3 Potentially undervalued Dividend Growth Stocks for November 2020

Today I would like to share 3 dividend growth stocks that I feel are potentially undervalued going into November 2020.

These are not recommendations to buy but rather a list of 3 companies who I feel are undervalued and deserve your attention to do more research.

Let me know in the comments if you agree or who you think is currently undervalued.

ABBVie

ABBV qualifies as a dividend aristocrat under the grandparent rule but has grown its own dividend over the last 8 years at an impressive rate. The 5-year dividend Growth rate is a whopping 20.86% compared to 7.93% of the S&P 500.

ABBV recently announced a 10% dividend hike from $1.18 to $1.30 which will give them a dividend yield of 6.4% at current prices. While not as high as the previous 5 years, it certainly is a pretty impressive hike in the current circumstances.

ABBV are in good shape with their FCF payout ratio which is currently under 50%. They also have a healthy payout ratio based on earnings at 52.8% TTM.

Their current TTM PE Ratio is 18.61 which is below the average of 21.25

Using a Dividend discount model the fair value of the company is $125. Running a Discount cash flow analysis, I estimate the fair value of the company to be $135

Splitting the difference I estimate the fair value to be $130 which leave them just over 50% undervalued a the current price of $85

Walgreens Boots Alliance

WBA are a dividend Aristocrat with a 44 year history of increasing dividends. The stock price is free falling at the moment but this could be a good chance to get a quality on the cheap. you can find my review of the company here.

The dividend growth rate was pretty strong from 2004 until 2012 but has slowed down to around 6.58% over the last 5 years. The last raise was announced in July 2020 where the dividend was increased by 2.2%.

WBA has an Annual payout of $1.87 which gives them a dividend yield of 5.49%. They have a Earnings payout ratio of 38.79% and a Free Cash Flow payout ratio of 42.51%.

The current PE ratio of 7.16 seems quite low and a return to a P/E level of 15 would see some nice gains on a total annual return. WBA are facing some headwinds but you can read my review of them here and see why I am backing them to turn things around.

Using a Dividend discount model the fair value of the company is $57. Running a Discount cash flow analysis, I estimate the fair value of the company to be $72

Splitting the difference I estimate the fair value to be $64 which leaves them just over 53% undervalued a the current price of $34.04

Sanofi

Sanofi is primarily on the Euronext Paris exchange (SAN) but is also available on the NASDAQ exchange (SYN).

SAN has paid a continuously rising dividend for the last 26 years making them a European Aristocrat. The last Increase cane in April 2020 to €3.15 a share which is paid annually.

The earnings payout ratio is a little concerning at 121% but I give more weight to the FCF payout ratio. Which is 76%. This is at my upper limit so I like to check the balance sheet to see how risky they are.

Net debt to EBITDA measures total debt relative to company earnings while net interest cover measures the ability to pay interest on the debt.

Sanofi has net debt of 1.80 times its EBITDA and an interest ratio of over 12 which is good.

The dividend Yield is 4.09% which is quite high for a compnay like sanofi.

Using a Dividend discount model the fair value of the company is $98. Running a Discount cash flow analysis, I estimate the fair value of the company to be $124

Splitting the difference I estimate the fair value to be $111 which leaves them just over 44% undervalued a the current price of $77.37

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