
| KBH KB Home | $0.15 | 2.00% | 8/3/2022 | 8/4/2022 | 8/18/2022 |
| NEP NextEra Energy Partners | $0.76 | 3.60% | 8/3/2022 | 8/4/2022 | 8/12/2022 |
| VLO Valero Energy | $0.98 | 3.76% | 8/3/2022 | 8/4/2022 | 9/1/2022 |
| JBHT J.B. Hunt Transport Services | $0.40 | 0.93% | 8/4/2022 | 8/5/2022 | 8/19/2022 |
| KNTK Kinetik | $0.75 | 8.31% | 8/4/2022 | 8/5/2022 | 8/17/2022 |
| UL Unilever | $0.46 | 3.80% | 8/4/2022 | 8/5/2022 | 9/1/2022 |
| WFC Wells Fargo & Company | $0.30 | 2.80% | 8/4/2022 | 8/5/2022 | 9/1/2022 |
| AB AllianceBernstein | $0.71 | 6.45% | 8/5/2022 | 8/8/2022 | 8/18/2022 |
| AMP Ameriprise Financial | $1.25 | 2.07% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| AAPL Apple | $0.23 | 0.58% | 8/5/2022 | 8/8/2022 | 8/11/2022 |
| CWT California Water Service Group | $0.25 | 1.72% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| COF Capital One Financial | $0.60 | 2.26% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| ET Energy Transfer | $0.23 | 8.40% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| PEAK Healthpeak Properties | $0.30 | 4.37% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| INTC Intel | $0.37 | 3.87% | 8/5/2022 | 8/7/2022 | 9/1/2022 |
| LAZ Lazard | $0.50 | 5.47% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| OMF OneMain | $0.95 | 10.20% | 8/5/2022 | 8/8/2022 | 8/12/2022 |
| PSTL Postal Realty Trust | $0.23 | 5.54% | 8/5/2022 | 8/8/2022 | 8/26/2022 |
| SUN Sunoco | $0.83 | 8.40% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| X United States Steel | $0.05 | 0.85% | 8/5/2022 | 8/8/2022 | 9/8/2022 |
| VNO Vornado Realty Trust | $0.53 | 7.06% | 8/5/2022 | 8/8/2022 | 8/19/2022 |
| GWW W.W. Grainger | $1.72 | 1.45% | 8/5/2022 | 8/8/2022 | 9/1/2022 |
Undervalued Dividend Stocks:
With the continued rally in the market, this week’s results of the valuation screening now only shows 38 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, DLR, DOW, ECL, HBI, HD, IIPR, INTC, IP, LEG, LOW, MDT, MSM, NKE, RY, SBUX, SMG, SPG, STOR, TD, TGT, TSCO, TU, TXN, UGI, UNP, V, WBA, WSO
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!