Black Friday Dividend Deals

Ah, all-night lines in freezing cold weather and 60-inch plasma TVs for $50. Black Friday has come and gone but investors may still be able to get some door-buster deals on their dividend stocks. With rising interest rates since May, a lot of these stocks have been bruised but the underlying companies are far from beaten. Look for companies with long-term growth drivers and enough cash to ride out any short-term pain.

Discount deals without falling for a value trap

A cheaper stock price doesn’t always mean a good deal. For every rebound like Best Buy (BBY) there are at least two value traps like JC Penney (JCP) or BlackBerry (BBRY) that just keep falling. Looking for discount dividend stocks, I make sure that revenue has been increasing and that the company has enough cash and receivables to cover their debt for the year. If the company has strong drivers for sales growth in the future, that should be enough to bring investors back once the near-term fears subside.

As always, you should also look to spread out your investments over different sectors and industries to avoid having too much exposure in any one type of business.

Three Dividend Deals with Huge Growth Drivers

Exelon Corporation (EXC) is a diversified utilities provider generating electricity from nuclear, renewable and traditional fossil fuel sources. The company provides utility service to customers in Maryland, Illinois and Pennsylvania. Exelon is down 8.2% over the last year, largely as a result of the increase in interest rates since May.

Even in a weak environment for economic growth, the company has seen stable gains in sales. Revenue increased 24% last year and has increased at a 4.4% compound rate over the last five years. Exelon has enough cash to cover three-quarters of its current liabilities and, as a regulated utility company, is basically guaranteed to continue providing services. The shares pay a 4.5% dividend and the company has a strong portfolio in nuclear and renewables which will not face as many headwinds as coal.

HCP Incorporated (HCP) is down over 18% in the last year on a double-whammy of rising rates and an unexpected management change. The company is a real estate investment trust (REIT) that invests in the healthcare sector through senior living, hospitals, and medical offices.

Revenue increased more than 10% last year and at a 14% compound rate over the last five years. The company has almost enough cash and receivables to fully cover its current liabilities (0.88 times) and has a strong enough credit rating that it will not have any issues.

The company rewards investors with a 5.5% dividend and a track record for dividend increases. I do not see the recent management changes as a problem. The company completed a major acquisition this year and will probably slow down its spending over the next year, which is good since it looks like the prices for healthcare-related real estate are getting a little high. With aging demographics in the United States, the company has a strong upside for future growth.

Deere & Company (DE) is one of the largest manufacturers of agricultural and turf equipment in the world. The shares are down just 0.7% over the last year but still trade at a pretty strong discount of just 9.6 times trailing earnings against a five-year average of 15.3 times. Much of the weakness is due to slower growth in emerging markets over the last couple of years and weakness in commodity prices.

Sales increased 13% last year and at a compound rate of 8.5% over the last five years. The company has enough cash and receivables to cover two-thirds of its current liabilities. Shares pay a modest 2.4% dividend but the company has been aggressively returning cash to shareholders with share buybacks of $1.6 billion in each of the last two years.

While interest rates will continue to increase over the next year and tarnish the appeal of bonds and bond-like investments such as utilities and REITs, these are fundamentally sound businesses. Exelon is a regulated monopoly and so has almost no business risk. HCP will benefit from the huge increase in healthcare and housing needs from the aging demographic over the next decade. Deere & Company is well positioned to benefit from the increase in capital equipment usage across the emerging world.

A cheap stock does not always mean a good deal, but these three companies have strong growth drivers and bright futures. Investors willing to ride out the near-term weakness in prices will be paid to wait and will be well-rewarded when the share price reflects a strong business model.


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