I have even tried to explain to the company's investor relations department that while their every-six-quarters dividend hikes has been quite predictable, that such a policy means that about every three years their annual dividends flat line. Thus, the company is not included on many lists of companies with long-term histories of consecutive dividend hikes. No matter says the company. They like to do it the their way.
In this case who am I to push against such a winning record, just to make it simple. UTX has one of the most consistent dividend growth records of any company I follow. The following are their 20, 5, and one year annual dividend growth rates.
- 20-year growth rate 11.3%
- 5-year growth rate 12.5%
- 1-year growth rate 12.9%
To top it off, the estimate of UTX's three to five year dividend growth rate is just under 12%. At that rate of growth its dividend will triple over the next ten years. Not bad for a company that has a current yield of 2.6%.
Despite UTX's consistent dividend hikes and earnings growth over the last twenty years, the Dividend Valuation chart at the top of this page suggests that the company is significantly undervalued based on the historical relationships among its price growth, dividend growth, and interest rates. UTX's current price (red line) is much lower than its current valuation (blue bar) and even lower yet, than our estimate for next year (checkered blue bar).
The so-called Correlation Index, which measures how tightly the average stock is tracking the major indices, has risen to as high as 85% in recent weeks. Its normal reading is near 15%. This means that the constant on again off again European bail out proposals have turned what is normally a market of stocks into a stock market. What I mean by this is that almost all stocks have been caught in the maelstrom of big up and down days, which would indicate that all companies have about the same future profit and dividend potentials. If you take a few minutes to think about this, the truth almost smacks you in the face. The one thing we know for sure is that the future prospects are not the same for all stocks, thus, it is just a matter of time before stocks start to trade on the bases of their own unique fundamentals, not the generalized fears of the European situation, no matter how things turn out.
In this regard, we believe UTX has quite a pedigree and will ultimately break away from the pack and show it star quality..
Despite UTX's consistent dividend hikes and earnings growth over the last twenty years, the Dividend Valuation chart at the top of this page suggests that the company is significantly undervalued based on the historical relationships among its price growth, dividend growth, and interest rates. UTX's current price (red line) is much lower than its current valuation (blue bar) and even lower yet, than our estimate for next year (checkered blue bar).
The so-called Correlation Index, which measures how tightly the average stock is tracking the major indices, has risen to as high as 85% in recent weeks. Its normal reading is near 15%. This means that the constant on again off again European bail out proposals have turned what is normally a market of stocks into a stock market. What I mean by this is that almost all stocks have been caught in the maelstrom of big up and down days, which would indicate that all companies have about the same future profit and dividend potentials. If you take a few minutes to think about this, the truth almost smacks you in the face. The one thing we know for sure is that the future prospects are not the same for all stocks, thus, it is just a matter of time before stocks start to trade on the bases of their own unique fundamentals, not the generalized fears of the European situation, no matter how things turn out.
In this regard, we believe UTX has quite a pedigree and will ultimately break away from the pack and show it star quality..
I own UTX.
2 comments:
Thanks for the post Greg.
As someone who is in the market every day, I would attribute the high correlations less to "European News" and moreso to the following:
a) the Fed's balance sheet now represents nearly 20% of GDP
b) high frequency trading and algorithmic quote stuffing are responsible for over 70% of daily volume on broad equity exchanges
c) most retail investors are leaving the "casino" entirely - voluntarily and involuntarily (cost of living increases) as evidenced by fund flows
As a consequence of the above, you are literally left with nothing but pros and computers armed with a bunch of funny money and limited regulations left to speculate with each other.
Most of the "news" is embedded in the currency crosses which drive the markets up or down - based on the news du jour.
We are all currency traders now.
Ultimately, if you must be "invested", DCM is in the right space as Bernanke has effectively said that dividend paying stocks or quality credit products with embedded equity options are the only place to be until mid 2013.
Unfortunately one of the biggest banks on the planet (BAC) has been left behind, despite Warren's "assurance"......which could have profound consequences as we enter 2012 with no appetite for more QE or stimulus.
Be careful out there. And Happy Holidays. Dave G
I am looking forward to looked over way more of your current well written articles, have a pleasant day!
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