Do These Dividend Achievers Deserve A Place In Your Portfolio? (Episode 46)

Yeah, thanks. So Kate, the, I mean, right now there's a lot of fears, right? There's the fed and there's Russia and we got recession fears and inflation and Europe, and you know, now we've got the midterm, so there's a lot of negativity out there.

Yeah. The midterm year of the four years of a president's term is the most volatile. The average midterm year has a 19% downdraft and the other years only have like 12, 13%. So, and that's going back like 1962. And normally the market will bottom in September, October, like early October. So we're kind of right. We have a chart that we use with strategist that shows that our, this year is tracking very similar to the average midterm mirror. And if you know, it rhymes like in the past, the low should be within the next month. And then normally the fourth quarter is really strong in the midterm rigor. And maybe that's just because there's one less, you know, worry on the table.

We? Yeah, I would say it's very much normal, very much normal. I mean, we've had times before where the market went down tremendously in the first half and two of them were midterm mirrors, 1962 and 19 70, 19 70. And both of them had a lot going on with like, after the midterm with like Kennedy getting assassinated in the sixties and, and Watergate and all this kind of stuff. And so, but the market's still rallied. In fact, one really interesting stat, then we can leave it at here, but the S and P 500, if you go from November the election day, this year to the election, you know, a year out. So early November, 2023, the S and P 500, hasn't declined in that 12 month period since 1946, it's been positive every cycle. So the 12 months after the election, I think should be pretty good just based on history.

Right. Absolutely. So I don't know that you said unprecedented, and if people always say that things were always different, but the human reaction to those things is always pretty similar.

well, the dollar, you know, it is super strong and maybe it's not unprecedented, but it's certainly, you know, really, really strong, which is hurting any company that exports a lot. So in this, you know, a us company that exports a lot, it's helping anybody that is a domestic company, cuz they're able to buy stuff cheaper and that kind of thing. But I think it's gonna continue to dominate the dollar. I mean, we're, I like to say we're the best house in a black bad global neighborhood. And that's why we're attracting capital. That's why we're attracting people. I mean, money, there's an old saying that money flows where it's treated the best, which is true. And that's, you can look at like the United States with taxation and people going to Texas and Florida and Tennessee in places with low tax rates and people flow where they're treated the best. So that's why, you know, we're one of the few countries on maybe the only country, I don't know where people literally are taking their lives into their hand to get into this country. And you know, I think the us is still it's in a very good spot in the next, I don't know, let's say decade

Sure. Thanks. So yeah, the dividend achievements index is just an index that, that NASDAQ runs and it's any company that's raised their dividend 10 years in a row, at least 10 years in a row. Some of them have been, you know, decades and decades, but anyway, they've raised their dividends every year for 10 years in a row. And right now, out of all, I don't knows, say 5,000 stocks that most people can buy. There's only 350 that have done that. And it has to be 10 years. So let's say apple is not in that list because they haven't been painted dividend for 10 years. They will be very shortly. But so that index tends to be a, it's a good group of stocks because all of they already have crossed a lot of hurdles of good corporate management and good boards and you know, consistent profits and consistent raising dividends and things like that.

So financially there are, it's a good group of stocks to begin with. And so we start with that index, uh, in one of the strategies that we run and then we drill down using this, what we call it's a downside risk metrics. We buy research from an outfit called revelation investment research, uh, which is an Indiana based company. Also based guy, Greg ForSight foresight started the company, but they just look for it sort of flips traditional research on its head because traditionally everybody's looking for a stock that goes up. I wanna stock, you know, what's gonna be the great next stock that goes up a lot. Well, he takes the flip side of it and says, let's avoid the ones that are really gonna get beat up because the market can take care of a lot of just regular companies, but the bad companies never do well. You know? And so let's try to avoid the downside risk. And what's happened is over the years, the, the companies with the lower downside risk actually tend to do the best also. And so we use that to screen through these 350 names and we just own 50 with the least downside risk.

Absolutely. Yeah. Yeah. And it helps just buffer the downside because at some point the dividend yield is high enough where it just supports a stock price anyway.

So Accenture actually has the highest downside risk score of any of the dividend achievers stocks, which means it's the be has according to these metrics, the least downside risk, but you know, this is the spinoff from Arthur Anderson. When Arthur Anderson got all the trouble back in the eighties and it's been independent company, you know, since then they did an IPO and like 20 years ago, but the stock price is down 125 bucks from its high. It's the same price now, as it was last summer and their dividend is about what 1.3% they've been raising it for several years, 10% a year been raising it for 18 years and their earnings estimates, even in this economy, according to the street estimates, anyway, earning estimates are getting stronger, not weaker. So the analysts are getting more and more optimistic on it. Now they do have half their revenues overseas.

So the, the strong dollar doesn't help them a lot, but nonetheless, their revenues should be up 20% this year and maybe 10% next year. So they typically will. I mean, they have what they call bookings and when their bookings are really strong that everybody gets excited about it. And right now their bookings are like two times what they were two years ago. They're very strong. So their earnings this year should be like nine bucks and next year close to 11 and next year, like 12. So, uh, it's just, you know, stocks at like 2 92, maybe it was a few days ago anyway.

Something to be concerned with, but they, I have a very consistent growth behind them and ahead of them, according to the analyst anyway, and secondly, they're not a labor or not a capital intensive business. Their assets are their people and their brains because they're flying all over the world, giving people advice basically and helping 'em buy technology and stuff like that. So, you know, it's not like inflation hurts. 'em on their travel costs, let's say, but it's not because they have to buy a bunch of energy and all kinds of oil and whatever to support their business. So they should have a, they've been a very consistently high grower and they should be, I think they should have a Perian PE.

That's correct. They have a really strong customer base and very diversified customer base. And a lot of they're super strong finances. So, you know, they don't have a lot of risk as far as if the economy were to turn south for a while. Actually, when the economy does poorly, these guys don't do that bad because people want more and more help with their consulting and how could we save costs and you know, our expenses and that kind of thing. Oh,

A

CTAs the uniform company, correct? Yeah. CTAs is not the, it's probably not the cheapest stock and it's probably not as far as PE grows and, and that kind of thing, that company was started years and years ago by getting me a Dick farmer. And Dick went to Miami to Ohio, which is where I went and actually funded the business school. So Miami likes him a lot.

Donated a GOBA money, but basically they do uniform rental facility services. They, you know, clean bathrooms and provide all the bathroom supplies and sanitizing stuff and all that kind of thing. And that stock also has come down quite a bit. It's the same price as it was last summer. I mean, earnings this year up 13% over 11 bucks a share, uh, the street target is about four 50 in that range. Uh, right now the stock is in low 400, so it's not super cheap, but they've been paying a dividend and they've been raising a dividend ever since they were an IPO 39 years ago. So they've got a, you know, four decades of raising their dividends. Now their dividend isn't very high cuz the stock price just keeps is growing like a weed. So their yield is less than a percent right now. So it's not like you're buying the stock in order to get a, you know, big three or 4% dividend yield. The one interesting thing is management. Dick farmer started it. His son is I think chairman, maybe CEO still, but management owns 15% of the stock. So they've got a very vested, you know, most big public companies management might be owned as a percent or something, but these guys, you know, they're aligned with their shareholder very highly.

Right. And that's actually, when I was looking at it that surprised me too, that they would've grown in 2020. They must have sold a whole lot of hand sanitizer. I don't know but yeah, so, and this company will get hurt somewhat in a recession. Now 2020 was like a, you know, recession was over before anybody even knew it started, but in a, in a long recession they do get hurt. So if somebody's thinking, oh, we we're gonna have this big recession next year or the year after this probably wouldn't be what they'd want to own, but they've been grow. I mean earning's growth of 18% over the last five years. That's pretty strong considering what has happened in the last five years. So, but I mean, they are the best in class. The one thing that could help them is the reassuring, you know, of bringing factories back to this country and like Intel building these big plants and companies building plants again in the United States, these guys with the uniform business and the cleaning and all that taking care of facilities that could help them, you know, in the next few years.

Absolutely. And they're, you know, the people they supply uniforms to, they have to go to work. It's not like they can work from home. You know? So, and factory outputs, the highest it's ever been in this country, even though people are working from home, quote unquote, there's still really strong factory output. So which helps people like sun

I'm assuming you're talking about

Oh, Donald, okay. Yeah, yeah,

This is a sort of like a razor blade razor kind of company. So Donaldson, which is a company most people haven't heard from, they started 1915. So they've been around a while, but they're considered a pollution control business, but actually they make filters all kinds of filters for air and liquids and for industries and engines obviously, but they just sell these. Some of them very high tech filters and the prices come down hard. I mean, it's come down over 20% from us high at the stock, the same price. It was four years ago and it's, they've been paid a dividend for 37 years raising it for 37 years. Dividend's not bad. 1.7%, but they make these filters for, you know, engines obviously, but also like compressors and even like fuel cell membranes and hydraulics and industrial, you know, dust collection filters. And even for semiconductor manufacturing and even the little vents on a mobile phone, they make these little vents, you know, these filters on the vents from mobile phone.

So one thing they've gotten into more recently is medical filters. And they recently bought a company called pure logics that makes all kinds of filters for like mRNA and plasma for DNA plasma, monoclonal antibodies and all that. So they're getting into the higher tech kind of side of the filter and away from the as much reliance anyway, on the, you know, like basic old air filter in a car. Right. But the good thing is it's a repeat business. So people, you know, once, I mean, I don't care what kind of piece of equipment you've got. The one thing you're gonna do is maintain that equipment on a scheduled basis and change the filters that they need to be. And so it's a typical type of like a razor blade kind of business.

Oh, a hundred percent. I mean, this is a company that totally flies under the radar. And quite honestly, we wouldn't know about it and we wouldn't even own it if it weren't for the systematic approach that we take, where this just rises to the top and you know, it catches our eye and we're like, oh, who are these guys? You know, what do they do? And it is, it's a boring company, but everybody needs the filter. And if you have some kind of oddball printing press thing and you know where to get the filter, you're just gonna keep buying it from those guys. You know, even if somebody else can tell it to you for 10 cents cheaper, you're gonna keep buying it from Donaldson.

I mean this stock has not been good for the last, you know, handful of years mm-hmm but because the stock is the same price now as it was a while ago, but mm-hmm, basically, they've been doubling their earnings about every seven years, you know? I mean they went in 1997 and they earned 25 cents a share and then 50 cents a share seven years later and a buck share about seven years later and two bucks a share seven years after that. And they should earn about three bucks this year. So they've typically traded pretty high PE 21 time earnings. And if you just take three bucks, times 20 times earnings, you cut the 60 bucks, which, you know, a decent dividend and some upside with probably not a lot of downside risk at this point, I would say is a pretty good buy.

Right? Wow. Absolutely. I think it's pretty cheap. I think it's a pretty good buy.

Yeah. They got about a 4 billion market cap. Yeah. This is a name that also people would never, I mean, it's not a glamorous company at all. Basically it's a, they've been around since the twenties Cleveland based outfit and they do, uh, industrial distribution of just like motors and hoses and fluid control connectors and bearings and tools and stuff like that. So basically stuff that makes industry run and they've got distribution centers all over the place. They've got 430 of them in north America. And so if you're running a plant and you need certain lubrication stuff or a bearing goes out, you know, you just go get it from these guys. So they've been painted dividend for 30 years, been raising it for 10 years. So they just made the dividend achievers list this year. I think. So if you do the earning, their normal PE is about 20 low teens to 20 and their earnings next year should be about seven bucks, maybe seven 50 and 2023.

And if you do the math that implies a trading range of somewhere, you know, as high as 150 bucks, maybe the street targets 1 35, which is a pretty nice upside. That's 20 of all the stocks that we've talked about today that has a highest upside potential based upon analyst numbers and, and that kind of thing. The thing that hurts them, it hurts. CTOs hurts. A lot of these companies is a fear of recession. And so these guys are very economically, you know, sensitive. And so the fear of recession has, and the, you know, the fed raising rates and things like that, that has hurt a lot of these stocks including this one. But I think it's given a lot of investors, a good opportunity to buy.

Yeah, absolutely. Well, if people don't want volatility, they shouldn't buy stocks.

this is a whole nother subject for a different conversation. But in my opinion, volatility and risk are two totally different things and people should use volatility to benefit them. Like right now, when things have been depressed, use that to buy and you know, to load up on good stuff and let volatility help you instead of hurt you.

I think people should buy it. Uh, definitely. So the old school, right old school name 1984 is when they started, uh, they're selling now for the same price. The stock was in 1999.

I mean, that's unbelievable. You know,

But if you look after the.com bust, it's basically been in an upturn for 20 years. The stock price now has been flatlined for like four years straight, but, and the earnings have also been kind of flat at three bucks a share, but wifi 6.0, which is the, the next generation of wifi, that's gonna be required to basic stream and use 5g. And that kind of thing. All of that as a tailwind to this company and broadband consumption in planet on the planet has never been higher. And another thing that these guys buy stock back all the time, I mean, it's just a constant buying their stock back all the time. So how Huawei took a lot of market share away from them and Cisco now has become the global leader and taken business away from Huawei. So they are once again, the enterprise router leader and the thing that is driving this is they focus so much on security of the network and that nowadays, you know, security is everything in the networking world. So this stock is trading at a PE 13. I mean it unbelievably cheap. And if you use next year's earnings 3 79, it shows a range of somewhere between where it is now and about 68 bucks. So the, the street target is only 55, 20 2% higher, but they're dividend, their yield is 3.3%. So their dividend is almost twice the market or is twice the market, uh, dividend. And they've been raising it for 11 years. And I just think the broadband, the increase in broadband and the focus on security is really their sweet spot.

Right. And it's not that used to be, they would just sell their router and you'd, you know, plug it in and then that's it, that's all they made was on their router. Well, now over half, their business comes from software. So they're getting the software, the service, you know, revenue over and over and over. And you know, that adds a lot of stability to the earnings growth over time.

So 3m. Yeah. This is a beiger big old unpopular industrial, you know, they just make tapes and adhesives and all, I mean, they make a whole bunch of products.

No, everybody knows that. And that's, I'll tell you one thing that company used to be known for innovation. They come out with these products. Oh my gosh. Look at this post-it note thing, you know, but now they've been bogged down and they spent a lot of money. Like 6% of their revenue is spent on new products. So they come out with a lot of new products, but they've had the biggest single litigation and us bankruptcy court history. And that's with these earplug litigation, military earplugs, and there's big litigation going on in that. And it's been a big drag on the company. So as far as the upside goes, there's probably some upside the stock. Was it a hundred? It's now like one twenties, the stock was 195 bucks a year ago. So they've, they've been hit 36%. They've been just beat on PE is super low. It's only 12. And it, the only time it's had a lower PE was during the great recession. Oh 8 0 9. So the PE is just, the valuation is very, very low, very few analysts like it, but even still the, uh, street average target is 147 bucks, which would be 19% upside. So their dividend yield is almost 5% right now.

Crazy high . And they've been paying a dividend for a hundred years and they've been raising it for 64 years straight. So I think the dividend is you don't want to be on the board and be the first board to cut the dividend, you know, in a hundred years. So I think the dividend is very solid and they're honestly, they're finances are very solid that, you know, good old Minnesotans. Yeah. They're, they're conservative up there, but I don't know how much upside it has, but if you could earn 5% and wait for it to hit the one 40 S I think the downside is very low because all the bad news is kind of baked into

Great. Yeah, sure. So companies innovative portfolios. So if they go to innovative portfolios.com, uh, that is our landing page. And like the dividend stocks that I was talking about are one of our ETFs. That's obvious when you open up the page, it's very obvious innovative portfolios.com, which portfolio I'm talking about. So what, it's an ETF.

That's correct. Great.

Absolutely.

Thanks Kate.