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October, 2018

FINDING VALUE IN DIVIDEND STOCKS
by LARRY

The recent stock market volatility may have given investors the jitters, with the Dow down 5.2% in only two days, 10/10/18 through 10/11/18, and still down 4.3% as of this writing (10/18/18), even after a subsequent rally or two. Nonetheless, short-term market sell-offs can reveal value gems. Equities that sport a nice and relatively safe yield compared with their common stock peers, for instance, may be worth at least a second look. Everything else being equal and excluding shares of a few super growth companies like the early Apple, Amazon, or Netflix, a stock that pays investors more for holding its shares will on average also appreciate more in price. A dip such as we have seen with the Dow, S&P 500, and Nasdaq this month can offer stocks at a discount relative to their dividends. The trick then is to avoid the many that are down deservedly and so winnow out better picks from among a large supply of depreciated assets.


The stocks below have larger than usual dividends, positive levered free cash flow, dividend payout ratios of 0.60 or less, and debt to equity of 0.99 or below. They each also represent portions of successful businesses, so one can likely benefit from both share price appreciation and noteworthy annual yields. Taken together, a portfolio of these five has a dividend of 3.0%, almost as high as the current 10-Year Treasury yield of 3.2%, yet government debt assets compared with stocks tend not to beat inflation. From a real return perspective, one is actually penalized by holding bonds or bond funds.


Relatively Safe, Above Average Dividend Equities
CompanyTicker
Symbol		Recent
Price		 Dividend
Yield
Cincinnati Financial Corp.CINF$75.752.80%
Cracker Barrel Old Country Store, Inc.CBRL$158.533.15%
Ituran Location and Control, Ltd.ITRN$34.402.79%
National Healthcare Corp.NHC$75.582.65%
Prudential Financial, Inc.PRU$99.703.61%


Cincinnati Financial Corp. is a holding company profiting from subsidiaries' and agencies' marketing of property casualty insurance, life insurance, and investments through 32 U.S. States.

Cracker Barrel Old Country Store, Inc. profits from a large number of popular restaurants and retail venues. It appears to offer decent fundamentals and a consistently successful business model.

Ituran Location and Control, Ltd., is an Israel-based company that provides stolen vehickle tracking and recovery, wireless communication applications, and misc. other services. It is a small-cap with seemingly good growth potential.

National Healthcare Corp. profits from providing long-term assisted living vs. independent living health care center services. This is another small-cap stock with good prospects.

Prudential Financial is a financial services company with global operations and profits from the marketing of a wide array of investment services or products.



While I have confidence in the stocks cited here as long-term holdings, I am not as sure of the timing. They could do well despite the present condition of the U.S. stock market, yet that market overall, in spite of a recent decline, still looks overvalued to me. Thus, I would recommend these assets mainly for income-oriented shareholders. On the other hand, if the main stock indices were to fall another 6-7% or so, I believe these equities would serve the investor well on a price as well as a yield basis.


DISCLAIMER

Larry is not a professional. Don't take him seriously!

Actually, the investment article provided here is for general information only and should not be considered as professional advice, a solicitation to buy or sell any security, or the Word of God. Investors are encouraged to do their own research while considering their personal goals and circumstances, or consult their own professional financial advisors, before making investment decisions. Neither Larry nor LARVALBUG will be liable for any losses sustained by any visitor to this site.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)



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