Dividend aristocrats: 9 turnarounds

by George Putnam, editor The Turnaround Letter

Standard & Poor’s maintains an index it calls the “Dividend Aristocrats,” consisting of blue chip companies that have increased dividends every year for at least 25 consecutive years.  

Since it is no mean feat to raise your dividend every year for 25 years, there is a strong presumption that these are very well-managed companies.

However, even aristocrats get caught up in major upheavals; the stocks below represent a diverse sample of dividend aristocrats whose stocks have fallen since the market peak in late April and that yield at least 3%.

Abbott Laboratories (ABT) was a darling of the late 1990’s, with the stock rising to extraordinary valuations.  

Revenues have grown steadily ever since, but investors have a different view of Abbott today so that the stock now trades no higher than it did in early 1999.  

Abbott is using its strong cash flow to broaden its product line, bolster its pipeline of new drugs and diversify internationally.  With a forward P/E below 10, the stock looks cheap.

AFLAC (AFL), the insurance company of quacking-duck fame, was rebounding from the 2007/2008 financial-system debacle only to run into headwinds in 2011.  

AFLAC’s Japanese operations account for roughly 75% of revenues, and so when the earthquake hit the shores of Japan in March, investors sold the shares.  

Then management lowered expectations and revealed that they had exposure to Greece and Ireland. Recent market volatility hasn’t helped either.   

Bemis (BMS) is a leading producer of flexible packaging, with special expertise in ‘high barrier’ products for food, medical and personalcare applications.  

The company has been around since 1858. Today, management is utilizing new-product development and acquisitions to expand its product offering and geo- graphic reach.   

CenturyLink (CTL) was once a small, rural provider of communications services, but the April and July acquisitions of Qwest and  Savvis, respectively, have launched the company into the big leagues of telecom and IT services.  

Management has received high marks in the past for its ability to assimilate acquisitions, but these last two are of significantly larger proportion, and so management will be tested.  

The balance sheet is a bit leve- raged, but ample cash flow should support future growth as well as a very attractive dividend.

Cincinnati Financial (CINF) offers property & casualty and life insurance mostly in the Midwest and Southeast.  

Though the company has a reputation for conservative underwriting standards, a rash of powerful storms this past spring took a toll on operating results.  

Moreover, the industry is currently experiencing weak pricing because of excess underwriting capacity.  

But the company handled the storm damage; industry capacity trends are improving; and plans for geographic expansion and premium diversification appear sound.   

Emerson Electric (EMR) is a leading global manufacturer of a wide range of electrical and electromechanical products with a reputation for high quality and strong management.  

Concerns about a new economic slowdown have led to a 25% selloff in the stock.  While there may be a little softness ahead, Emerson’s many strengths give the stock good long-term appreciation potential.  

PepsiCo (PEP) is best known for its Pepsi beverage products, but it is also a major producer of snack foods, including Fritos, Lay’s, Doritos and Tostitos.  

Management continues to actively reposition the firm’s brands.  Rising raw material costs are crimping margins in the near term, but strong international operations are providing an offset.   

Pitney Bowes (PBI) is the world’s largest maker of postage meters and mailing systems.  Unfortunately, nobody is using the mail any more.  

The company has responded with a number of acquisitions that have helped it re- position into what is called customer communications management – essentially systems that allowcompanies to communicate with customers through a variety of media, including internet, email, print and regular mail.  

While this is a work in progress, the company is still generating good cash flows from its legacy business. 

Procter & Gamble (PG) has an incredibly deep line of leading brands in the household, personal care, food and paper sectors, from Dawn and Gillette to Crest, Pampers, Scope, Tide and Cover Girl.  

Like many consumer product companies, P&G has been challenged recently by rising raw material prices. But that is a short-term issue that masks the firm’s attractive long-term prospects.  

Learn more about this financial newsletter at George Putnam's The Turnaround Letter.