Prior Year Performance Review
In our ongoing review of the NLO Dividend Watch List, we have taken the top five stocks on our list from April 22, 2016 and have checked the performance one year later. The top five companies on that list can be seen in the table below.
| Symbol | Name | 2015 Price | 2016 Price | % change |
| BF-B | Brown-Forman Corp. CL 'B' | 46.63 | 46.26 | -0.8% |
| NPBC | National Penn Bancshares | 10.72 | 13.00 | 21.3% |
| MAC | Macerich | 76.81 | 65.05 | -15.3% |
| AXS | Axis Capital Holdings Ltd | 54.74 | 66.20 | 20.9% |
| STBA | S&T BanCorp. | 25.89 | 34.84 | 34.6% |
| Average | 12.1% | |||
| DJI | Dow Jones Industrial | 17,977.24 | 20,547.76 | 14.3% |
| SPX | S&P 500 | 2,091.58 | 2,348.69 | 12.3% |
The average gain of the top five companies from the prior year was +12.10%. This is comparable to the S&P 500 index. With that being said, we stated clearly that there was little case to be made for this list but emphasized that the financial sector provided good risk / reward. As such, if we excluded the two non-financial companies from the top five, Brown-Forman (BF-B) and Macerich (MAC), we end up with an average gain of 25%.
U.S. Dividend Watch List: April 21, 2017
The market continue to trade in a narrow range. However, the 50-day moving average appears to be a short-term resistance line. More volatility is expected in the coming weeks as earnings are announced. This is a good opportunity to take the time to study companies on this list that came off of bad earning reports. A one-time hit to the stock has proven to be an opportune time to accumulate shares for the long run. Below are 26 companies on our list.
| Symbol | Name | Price | % Yr Low | P/E | EPS (ttm) | Dividend | Yield | Payout Ratio |
| GWW | W.W. Grainger | 195.15 | 1.38% | 19.77 | 9.87 | 4.88 | 2.50% | 49% |
| SCG | SCANA Corporation | 66.27 | 3.22% | 15.93 | 4.16 | 2.45 | 3.70% | 59% |
| SJM | JM Smucker | 126.58 | 3.71% | 22.05 | 5.74 | 3.00 | 2.37% | 52% |
| RLI | RLI Corp. | 54.50 | 3.79% | 21.04 | 2.59 | 0.80 | 1.47% | 31% |
| TGT | Target Corp. | 54.78 | 3.91% | 11.66 | 4.70 | 2.40 | 4.38% | 51% |
| BMS | Bemis Co Inc | 49.33 | 4.47% | 19.89 | 2.48 | 1.20 | 2.43% | 48% |
| HRL | Hormel Foods Corp. | 34.69 | 4.55% | 21.02 | 1.65 | 0.68 | 1.96% | 41% |
| CASY | Caseys General Stores | 112.46 | 4.68% | 22.90 | 4.91 | 0.96 | 0.85% | 20% |
| MAC | Macerich | 65.05 | 4.68% | 18.48 | 3.52 | 2.84 | 4.37% | 81% |
| QCOM | QUALCOMM Inc | 52.50 | 4.77% | 16.01 | 3.28 | 2.28 | 4.34% | 70% |
| BF-B | Brown-Forman Corp. CL 'B' | 46.26 | 5.81% | 17.46 | 2.65 | 0.73 | 1.58% | 28% |
| SKT | Tanger Factory Outlet Centers | 32.83 | 5.97% | 16.33 | 2.01 | 1.37 | 4.17% | 68% |
| AVA | Avista Corp. | 40.33 | 6.75% | 18.76 | 2.15 | 1.43 | 3.55% | 67% |
| DNB | Dun & Bradstreet Corp. | 107.62 | 7.13% | 40.61 | 2.65 | 2.01 | 1.87% | 76% |
| GPC | Genuine Parts | 93.11 | 7.50% | 20.29 | 4.59 | 2.70 | 2.90% | 59% |
| ANAT | American National Insurance | 115.85 | 7.83% | 17.27 | 6.71 | 3.28 | 2.83% | 49% |
| KO | Coca-Cola Co | 43.07 | 8.00% | 28.91 | 1.49 | 1.48 | 3.44% | 99% |
| SO | Southern Company | 49.98 | 8.18% | 19.60 | 2.55 | 2.24 | 4.48% | 88% |
| WSO | Watsco Inc. | 138.62 | 8.59% | 26.92 | 5.15 | 4.20 | 3.03% | 82% |
| YUM | Yum! Brands | 64.82 | 8.81% | 16.04 | 4.04 | 1.20 | 1.85% | 30% |
| CSL | Carlisle Companies | 107.44 | 9.39% | 28.13 | 3.82 | 1.40 | 1.30% | 37% |
| TJX | TJX Companies | 78.56 | 9.87% | 22.71 | 3.46 | 1.25 | 1.59% | 36% |
| CINF | Cincinnati Financial Corp. | 70.18 | 9.88% | 19.77 | 3.55 | 2.00 | 2.85% | 56% |
| FDS | FactSet Research Systems | 162.16 | 10.04% | 19.03 | 8.52 | 2.00 | 1.23% | 23% |
| FII | Federated Investors Inc | 27.04 | 10.28% | 13.32 | 2.03 | 1.00 | 3.70% | 49% |
| T | AT&T Inc | 39.93 | 10.61% | 19.01 | 2.10 | 1.96 | 4.91% | 93% |
| 26 Companies | ||||||||
First on our list is W.W. Grainger (GWW), an industrial servicing company. Grainger reported earnings that missed estimates and lowered its outlook that tanked the stock earlier this week. Shares are trading at the yearly low. Based on our dividend model, shares have the potential to reach $260 but we see current price as fair value. Based on the newly revised EPS estimate of $10, one should expect a 30% downside risk. As such, we would advise one to wait for the price to fall another 15% before accumulating shares.
Next company we'd like to highlight with some potential for downside but greater potential for upside is Target (TGT). To be transparent, we are long Target. We see that the shares could rise 30% from the current level with either multiple expansion to 13x from 10x. However, if net income rises in addition to multiple expansion, shares could rise further than the 30% mark. In addition, the Coppock Curve analysis suggest that shares will rise over the long-term by 22% after the buy signal. Such a signal came in November 2016 but we do not expect the price would recover anytime soon. Target has a strong balance sheet and a dividend yield of 4.50% which should keep long-term investors happy until the sentiment changes.
Disclaimer On our current list, we excluded companies that have no earnings. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and extensive due diligence. Our view is to embrace the worse case scenario prior to investing. It is important to place these companies on your own watch list so that when the opportunity arises, you can purchase them with a greater margin of safety. It is our expectation that, at the most, only 1/3 of the companies that are part of our list will outperform the market over a one-year period.