Market Monitor: Doug Butler’s Picks

Doug Butler, Portfolio Manager & Head of Research, Rockland Trust

Given the likelihood of a couple of rate cuts over the rest of the year and the growing number of bonds globally that carry a negative yield, I’d like to focus on three different types of Dividend growth stocks.

1.) Dividend Initiators – every dividend-growth stock has a starting point for paying a dividend. Exceptional wealth isn’t generated by the history of dividend growth; it’s generated by accumulating the dividends that will be forthcoming.

CERN– Cerner is the leading company in the Digital Health Records space providing solutions to both hospital and physicians’ offices globally.

They recently initiated a dividend of $0.18 and we think this is a company that is poised to grow dramatically as our healthcare system becomes increasingly digitized.

We expect the company will have solid topline growth and margin expansion as the $10 Billion VA deal matures. 

Additionally we believe the involvement of Starboard Value will be a positive for capital discipline but not to the point of sacrificing growth opportunities.

2.) Dividend Accelerators – Companies that are accelerating their dividend payouts have historically delivered excess returns especially in the Mid Cap space.

FAST – Fastenal is a market leader in the wholesale distribution of industrial and construction supplies.

We believe Fastenal’s onsite business will allow it to gain market share through high value-add services, and will generate high growth and high returns.

This past quarter there was weak railcar traffic data, yet Fastenal maintained  above-market growth albeit slowing. They were able to implement pricing increases beginning in July that should provide margin improvement.

Over the past 5 years they’ve grown dividend by more than 14% and currently yield 2.8% .

3.) Dividend Leaders – These are companies that are still growing their relatively high and very safe dividends.  These play a vital role in a quality portfolio as they provide ballast in case the market rolls over in the 2nd half.

MMM – 3M is a manufacturer and marketer of a range of in the following businesses:  Industrial, Safety and Graphics, Health Care, Electronics and Energy, and Consumer.

3M has a very impressive track record. It has paid dividends for over 100 years, and it has raised its dividend for 60 years in a row. The current yield is above 3% and has grown over 10% for the past 5 years.

3M reported yesterday and after a disappointing Q1 beat expectations.  In the second half of the year we expect their healthcare and safety business to strengthen  and we think earning could benefits from better organic growth and higher restructuring benefits.

Given the disconnect between the stock and bond market with stock continuing upward and the bond market indicating a slowdown. At Rockland Trust we don’t think a recession is coming within the next year, but holding these type of stock will ensure some level of protection in case the equity markets roll over. 

Disclosures: Rockland Trust owns CERN, FAST & MMM in client portfolios

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