2 Dividend Aristocrat Bargains That Could Potentially Triple In 5 Years

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2 Dividend Aristocrat Bargains That Could Potentially Triple In 5 Years
2 Dividend Aristocrat Bargains That Could Potentially Triple In 5 Years

The 2022 bear market hasn’t hit all companies the same, not by a long shot.

 

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YCharts

 

According to Lipper Financial, about 33% of the Nasdaq is down 70+% from record highs, and former non-profitable tech darlings like Affirm (AFRM) are down 80% in just the last five months.

Such catastrophic losses, which most companies never recover from, make the Nasdaq’s 23% YTD decline look paltry by comparison.

But what of the bluest of blue-chips, the legendary dividend aristocrats, S&P companies with 25+ dividend growth streaks? This year’s flight to safety and quality has seen the aristocrats fall just 7%.

But don’t let that fool you, because it’s always and forever a market of stocks, not a stock market.

Every Dividend Champion, Aristocrat, And King Sorted By Valuation

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

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(Source: Dividend Kings Research Terminal)

 

As you can see some aristocrats and champions are still highly overvalued, trading as if they were speculative tech stocks in February 2021.

  • overall, the entire group is 1.4% historically undervalued
  • yields 2.5%
  • and is expected to deliver 11.1% long-term returns
  • about 1% more than the S&P 500
  • as they have for over 20 years

On the other hand, some of the world’s greatest companies are trading at anti-bubble valuations, making them truly no-brainer blue-chip bargain opportunities that could deliver not just safe yield, but potentially jaw-dropping medium-long-term returns.

Today, I want to highlight why Polaris (PII) and Fresenius Medical (FMS) are the two best dividend champion bargains you can buy.

  • the two most historically undervalued dividend champions

Polaris: The Best Value Among Dividend Champions

Reasons To Potentially Buy PII Today

  • 89% quality medium-risk 13/13 Ultra SWAN power sports company
  • 92% dividend safety score
  • 27-year dividend growth streak
  • 2.4% very safe yield
  • 0.5% average recession dividend cut risk
  • 1.4% severe recession dividend cut risk
  • 39% undervalued (potential Ultra Value Strong Buy)
  • Fair Value: $177.48
  • 10.8X forward earnings vs 16.5X to 18X historical
  • 8.1X cash-adjusted earnings: anti-bubble Buffett-style “fat pitch” bargain
  • priced for -0.8% growth according to Graham/Dodd fair value formula
  • Effective A+ credit rating = 0.6% 30-year bankruptcy risk
  • 58th industry percentile risk management consensus = Average, bordering on above-average
  • 4% to 17% CAGR margin-of-error growth consensus range
  • 15% CAGR median growth consensus
  • 10+% management guidance
  • 5-year consensus total return potential: 16% to 26% CAGR
  • base-case 5-year consensus return potential: 24% CAGR (6X S&P consensus)
  • consensus 12-month total return forecast: 19% (highly conservative, 11.5X earnings)
  • Fundamentally Justified 12-Month Returns: 67% CAGR

PII 2024 Consensus Total Return Potential

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(Source: FAST Graphs, FactSet Research)

 

If PII grows as analysts expect by 2024, it could deliver 115% total returns or 35% annually.

  • Buffett (and Joel Greenblatt)-like returns from an anti-bubble blue-chip bargain hiding in plain sight

PII 2027 Consensus Total Return Potential

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(Source: FAST Graphs, FactSet Research)

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(Source: FAST Graphs, FactSet Research)

 

By 2027 if PII grows as expected (13.9% CAGR) and returns to historical fair value (17X earnings), it could deliver 233% total returns or 24% annually.

  • about 6X the S&P 500 consensus
  • Buffett-like return potential

PII Long-Term Consensus Total Return Potential

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return Long-Term Inflation And Risk-Adjusted Expected Returns Years To Double Your Inflation & Risk-Adjusted Wealth 10 Year Inflation And Risk-Adjusted Expected Return
Polaris 2.4% 15.00% 17.4% 12.2% 9.7% 7.4 2.53
Nasdaq 1.0% 13.9% 14.9% 10.4% 8.0% 9.0 2.15
Dividend Growth 2.0% 11.5% 13.5% 9.5% 7.0% 10.3 1.96
Dividend Aristocrats 2.4% 8.5% 10.9% 7.6% 5.2% 14.0 1.65
S&P 500 1.6% 8.5% 10.1% 7.1% 4.6% 15.7 1.57

(Sources: Morningstar, FactSet, YCharts)

  • Analysts expect PII to significantly outperform almost every investment strategy as well as the dividend aristocrats, Nasdaq, and S&P 500 over the long term.
  • Management’s long-term total return guidance is for 12.4+% long-term returns, better than the aristocrats and S&P 500

Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment

Time Frame (Years) 7.6% CAGR Inflation-Adjusted S&P Consensus 8.4% Inflation-Adjusted Aristocrats Consensus 14.9% CAGR Inflation-Adjusted PII Consensus Difference Between Inflation Adjusted PII Consensus Vs S&P Consensus
5 $1,445.67 $1,493.29 $2,005.24 $559.57
10 $2,089.97 $2,229.92 $4,021.00 $1,931.03
15 $3,021.42 $3,329.92 $8,063.08 $5,041.67
20 $4,367.98 $4,972.54 $16,168.44 $11,800.46
25 $6,314.67 $7,425.45 $32,421.65 $26,106.98
30 $9,128.95 $11,088.36 $65,013.30 $55,884.34

(Source: DK Research Terminal, FactSet)

Even if PII only grows as analysts expect for 10 years, that’s about 4X inflation-adjusted return potential.

Time Frame (Years) Ratio Aristocrats/S&P Consensus Ratio Inflation-Adjusted PII Consensus Vs S&P Consensus
5 1.03 1.39
10 1.07 1.92
15 1.10 2.67
20 1.14 3.70
25 1.18 5.13
30 1.21 7.12

(Source: DK Research Terminal, FactSet)

Which is about 2X what analysts expect from the S&P 500 and dividend aristocrats.

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PII Investment Decision Score

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DK

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(Source: DK Automated Investment Decision Tool)

 

For anyone comfortable with its risk profile, PII is one of the most reasonable and prudent fast-growing dividend champions you can buy.

  • 40% discount vs 4% market premium = 44% better valuation
  • 2.4% yield vs 1.6% yield (and a much safer yield at that)
  • potentially almost 70% higher long-term return potential than S&P 500 overtime
  • about 3X better risk-adjusted expected return over the next five years

Fresenius Medical: One Of The Best Global Aristocrats You’ve Never Heard Of

Reasons To Potentially Buy FMS Today

  • 87% quality low-risk 12/13 Super SWAN medical services company
  • 90% dividend safety score
  • 25-year dividend growth streak (in Euros)
  • 3.0% very safe yield
  • 0.5% average recession dividend cut risk
  • 1.5% severe recession dividend cut risk
  • 39% undervalued (potential very strong buy)
  • Fair Value: $44.72
  • 14X forward earnings vs 18.5X to 19X historical
  • 8.1X cash-adjusted earnings: anti-bubble, Buffett-style “fat pitch”
  • priced for -0.8% growth according to the Graham/Dodd fair value model
  • BBB stable outlook credit rating = 7.5% 30-year bankruptcy risk
  • 76th industry percentile risk management consensus = Good
  • 0.4% to 17% CAGR margin-of-error growth consensus range
  • 15.3% CAGR median growth consensus
  • 5-year consensus total return potential: 19% to 21% CAGR
  • base-case 5-year consensus return potential: 20% CAGR (4X S&P consensus)
  • consensus 12-month total return forecast: 27% (highly conservative, 15.1X earnings)
  • Fundamentally Justified 12-Month Returns: 66% CAGR

FMS 2024 Consensus Total Return Potential

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(Source: FAST Graphs, FactSet Research)

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(Source: FAST Graphs, FactSet Research)

 

If FMS grows as analysts expect by 2024, it could deliver 84% total returns or 27% annually.

  • Buffett-like returns from an anti-bubble blue-chip bargain hiding in plain sight

FMS 2027 Consensus Total Return Potential

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(Source: FAST Graphs, FactSet Research)

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(Source: FAST Graphs, FactSet Research)

 

By 2027 if FMS grows as expected (11.9% CAGR) and returns to historical fair value (18.6X earnings), it could deliver 172% total returns or 20% annually.

  • about 4X the S&P 500 consensus
  • Buffett-like return potential

FMS Long-Term Consensus Total Return Potential

Investment Strategy Yield LT Consensus Growth LT Consensus Total Return Potential Long-Term Risk-Adjusted Expected Return Long-Term Inflation And Risk-Adjusted Expected Returns Years To Double Your Inflation & Risk-Adjusted Wealth 10 Year Inflation And Risk-Adjusted Expected Return
Fresenius Medical 3.0% 15.30% 18.3% 12.8% 10.3% 7.0 2.68
Nasdaq 1.0% 13.9% 14.9% 10.4% 8.0% 9.0 2.15
Dividend Growth 2.0% 11.5% 13.5% 9.5% 7.0% 10.3 1.96
Dividend Aristocrats 2.4% 8.5% 10.9% 7.6% 5.2% 14.0 1.65
S&P 500 1.6% 8.5% 10.1% 7.1% 4.6% 15.7 1.57

(Sources: Morningstar, FactSet, YCharts)

  • Analysts expect FMS to significantly outperform almost every investment strategy as well as the dividend aristocrats, Nasdaq, and S&P 500 over the long-term.

Inflation-Adjusted Consensus Return Potential: $1,000 Initial Investment

Time Frame (Years) 7.6% CAGR Inflation-Adjusted S&P Consensus 8.4% Inflation-Adjusted Aristocrats Consensus 15.8% CAGR Inflation-Adjusted FMS Consensus Difference Between Inflation Adjusted FMS Consensus Vs S&P Consensus
5 $1,445.67 $1,493.29 $2,085.00 $639.32
10 $2,089.97 $2,229.92 $4,347.21 $2,257.24
15 $3,021.42 $3,329.92 $9,063.92 $6,042.50
20 $4,367.98 $4,972.54 $18,898.23 $14,530.25
25 $6,314.67 $7,425.45 $39,402.74 $33,088.07
30 $9,128.95 $11,088.36 $82,154.56 $73,025.61

(Source: DK Research Terminal, FactSet)

Even if FMS only grows as analysts expect for 10 years, that’s a nearly 4.5X inflation-adjusted return potential.

Time Frame (Years) Ratio Aristocrats/S&P Consensus Ratio Inflation-Adjusted FMS Consensus Vs S&P Consensus
5 1.03 1.44
10 1.07 2.08
15 1.10 3.00
20 1.14 4.33
25 1.18 6.24
30 1.21 9.00

(Source: DK Research Terminal, FactSet)

Which is more than 2X what analysts expect from the S&P 500 and dividend aristocrats.

FMS Investment Decision Score

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DK

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(Source: DK Automated Investment Decision Tool)

 

For anyone comfortable with its risk profile, FMS is one of the most reasonable and prudent fast-growing dividend champion opportunities on Wall Street.

  • 38% discount vs 4% market premium = 42% better valuation
  • 3.0% yield vs 1.6% yield (and a much safer yield at that) 2X the market’s yield
  • potentially almost 2X higher long-term return potential than S&P 500 overtime
  • about 2X better risk-adjusted expected return over the next five years
  • 20% of your investment repaid in the first five years in consensus dividends

Bottom Line: Polaris And Fresenius Are No-Brainer Dividend Aristocrat Opportunities

I’m not saying that PII and FMS are going to skyrocket tomorrow and generate 20%, 30%, or even 60% returns within a year.

  • though their fundamentals would justify such a move and analysts do expect around 25% 12-month returns from both

Bear markets for even the world’s greatest companies can last far longer than you might imagine.

  • up to seven years in some cases

But that’s precisely why even aristocrats can become up to 40% undervalued… in a growing economy.

Here’s what I can tell you with very high confidence.

PII and FMS are not trading at historically outrageously great valuations for any fundamental reason.

  • both companies are expected to grow around 15% over time and double-digits through the next five years.

Both companies offer impeccable dividend growth records, 25 consecutive years for FMS and 27 years for PII.

Whether or not we get a recession in 2023 or 2024, the simple fact is that PII and FMS are trading at anti-bubble valuations already pricing in a recession.

  • 8X cash-adjusted earnings is a bargain by even private equity standards

If you’re tired of praying for luck on Wall Street, how about you make your own luck instead?

Luck is what happens when preparation meets opportunity.” – Roman Philosopher, Seneca the Younger

Polaris and Fresenius are classic Buffett-style “fat pitches” and how the smart long-term dividend growth investor can take charge of their financial destiny and potentially retire in safety and splendor.