Over the past month, I have read several quarterly reports and seen many companies falling out of favor. While doing some research, I’ve realized that many great companies have lost over 10% of their value this year. Considering that both the US and Canadian markets still have their heads above water, this is surprising that even aristocrats from both sides of the border have been seriously hurt. Are they all buying opportunities or are they dead pieces of wood you should let go? I’ve identified 6 companies to look at in this article.
US Aristocrats Getting Hurt
Interesting enough, it isn’t only the energy sector that is getting hurt a great deal on the stock market. While the S&P 500 is still in positive territory since January, some great companies are putting investors’ patience to the ultimate test; why hold a double digit loser when the market is still in the green?
This is the question many shareholders are asking themselves recently. I have completed some research on dividend aristocrats, companies that have proven in the past they can withstand the storm and added a few metrics. I pulled 8 aristocrats showing positive growth over five years in three main categories: dividend payment, revenue and earnings per share. These 8 stocks are solid companies and they still show double digit drops since the beginning of the year. I will review each of the following in this newsletter. Some of them are part of our portfolios, but all are worth looking into it due to their stellar dividend growth history:
Franklin Resources (BEN)
The past 12 months haven’t been a party for BEN. First, the company is a heavy buyer of bonds related to the commodities and mining industries. This has hurt its fund performance as both sectors are not set for a rebound in 2015. There is nothing worse than poor fund performance during a shaky market for an asset management firm. Franklin Resources is paying the high price of customer impatience as their assets under management (AUM) has decreased quarter over quarter for the past 12 months. Ending AUM on June 2014 stood at $920 billion and it is now down to $866 billion as at June 2015.
Since the company makes the most of its income on fees charged on their AUM, the less they have, the less they make. I’m not ready to make the jump to but this company as their bets in the commodity and mining sector may affect them for several months, read years.
Genuine Parts (GPC)
GPC is a pure model of growth by acquisition. The auto parts industry is still highly fragmented and GPC continues at a steady pace to buy smaller competitors each year. They keep their impressive progress but I have the feeling investors became greedy and this is why the stock is being penalized. More recently, the increase in new car sales has hurt GPC’s revenue growth perspective and the company is not growing fast enough to please the market. When you consider the long term picture; if there are more new cars being sold right now, it means there will be an increasing number of old cars in the future that will require auto parts. Therefore, it’s only a matter of time before GPC takes back its place. The company has plenty of room to continue strong dividend increases and the current dividend yield has become attractive for income seeking investors as it is now closer to 3%. GPC is definitely a buy right now with little risk involved.
T. Rowe Price Group (TROW)
This is another asset management firm to bite the dust on the stock market. However, TROW is not like BEN and shows positive growth in its assets under management. The company even surprised the market with better earnings and revenue than expected during their latest quarterly statement.
My feeling is that TROW is simply a victim of the overall slump in this summer’s markets. The company shows strong performance recently and once the market goes back up, TROW will benefit from a good boost.
I believe TROW is a BUY at the moment as the market is always favorable to good asset managers over the long haul.
Canadian Aristocrats are not Getting Any Better
As you know already, Canadian Aristocrats requirements are less exhaustive than American Aristocrats. When we look at the Canadian requirements, we understand that we are looking at companies with strong dividend potential, but most companies don’t show the stellar dividend history similar to the American list.
I’ve also pulled 8 companies that show a double digit price drops since the beginning of the year. I also tried to not only select oil related companies even though it is the sector that has been affected the most this year.
Finning International (FTT.TO)
Finning International is the official Caterpillar (CAT) retailer in Canada, South America, the UK and Ireland. The mining industry is hurting sales and this situation is not about to end. However, there is a massive buy back movement by insiders during the summer that is supporting FTT’s stock price. When I pulled out my stock screen to write this newsletter, the stock was down by 10% by the end of July. In a few days, the stock bounced back by almost 5% in 5 days early in August.
This is a good example of how the stock market is going up and down for absolutely no reason. However, there are some very good reasons to buy FTT such as a 3% dividend yield combined with a 40% payout ratio. The company is currently trading under a 15 PE ratio, this sounds like bargain considering the overall market valuation.
We like the stability that the pipeline sector enjoys most of the time. This is a very stable sector generating a continuous flow of money. However, TRP highly depends on the Keystone XL project to boost its earnings to another level and we are far from seeing this pipeline come online.
TRP operates one of the largest natural gas pipelines in North America. Unfortunately, natural gas prices declined reducing the number of projects to be started (that would eventually require pipeline infrastructures).
TRP follows the general slump in the energy sector in Canada. The company now pays a dividend over 4% with a payout ratio that is relatively high (90%). It is a relatively good play for an income seeking investor that intends to keep TRP for several years.
I have made a list of not 6 but 16 stocks to look at
As you can see, both US and Canadian charts show 8 tickers each where 5 of them have been taken off. Dividend Stocks Rock members received the complete analysis of 16 stocks as part of our bi-monthly investing newsletter. All newsletter past issues are accessible to members; you can download the full report if you want.