This is a guest post from Bob over at Suredividend.com. I personally use their resources and I am a big fan of their site. So make sure to check them out. The three companies listed below are in my portfolio and I agree that they are worth a look.
At Sure Dividend, we are big proponents of investing in high-quality dividend growth stocks and holding on for the long-term. We believe buy-and-hold is the best way to generate long-term wealth. This can seem challenging in a market selloff, but if anything, long-term investors should use these declines as a buying opportunity.
Three high-quality dividend growth stocks we find especially attractive right now, in light of the market plunge in recent weeks, are AbbVie (ABBV), AT&T Inc. (T), and Exxon Mobil (XOM). All three stocks are on the list of Dividend Aristocrats, a group of 64 stocks in the S&P 500 Index that has each raised their dividends for 25+ consecutive years.
In our view, these three beaten-down Dividend Aristocrats are excellent long-term buys right now, thanks to their discounted valuations and elevated dividend yields.
Dividend Aristocrat #1: AbbVie
AbbVie is a pharmaceutical manufacturer. Its primary product is Humira, which represented over half of sales last year. While Humira has fueled AbbVie’s impressive growth in recent years, there are also concerns that over-exposure to Humira could be a drag on the company’s future growth. That is because Humira has lost patent exclusivity in Europe, and will lose patent exclusivity in the U.S. in 2023.
Fortunately, AbbVie has prepared for this by investing billions in research and development of new therapeutic areas. Specifically, Imbruvica sales increased by 29% in 2019, while sales of Venclexta more than doubled last year. AbbVie is also turning to a major acquisition to boost future growth.
AbbVie has announced the $63 billion acquisition of Allergan (AGN), which will create a company with over $50 billion of annual revenue. The deal will diversify AbbVie’s product portfolio, by expanding heavily into cosmetic products. Allergan’s flagship product is Botox. AbbVie expects the transaction to be 10% accretive to adjusted earnings-per-share over the first year, with peak accretion of greater than 20%.
AbbVie expects adjusted diluted earnings-per-share of $9.61 to $9.71 for 2020 on revenue growth of 8%, which will more than secure the company’s current dividend payout of $4.72 per share. AbbVie stock has a high dividend yield of 6%. The stock also appears undervalued, as shares trade for just 8.2 times earnings, based on the midpoint of 2020 guidance.
Dividend Aristocrat #2: AT&T
AT&T is a telecom giant with a market capitalization of $225 billion. It is the largest telecom in the U.S., followed closely by Verizon. AT&T offers a wide range of services, including wireless, broadband, and television through its cable operations and its DIRECTV satellite business. It operates in four distinct business units: AT&T Communications (providing mobile, broadband and video to 100 million U.S. consumers and 3 million businesses); WarnerMedia (including Turner, HBO, and Warner Bros.); AT&T Latin America (offering pay-TV and wireless service to 11 countries); and Xandr (providing advertising).
In 2019, AT&T generated $181.2 billion in revenue, up 6.1% led by a full year of Time Warner and growth in domestic wireless services. Adjusted earnings-per-share increased 1.4% to $3.57. AT&T also reduced its debt-to-EBITDA ratio to 2.5x in 2019 as part of its deleveraging efforts following the massive Time Warner acquisition, which we believe to be AT&T’s strongest growth catalyst moving forward.
Content will be AT&T’s major growth catalyst, driven by the $81 billion acquisition of Time Warner, which owns multiple content brands including: TNT, TBS, CNN, and HBO. Time Warner also owns a movie studio and sports rights across the NFL, NBA, MLB, and NCAA. For 2020 AT&T expects revenue growth of 1% to 2%, and adjusted EPS of $3.60 to $3.70. By 2022, AT&T expects 1% to 2% annual revenue growth, along with $4.50 to $4.80 in earnings-per-share and a manageable debt-to-EBITDA ratio of 2.0x to 2.25x.
Separately, AT&T has a high dividend yield of 6.6%. We view the dividend as highly secure, as the company’s earnings-per-share will more than cover the dividend. AT&T has a projected dividend payout ratio below 60% for 2020, which should allow for continued dividend increases each year, even during a recession.
Dividend Aristocrat #3: Exxon Mobil
Exxon Mobil is the largest U.S. energy company. It has been one of the hardest-hit stocks in the Dow Jones Industrial Average to start 2020. Not only do investors fear the coronavirus and its impact on global economic activity, but recent actions by Saudi Arabia to flood the market with cheap oil has stoked fears of global oversupply. As a result, oil prices have crashed in recent weeks, and have taken down Exxon Mobil with it.
Exxon shares have declined over 40% year-to-date, but we believe this is an overreaction. Shares of Exxon now yield 9.4%, despite the fact that the company has increased its dividend each year for over 30 years in a row. It has proven the ability to outlast recessions in the past, and we believe it will do so again, albeit with a great deal of volatility.
We believe Exxon’s long-term growth prospects remain intact. The company intends to grow its production from 4.0 to 5.0 million barrels per day by 2025. Two specific areas of growth are the Permian Basin and Guyana. First, the Permian will be a major growth driver, as the oil giant has about 10 billion barrels of oil equivalent in the area and expects to reach production of more than 1.0 million barrels per day in the area by 2024.
Guyana also holds incredible potential for Exxon. Due to massive new discoveries, the company has nearly tripled its estimated reserves in the area, from 3.2 billion barrels in early 2018 to more than 8.0 billion barrels now.
We expect Exxon to generate adjusted earnings-per-share of $3.50 for 2020, which equates to a price-to-earnings ratio of just 10.6. In addition, Exxon has a very high yield above 9%, with the potential for future earnings growth to add to shareholder returns. In all, Exxon is one of our highest-ranked Dividend Aristocrats, although investors should be fully prepared for continued volatility in the share price in the coming weeks.