3M is unlikely to maintain its rate of dividend hikes (now with a 3.6% yield to boot) as fast as it had been doing (nearly 200% over the past decade). That said, the stabilization of late seems to bring ample earnings coverage to justify keeping its 62-year streak of dividend hikes (and over 100 years of ongoing dividends) alive. It likely will be a long time before 3M hits an all-time high, but investors will remember that it peaked at $250 at the very start of 2018.
Visa’s Long-Term Legacy
Visa Inc. (NYSE: V) has a history of squeezing out gains over time. The credit card processing player only cares about transactions and has no credit risk like the banks issuing the cards have. Fintech remains a risk as the number of ways to transact business grow, but Visa seems to have escaped much damage from competition.
With card use in travel and dining remaining very weak, Visa’s stock petered out at about $215 per share and has spent a month mostly between $195 and $205. The current $200 share price compares to a $223.64 consensus target, but Mizuho recently suggested that its stock should be worth as much as $250. Visa is not cheap, at more than 30 times earnings, and its 0.6% dividend yield is embarrassingly low for a Dow stock. It pays out less than one-fourth of its adjusted income in dividends.
Any talking up of the holiday season and any talk of travel spending picking up into 2021 could mean that the actual earnings numbers are given a pass entirely.
Walgreens Needs to Prove Its Relevance
Walgreens Boots Alliance Inc. (NYSE: WBA) just never got the memo that the stock market was recovering, that health care was coming back or that it is an essential business. It hasn’t even benefited from joining the Dow, as the index creators would have hoped. Despite bottoming above $40 a share in March before the V-bottom recovery took the stock back above $50, every recovery effort since has failed.
With shares trading close to $37, Walgreen is down an embarrassing 39% year to date, and its dividend yield is now accidentally high at $5.2%. The consensus price target also is barely above $40, and the stock is valued at about eight times expected earnings, despite a small revenue growth expectation. It seems that Walgreens should have recovered with other retail plays, but rival CVS has been weak as well, and there are always risks from the election and from telehealth competing with in-store health services.
The valuations and expectations for Walgreens are so low that any remotely decent news should act to boost the stock. If it continues to disappoint, then it is unlikely Dow investors will care for very long because it could be time to reconsider “just how Dow” this stock really is as the lowest weighting of them all.
Walmart Beyond Low Prices
Walmart Inc. (NYSE: WMT) has seen its shares rise 18% so far in 2020, and the stock is up over 30% since peak selling in March. Walmart has proven that it is an absolutely essential business for America in the pandemic.
Other retailers also have been forced to close, either permanently or temporarily, and Walmart’s omnichannel is making it attractive. With its shares trading at close to $140, and with a high just over $150, Walmart’s $146.09 consensus target price has a lot of room to improve with any continued good news.
Walmart did note previously that it had seen consumer spending start to soften after the enhanced unemployment benefits ran out, but the new valuation of 26 times expected earnings just is not as expensive as it would have been in the past, before it proved its worth. Some analysts see Walmart rising above $150 a share, and even $160.
Before assuming every weak Dow stock comes roaring back, note that history has proven otherwise. Some do keeping back after weakness. Those that cannot recover end up being booted out of the index and sometimes go on to flop, and some even disappear. Here are just some of the more recent and distant companies that have left the Dow: Exxon Mobil, Pfizer, General Electric, Citigroup, U.S. Steel, Eastman Kodak, Sears Roebuck, Navistar, Bethlehem Steel, Alcoa, Hewlett-Packard and Kraft Foods.