Two Hot Buy-On-The-Dip Names For Dividend Investors
Both The Kroger Company (NYSE: KR) and Albemarle Corporation (NYSE: ALB) both released news recently that have the stock set up to make new highs later this year. Unfortunately for some, fortunately for others, price action in both names is moving lower in the wake of this news despite the fact the analyst have been upping their price targets and their ratings. If you're a dividend growth investor looking for a good name to buy on the dips, either of these will fit the bill.
Albemarle Corporation Reaffirms Guidance
Albemarle Corporation is a specialty chemical company and one well-positioned for the global economic rebound. Not only are its chemicals used and a wide array of industrial processes including pharma, but the company’s lithium segment is also fully exposed to the EV Market. With the EV Market shifting away from the EV startups and more towards EV infrastructure and batteries, lithium companies should do well over the next five to ten years. That said, the company just reaffirmed its recently improved guidance and provided an outlook for the next 5 years. The company is expecting a modest single-digit improvement in revenue this year with revenue and earnings gains accelerating over the next five. The long-term outlook is expecting a compound annual growth rate of 13% to 17% supported by pricing and demand for lithium as well as a rebound in segments hurt by the pandemic.
Albemarle Corporation received no less than six analysts’ shout-outs following the affirmation of guidance. Of those, all six included a price target increase, and one reversed a bearish rating to a bullish rating. The current consensus is a buy bordering strong-buy with a price target near $200. The consensus price target assumes about a 12% downside but does not reveal the trend in the consensus nor the high end of the range. The trend in consensus estimate is very bullish and has nearly tripled over the past year. The high price target is closer to $300 and assumes roughly 30% of upside. The $296 high price target was set by Oppenheimer after the news was announced. Shares of Albemarle yield less than 1% in dividends but have a very low payout ratio and a 27-year history of dividend increases.
Kroger Beats and Raises, The Analyst Like It
Kroger reported earnings about a week ago beating the consensus estimate and guiding the market outlook for the full year higher. The company is now expecting same-store sales growth to approach 13% versus pre-pandemic levels and EPs in the range of $3.25 to $3.35 versus the consensus of $3.10. What this means for investors is continued growth at a rate above the analyst’s expectations coupled with improving cash flow and dividend safety. The stock yields about 2% with shares trading near $42.50 and come with a 15-year history of dividend growth. The low 25% payout ratio and 12% distribution cagr lead us to believe the payout is not only saved but should continue to grow at a respectable pace in the coming years.
The data from Pricetargets.com reveals the analysts are neutral on Kroger but the trends are positive. At least five sell-side analysts have come out with commentary in the wake of the Q2 earnings report and all include a price target increase. The current consensus assumes a roughly 10% downside to current price action but once again does not reflect the trend or the range of price targets. The high price target of $49 was set just before the earnings report was released and assume nearly 15% of upside is possible. In our view, Kroger is undervalued at 13X earnings and should be trading well above $49.
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