Buy These 3 Stocks In May And Walk Away

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Quality and dividend safety never seem to go out of style, but a common perception these days is that the businesses associated with those two things are often priced well out of the market. After all, this bull market is over eight years old. But even in this market you can still find high-quality companies, paying substantial dividends that you can sleep on, which are reasonably valued or even cheap.

This article looks at three of those stocks: Stocks with low dividend to earnings ratios which are backed by excellent businesses that are leaders in their field. All three of these are also reasonably priced.

United Parcel Service, Inc (NYSE:UPS) –

There’s a lot of good things to say about UPS, but the big story is just how much UPS is benefiting from the growth of e-commerce. Last quarter’s results speak for themselves: 6.2% revenue growth and EPS growth up 4% year on year. Management re-affirmed full year EPS expectations of growth somewhere between 4% and 6%.

UPS is dealing with the increasing demand for package volume in a few ways. First, it is building new distribution centers across the country. Two new ones will soon come online in Salt Lake City and Dallas. Second, and perhaps more importantly, it is increasing automation in all of its US distribution centers. A ‘high’ degree of automation will go from 40% of distribution centers last year to 100% by the end of 2019. This helps to ‘flatten the cost curve’ as volume continues to steadily grow.

UPS is reasonably priced. According to data from FAST Graphs, UPS has managed a price to earnings of 19.3 times FFO over the past ten years. Right now the company trades at 17.9 times, a discount of about 7%. It also yields 3.2%, and that dividend is only 54% of trailing earnings. That is a very secure yield. No matter how you slice it, UPS is something you can buy right now and sleep well at night on.

Public Storage REIT (NYSE:PSA) –

Public Storage is a name that’s down quite a bit over the last few months. This is a company that has grown year in and year out for at least the last decade. It is probably the best-known brand name in residential storage in the US, and it has grown its earnings on concentrating in metropolitan areas which tend to be landlocked and therefore have barriers to entry for new entrants. With this consistency, management once quipped itself as “the Coca-Cola of real estate.” I tend to agree.

So far last quarter Public Storage managed to grow core funds from operation by 7.2%, with total revenue up 4%. Occupancy dipped by 0.5 percentage points, but remains over 93%, and revenue per square foot increased 4.9%.

Public Storage is trading right around its ten-year P/E average of 21 times FFO. That might seem costly, but this is quality worth paying up for. Public Storage has very little debt and should be able to grow FFO in the mid-to-high single digits for quite some time. Right now Public Storage yields a nice 3.8%. The dividend is now 75% of FFO, which is a tad on the high side, but the fact that the company has so little debt makes me willing to overlook that.

Tanger Factory Outlets (NYSE:SKT) –

Tanger Factory Outlets, the foremost of outlet mall shopping operators and the first mover in this industry, is just downright cheap. According to data from FAST Graphs, shares have averaged 17 times price to FFO. Right now it trades at 11 times price to FFO, a huge discount of over 1/3rd. Tanger is down for a number of reasons, paramount among them a fear that outlet mall shopping has seen its best days.

I find that notion hard to believe, especially given some of Tanger’s latest quarterly earnings where same store NOI increased 2.5% excluding those that were remerchandising (heavy remerchandising in 7 outlets is another reason share prices are down, by the way).

Tanger deserves another chance, especially because it yields a terrific 5.2%, and that dividend is actually only 55% of trailing FFO. There’s a lot of cushion in that dividend, so even if Tanger doesn’t do so well for a while (it will take some time to complete its remerchandising), you’ll still be able to get a generous dividend and sleep well at night on it. Tanger is a buy.


If history is any guide, this bull market is getting a bit long in the tooth. However, there are still good dividend-paying businesses whose stocks are trading reasonably. UPS, Public Storage and Tanger Factory Outlets all have dividends you can buy with confidence. Consider this article a ‘jumping off’ point for more research if you’re interested in any of these three.

I am personally long two of these three stocks (Public Storage and Tanger). If these businesses interest you, feel free to follow me on Seeking Alpha. Also, I have started a new Marketplace service centered on dividend investing called Dividend Stream. Dividend Stream has allowed me to do a lot of unique research and write articles that I would not otherwise have been able to do and I encourage you to take a look.

Disclosure: I am/we are long PSA, SKT.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.