Rock Bottom Prices For these Two Dividend Growth Stocks
Marketbeat.com learned Loop Capital just came out with upgrades on two materials companies and we're not surprised to see the activity. Not only is America on track for some major,...
Vulcan Materials Leads Market After Major Upgrade
Marketbeat.com learned Loop Capital just came out with upgrades on two materials companies and we're not surprised to see the activity. Not only is America on track for some major, nationwide infrastructure spending but construction trends are strong and some recent natural disasters have increased both immediate and long-term needs. What this means for materials stocks like Martin Marietta Materials (NYSE: MLM) and Vulcan Materials Company (NYSE: VMC) is not only revenue growth but an acceleration of growth to fuel what are already very strong dividends. While the pair cannot be considered high-yielding stocks their payouts are incredibly safe and come with a high probability of dividend increases.
Vulcan Materials Leads The S&P On A Down day
Not only did Vulcan Materials receive an upgrade from Neutral to Buy but the stock led the entire S&P 500 on a down day. This is worth noting because infrastructure-related stocks like this not only represent an opportunity for growth and dividends but also provide some insulation and protection from what we view as an impending and overdue broad stock market correction.
The stock yields about 0.86% with the stock trading near $173 and it comes with very strong metrics to keep investors sleeping soundly at night. The payout ratio is a very low 31% and the company's balance sheet and free cash flow are strong. The company has been raising the dividend at a 15% CAGR for the last 8 years and we see dividend increases continuing for the next few years at least, if not at the same double-digit pace.
Loop Capital’s Buy rating comes with a $205 price target which compares with the $183.92 Marketbeat consensus and the $220 high price target set by Truist Securities earlier this year. The consensus estimate assumes about 6.5% of upside and we think this is the least that investors should expect in the near to midterm.
In our view, price action is poised to retest the recent highs near $192 and can easily surpass that level if the earnings report is impressive. The company is slated to report earnings on November 4th and is expected to produce double-digit revenue growth sequentially, versus last year, and versus the 2019 timeframe. Shares of Vulcan Materials are up more than 2% in the wake of the upgrade and appear to be forming a Double Bottom reversal at the bottom of its consolidation range.
Martin Marietta Materials Is Pacing Vulcan higher
Shares of Martin Marietta Materials are up about 1.75% in the wake of their upgrade by Loop Capital. Technically speaking, the Martin Marietta Materialschart is virtually identical to the Vulcan Materials Company chart and suggests a continuation of the uptrend that began In the spring of last year. Shares of this stock yield a slightly lower 0.7% yield compared to Vulcan but come with a better 20% payout ratio and a stronger balance sheet. The 7.5% CAGR does leave something to be desired compared to Vulcan but, in our view, there is a greater chance for a larger dividend increase with this stock than with Vulcan. In either case, this dividend is the more sustainable of two very sustainable payouts.
Loop Capital set a price target of $390 for Martin Marietta Materials which is good for a gain of 12% from the current price action. This compares to the consensus estimate of $345 which assumes the stock is fairly valued but may not be pricing in future revenue gains. The company is expected to produce solid revenue growth sequentially, year-over-year, and in the two-year stack when it next reports and we see upside risk in the numbers. The consensus estimate on this stock is a Hold but we think that is going to change over the next few weeks especially in the wake of earnings. Martin Marietta Materials is expected to report earnings at the end of the month.