American States Water Co. (AWR)
American States Water operates two business units: Utilities (primarily water, with some electricity) and Services, including wastewater services on several U.S. military bases.
Founded in 1929, AWR has grown to a $2.1 billion market cap and has the longest dividend-raising history of any public company in our investment universe, increasing its payout for an amazing 63 consecutive years.
Unfortunately, we think American States Water is irrationally overvalued right now. The company is on pace to earn about $1.85 per share in the current fiscal year, which implies a 31.3 price-to-earnings ratio even though American States Water's fair value is most certainly below 20x earnings.
As such, we strongly recommend that investors looking to add Dividend Kings do so using other, more rationally priced names.
Dover Corp. (DOV)
This diversified industrial manufacturer generates approximately $8 billion in annual revenue from its four operating segments: Engineered Systems, Fluids, Refrigeration & Food Equipment and Energy. Dover has increased its dividend for 62 years in a row.
The company seems on track to deliver $5.87 of fiscal-2018 earnings per share. Using this estimate, DOV is trading just a 12.5 P/E vs. the firm's 10-year average of around 16.
So, valuation expansion will likely boost the company's total returns, making this an excellent opportunity to initiate a position in this high-quality dividend stock.
Genuine Parts Co. (GPC)
Genuine Parts Co. is a large automotive-parts retailer best known for its flagship NAPA Auto Parts chain. Founded in 1928, the firm has grown to more than 3,100 locations and 50,000 employees - plus 61 years of consecutive dividend increases.
Still, GPC is the rare example of a high-quality business whose stock is available at an attractive price. The company should deliver approximately $5.70 in fiscal-2018 adjusted EPS, which means GPC is currently trading at about a 16.3 P/E ratio.
For context, Genuine Parts has traded at an average P/E of about 17 over the past decade. So, today's prices are below the company's historical average -- presenting a buying opportunity for the opportunistic dividend investor.
Northwest Natural Gas Co. (NWN)
Northwest Natural Gas is a natural-gas and electric utility that serves Pacific Northwest customers. The company was founded in 1859 and has grown to an approximately 740,000 customer base and a $1.8 billion market. NWN has also consistently raised its dividend for 62 straight years.
The firm seems likely to print approximately $2.30 in fiscal-2018 adjusted earnings per share. Using this earnings estimate combined with the utility's current stock price gives NWN a 26.8 P/E.
However, we believe that fair value for a utility like Northwest Natural Gas lies somewhere around 18x earnings. So, we think valuation contraction should meaningfully reduce this company's future total returns. As such, investors are better off waiting for a pullback before buying this stock.
Parker-Hannifin Corp. (PH)
Parker-Hannifin is a diversified industrial manufacturer the specializes in motion and control technologies. Founded in 1917, the firm grown to have an approximately $23 billion market capitalization and $12 billion in annual revenues. PH has also raised its dividend for 61 consecutive years and has paid uninterrupted dividends for 68 years.
Our fiscal-2018 earnings estimate for Parker-Hannifin is $9.85 per share, which implies a 16.5 P/E ratio. That's well below the average for large-cap stocks, but above PH's 10-year average P/E of 15.
So, a valuation contraction seems likely to reduce this company's future total returns. Accordingly, we recommend that investors wait for a better buying opportunity before accumulating PH shares.
The Bottom Line
While the majority of Dividend Kings are too expensive to recommend today, two -- Genuine Parts and Dover Corp. -- are attractively priced. We think they'd make solid additions to dividend portfolios at current price levels.
-- By Nick McCullum
McCullum is president at Sure Dividend LLC. You can find the full list of high-yield MLPs compiled by Sure Dividend here.
(This article was sent June 22 to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this each day from Robert Powell, Peter Tchir, Jonathan Heller and others.)
