Market Commentary & Undervalued Dividend Growth Stocks to Research This Week (09/19/2022)

Welcome back to this series on the market and finding undervalued dividend growth stocks to research.

Market Commentary:

“Inflation, deflation, rising rates, and recession, oh my.”

The hits keep coming.  The proverbial “Wall of Worry” that investors must climb appears to now have a giant moat filled with alligators around it, archers at the ready, and a constant stream of boiling hot oil being thrown at us.  What was a relatively steady climb in late 2020 and 2021 has turned into a harrowing quagmire in 2022.  

Inflation continues to rise, affecting the purchasing power as well as sentiment of consumers and businesses.  Earlier this week we saw that the Consumer Price Index (CPI) rose 0.1% to an annual rate of 8.3%.  Last month came in at 8.5%.  Many economists and market commentators were expecting a larger decline in the month over month figure.    Energy prices were down but most other categories were up.  This is not good news as categories such as food and shelter affect everyone and it is hard to escape.  

This higher than expected result nearly ensures that the Federal Reserve (Fed) will raise interest rates next week by 0.75%, or maybe even 1% in an effort to slow down the economy and lower the inflation rate.  In fact, the current prediction is an 86% chance of a 0.75% bump and 14% for a 1.00% bump, according to CMEGroup.

The rates were increased by 0.75% in the past two meetings as well. This increase will push the short term rates to between 3.0-3.25%.  This higher rate will affect the cost of borrowing throughout the economy and slow growth.  The concern is that the higher rates will not indeed bring down inflation as the Fed is anticipating, and will cause a global recession in the process.

There is growing concern from economists and market influencers that the aggressive nature of the rate hikes will lead to deflation, which is when the price of goods actually decline due to low demand, increased productivity, or a reduction in the money supply.

Deflation is generally considered bad because if a buyer of certain goods believes that the price they will have to pay will go down they will delay that purchase in the anticipation of being able to get it at a better price.  This will slow down the economy even more and the cycle will continue.  Notable names warning of deflation include Jeffrey Gundlach, a prominent bond trader, David Blanchflower, an economics professor at Dartmouth College, Economist David Rosenberg, Elon Musk, and Cathie Wood, among others.

The aggressive rate hikes, along with the persistent inflation, is causing many people to warn that the U.S. and the global economy is on the brink of a major recession.  Just yesterday, the CEO of FedEx, Raj Subramaniam, stated that he believes that we are heading into a global recession.  This is very relevant as FedEx operates around the globe and has insights on the business actions and movement of goods throughout the world.

There is much uncertainty in the markets, not knowing where the economy will ultimately head to.  Higher rates and slowing growth in the economy will affect rate sensitive industries first, such as homes and vehicles, which will then affect the supporting industries involved, which will then trickle into the broader economy.  We may see unemployment rise and consumers and businesses cut back on spending in anticipation of the downturn, effectively becoming a self-fulfilling prophecy of a recession. 

All of these factors are what investors are up against right now.  It is not an easy environment to navigate right now.  Short term there will probably be continued pressure on stock prices and business profits.  Longer term, dividend investors especially, will benefit from buying at these lower prices, but the short term pain of our account values going down will be tough to manage.

It appears that investors are already worried, with the standard gauges of sentiment getting more bearish, with the Fear and Greed Index now at Fear, the AAII Investor Sentiment Survey clearly in the Bearish category, and the Volatility Index (VIX) shooting up over the last month.

https://www.cnn.com/markets/fear-and-greed

https://www.aaii.com/sentimentsurvey

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Market Results:

The overall S&P 500 sectors were down this week, with 9 of the 11 sectors in the red.  The two green sectors were practically flat. Energy was the biggest loser of the week, followed by Industrials.  The best performing sectors were Consumer Staples and Real Estate.  

Broadening the view, this week had negative results across the indices as well, with the Dow down 4.13%, the S&P 500 was down 4.77%, and the Nasdaq was down 5.48%.  The broad indices are now down 15.18%, 18.73%, and 26.82% year to date, respectively, which is a significant change over the past month and a half especially. 

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Dividend News This Coming Week:

Earnings season is wrapping up but there are still some notable dividend growth companies reporting, including: 

Wednesday:

General Mills (GIS), Lennar Corp (LEN), KB Home (KBH), H.B. Fuller (FUL)

Thursday:

Accenture PLC (ACN), Darden Restaurants (DRI), Costco Wholesale (COST)

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Upcoming Ex-Dividend Dates. 

There are a lot of great companies going Ex-Dividend this week. Note: you must own the stock before the ex-dividend date to receive the payment.

Upcoming Ex-Dividend DatesCompanyAmountYieldEx-Dividend DateRecord DatePayable DateBBY Best Buy$0.884.78%9/19/20229/20/202210/11/2022DIN Dine Brands Global$0.512.83%9/19/20229/20/20229/30/2022ECL Ecolab$0.511.22%9/19/20229/20/202210/17/2022MAIN Main Street Capital$0.106.64%9/19/20229/20/20229/27/2022MED Medifast$1.645.20%9/19/20229/20/202211/8/2022RPT RPT Realty$0.134.78%9/19/20229/20/202210/3/2022SITC SITE Centers$0.134.00%9/19/20229/20/202210/7/2022OMC Omnicom Group$0.704.31%9/20/20229/21/202210/12/2022QSR Restaurant Brands International$0.543.66%9/20/20229/21/202210/5/2022STX Seagate Technology$0.703.73%9/20/20229/21/202210/5/2022VST Vistra$0.182.85%9/20/20229/21/20229/30/2022WRE Washington Real Estate Investment Trust$0.173.07%9/20/20229/21/202210/5/2022AVGO Broadcom$4.103.28%9/21/20229/22/20229/30/2022DBI Designer Brands$0.051.19%9/21/20229/22/202210/6/2022FRT Federal Realty Investment Trust$1.084.15%9/21/20229/22/202210/17/2022GTY Getty Realty$0.415.92%9/21/20229/22/202210/6/2022GLAD Gladstone Capital$0.077.60%9/21/20229/22/20229/30/2022GOOD Gladstone Commercial$0.137.90%9/21/20229/22/20229/30/2022LAND Gladstone Land$0.052.30%9/21/20229/22/20229/30/2022LTC LTC Properties$0.196.00%9/21/20229/22/20229/30/2022VAC Marriott Vacations Worldwide$0.621.70%9/21/20229/22/202210/6/2022PHM PulteGroup$0.151.48%9/21/20229/22/202210/4/2022SWBI Smith & Wesson Brands$0.103.18%9/21/20229/22/202210/6/2022VICI VICI Properties$0.394.60%9/21/20229/22/202210/6/2022WFG West Fraser Timber$0.301.44%9/21/20229/22/202210/7/2022DX Dynex Capital$0.1310.22%9/22/20229/23/202210/3/2022GMRE Global Medical REIT$0.217.69%9/22/20229/23/202210/11/2022IFF International Flavors & Fragrances$0.812.70%9/22/20229/23/202210/5/2022MDT Medtronic$0.682.86%9/22/20229/23/202210/14/2022PBA Pembina Pipeline$0.175.73%9/22/20229/23/202210/14/2022RWT Redwood Trust$0.2312.98%9/22/20229/23/20229/30/2022SHIP Seanergy Maritime$0.0313.50%9/22/20229/25/202210/11/2022SRE Sempra$1.152.64%9/22/20229/23/202210/15/2022JCI Johnson Controls International$0.352.49%9/23/20229/26/202210/14/2022NJR New Jersey Resources$0.363.30%9/23/20229/26/202210/3/2022POR Portland General Electric$0.453.60%9/23/20229/26/202210/17/2022WRB W. R. Berkley$0.100.59%9/23/20229/26/202210/3/2022

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Undervalued Dividend Stocks:

With the continued downturn in the market, this week’s results of the valuation screening now shows 38 companies on my tracker are now undervalued based on my 5 criteria. 

Discount to Analyst Price Target10% or more off the 52-week highDiscounted Cash Flow (DCF)P/E Mean ReversionDividend Yield Theory (DYT) 

For information on how these valuation methods are calculated, please check out my valuation post here.

Here are the quality dividend growth stocks that are appearing undervalued based on all 5 of my valuation methods:

Stocks Listed: ABT, AOS, APD, AVGO, BAC, BLK, BMO, BR, CAT, CCI, CCOI, CNI, DLR, DOW, ECL, HD, IIPR, INTC, IP, LEG, LOW, MDT, MSM, NKE, RY, SBUX, SPG, TD, TGT, TSCO, TU, TXN, UGI, UNP, V, WBA, WSO

This list should be used to begin your research to determine if the stock meets all of your investment goals and criteria. Valuation should only be one of many aspects you look at when deciding to make an investment.

Best of luck, happy investing, and check back next week for more undervalued stock ideas!

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