The current bear market is not all doom and gloom: it presents a great opportunity to find undervalued stocks that have a strong probability of recovering once the coronavirus crisis is resolved.
Today, I will be looking at 3 discout dividend stocks that you should consider purchasing.
Franklin Resources (NYSE:BEN)
First on my watchlist is a company that may be flying under most investors’ radar.
Founded in 1947, Franklin Resources, better known as Franklin Templeton, is a global investment firm that manages over $700 billion in assets on behalf of private, professional and institutional investors.
Currently trading for less than $20, this stock’s dividend yield is an attractive 6%.
This stock is taking a beating because the investment landscape is moving away from active money management towards passive index-fund investing. Franklin Resources is no exception to this trend: their 2019 revenues are down 8% from 2018 and their total assets under management are down roughly 10% since 2014.
However, there is room for optimism.
Franklin’s recent acquisition of rival investment firm Legg Mason Inc in a $4.5 billion cash deal will strengthen its position as a global investment leader. With $1.5 trillion in assets under management, the two companies will now use their complementary strengths to implement growth driven strategies instead of competing for clients.
On the dividend front, Franklin has increased it for 39 consecutive years. This is no mean feat and proves that management is strongly dedicated to rewarding its shareholders.
Asset management is a ruthless business and clients can desert you as quickly as they flocked.
However, Franklin has been in the business for over 70 years and boasts a recognized brand name, proven financial savvy and huge assets under management.
In sum, the current $18-$20 range represents a reasonable point of entry for this dividend stock.
Growing up in the late 90s and early 2000s, I remember that my elementary school had brand new IBMs in the computer lab. Fast forward 20 years and you will be hard pressed to find an IBM computer anywhere. Yet, despite disappearing from our desks, the company remains a behemoth.
IBM has a long history of shifting its operations to focus on the highest-value, most profitable markets. Today, the company produces and sells computer hardware, middleware and software, providing hosting and consulting services in domains from mainframe computers to nanotechnology.
In addition, IBM is at the forefront of technological innovation, holding the record for most US patents generated by a business for 27 consecutive years. Notable IBM inventions include but are not limited to the ATM, the hard disk drive, the magnetic stripe card, the UPC barcode…
Lastly, it is worth mentioning that IBM employs more than 350,000 employees, making it one of the world’s largest employers. Its employees are leading experts in their fields and have won numerous awards including five Nobel Prizes, six Turing Awards, ten National Medals of Technology and five National Medals of Science…Quite an impressive list of achievements.
The stock is currently trading at its lowest level in a decade despite the company’s strong fundamentals.
As a result, the dividend yield is now a very attractive 6%.
Should investors worry about a potential dividend cut? After all, there is a precedent: In the early 1990s, the company was struggling financially and cut its dividend by more than half. However, hard times only lasted a few years and by 1995 the company started increasing its dividend again.
Thus, IBM has increased its dividend for the past 24 years; 1 more increase and it will enter the prestigious category of dividend aristocrat. Even if IBM cuts the dividend due to the coronavirus recession, there is no doubt in my mind that they will raise it again once the economic prospects become favorable.
With a dividend yield of 6%, this stock is an attractive buy under $100. If it falls to $80-$90 then I believe it becomes a strong buy. If, for some reason uncorrelated to business performance the stock falls below $80, then it becomes one of the bargains of the season.
The coronavirus outbreak has hit Disney stock particularly hard.
The stock was on a strong uptrend following the launch of Disney+ streaming but the closing of theme parks, cancellation of cruises and delays of movie premieres will severely impact the firm’s 2020 earnings. Consequently, investors are rushing to sell their shares until the economic outlook becomes more favorable. The stock is nearing sub-$90 territory which is the lowest price since 2016.
Despite the current price dip, I strongly believe in the company’s future. Disney Corporation is one of – if not the – largest media and entertainment conglomerate in the world and it will eventually bounce back.
Some people complain that the dividend yield of just under 2% is very low for a company this size but I’m not overly concerned. Once the virus crisis over, the company will continue growing and generating profits; the current price level is a great opportunity to open – or strengthen – a position at a discount. There will be capital gains and the dividends are an added bonus.
The only question now is how much lower can this stock dip?
Disney is in for a rough year and the stock could keep tumbling. Nevertheless, I think it may hit support soon because many long term holders will not part with the shares they bought at $80-$90 and will be tempted to add to their positions. A continued decline is a possibility given the current context but such a price level would prove to be an irresistible buying opportunity for long-term investors.
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Disclaimer: This is not financial advice. Do your own research before investing in any asset.