Three dividend champions take a beating

Three dividend champions (25+ years of consecutive dividend raises) took a beating yesterday (7/22) after they announced results that didn’t meet expectations. Is this a buying opportunity? Let’s have a closer look at each one. 

MCD – McDonalds profits slip with a 1% YoY drop in earnings. It also came in below analyst expectations. Main reasons include lower sales/revenues in US/Europe and Asia revenues increases below expectations. The stock fell to an intra-day low of $95.10 before recovering and closing at $96.27 (-1.31%) on Tuesday. This follows a drop of another 1+% on Monday. Overall the stock has dropped by more than 5% in the last month.

MCD has raised dividends for 38 consecutive years and with the current quarterly dividend of $0.81/share, the yield stands at about 3.36%. The stock is having a P/E of little over 17 against its 5 year average of 17.0. From that perspective, the stock is not overly expensive. Morningstar has a fair value of $105.00 for the stock and has rated it 4 stars.

I would rate the stock as a buy at this price and the stock has room to grow once MCD has addressed its needs. I just purchased MCD on 7/21/2014 (before the latest results) and I am still optimistic on the stock. I have more information on the stock here.

KO – Coca-Cola also reported results below expectations. EPS was $0.64 beat expectations by $0.01, but revenue went down by -1.4% YoY to 12.57B. Main reasons include declining revenue in North America. The stock closed at $41.19 on Tuesday down -2.85%. This is a 1 month low for the stock.

KO has increased dividends for 52 consecutive years and with the current quarterly dividend of $0.31/share, the yield stands at about 2.96%. The stock is having a P/E of about 22 which is higher than its 5 year average of 18.3. Morningstar has a fair value of $44.00 for the stock and has rated it 4 stars.

KO is on my list of stocks to initiate position in and looking to get in pretty soon.

KMB – Kimberly Clark, while not as popular as MCD or KO among dividend investors is still a dividend champion that has managed to increase dividends for 42 consecutive years.  While revenue increased 1.3% YoY, it missed out on EPS compared to expectations. The company also narrowed its full year guidance. The stock took the most hit among the three dropping more than 3% closing at $108.84.

KMB has increased dividends for 42 consecutive years and with the current quarterly dividend of $0.84/share, the yield stands at about 3.08%. The stock is having a P/E of about 20 which is higher than its 5 year average of 16.9. Morningstar has a fair value of $94.00 for the stock and has rated it 2 stars.

I believe the stock is overvalued at this time and looking to wait a bit for the stock to correct a bit more. But the spin-off slated for this year might unlock more value onto the respective stocks.

Disclosure: Long of MCD. I plan to initiate positions in KO/KMB in the near future.

Image Courtesy: mcdonalds.com, coca-cola.com, kimberly-clark.com

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4 thoughts on “Three dividend champions take a beating

  1. DGJ,

    I am actually waiting for KO’s next quarterly report. My gut feeling tells me that it will miss expectation once again. Soft drink consumption has been decreasing in the past decade due to health concerns. KO’s share a coke and world cup marketing both fell flat. Pepsi was flat this quarter too. Pepsi only survived because of its snack line.

    A quick glace at KO’s trough indicate that for the last 2 years, KO’s stock has crashed around late october/early november. I think I can snatch KO at 37.50 early November or so. But that’s just my speculation bone talking

    • Hello Broke Dividend Investor,

      Soft drink consumption is something that is going to decline especially in the developed markets of US/Canada/Europe. Both KO and PEP has expanded onto snacks/juices/water lines to make up for it. PEP’s snack line is definitely stronger compared to KOs.
      37.50 would really be a good entry price point. This is just a little over the 52 week low and also the price around Oct last year. It would be tempting to initiate/add positions at this price point.

      Thanks for stopping by and sharing your thoughts.

      DGJ

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