The 10 Safest Dividend Stocks

To Buy Ahead Of The Next Market Crash

With the stock market now trading at some of its highest valuations in history many
investors are understandably worried about investing new capital ahead of correction,
bear market, or outright crash.

However, numerous studies show that market timing is the absolute worst thing you can
do. So how can you reconcile the need to be steadily investing over time, and today’s
frighteningly frothy market? The answer is two fold. First, no matter how crazy Wall
Street’s valuations get, there are always some out of favor industries that offer great
value opportunities. The second is to choose low volatility stocks, which decades of
studies show tend to outperform over the long-term, due to lower drawdowns during
periods of market panic.

To help you get started, here are 10 high-quality dividend growth stocks, each one with
below average volatility, in order of decreasing overall risk (relative to the S&P 500).

#10: Expedia (EXPE)

Yield: 0.8%
Beta: 0.66 (34% less volatile than S&P 500)
Undervalued By: 16%
Risk Factor: 0.63 (37% less risky than S&P 500)

Expedia is the world’s largest online travel agency by bookings. The company has a
great track record of both organic growth, and wise acquisitions, and today operates
under various websites including: Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif,
AirAsia, and HomeAway.

In 2016 the company achieved 6.7% global market share, and analysts expect that to
rise to 8% to 9% by 2020. Given the fast growing market in which it operates (travel is
the world’s single largest industry), Expedia has a potentially very long, and strong
growth runway ahead of it.

Best of all? Expedia has finally started rewarding investors with dividends, which have
grown at 21.3% CAGR over the past three years. However, with a FCF payout ratio of
just 18%, and long-term growth potential of 20%, Expedia is poised to deliver around
17% dividend growth over the next decade.
Combined with its significant undervaluation, that means it has the potential for annual
total returns of 21.6%, and risk adjusted total returns of 32.7% CAGR; making it a must
own for any dividend growth portfolio.

#9: CVS Health (CVS)

Yield: 2.6%
Beta: 0.84 (16% less volatile than S&P 500)
Undervalued By: 27%
Risk Factor: 0.61 (39% less risky than S&P 500)

CVS Health is best known for being the second largest pharmacy chain in the US
(nearly 10,000 stores), however it’s also one of the nation’s largest Pharmacy Benefits
Managers or PBMs, which help insurance companies design, and implement health
plans for their customers.

In fact, the PBM business makes up about 60% of CVS’s overall revenue, and is by far
the fastest growing business segment.

In the past year, CVS shares have been hammered, (down 20%) due to worries about
rising pressure from rivals such as Walgreens (WBA), and the loss of certain key PBM
contracts. This has resulted in four straight quarters of slowing sales growth. However,
CVS remains a highly attractive long-term healthcare dividend investment due to its
strong economies of scale, and still growing PBM business.

In fact, analysts currently expect the PBM business to continue growing at 4.5% CAGR
in the coming years, helping CVS to generate 9.1% CAGR sales growth. Better yet? It’s
ongoing cost cutting efforts mean that operating margins should continue growing from
their already impressive levels.

That should allow for EPS growth of 10.9%, and thanks to a very low 23% FCF payout
ratio, allow the dividend to grow at a very healthy 11% to 12% over the next decade.

That in turn means total return potential of 13.5% to 14.5%, and a risk adjusted total
return of around 16.6%.
 #8: Macerich (MAC)
Yield: 4.9%
Beta: 0.80 (20% less volatile than S&P 500)
Undervalued By: 24%
Risk Ratio: 0.61 (39% less risky than S&P 500)

The past year has seen many traditional retailers get crushed by the ongoing secular
shift away from brick and mortar retailers and towards e-commerce, with Amazon
leading the trend. And with 2017 store closings on pace to be the worst in over 20
years, it’s not surprising that many mall REITs, including Macerich, have taken a
beating.

However, this creates a potentially exciting buying opportunity. That’s because Macerich
is working hard to evolve away from grade B and C malls, (the ones that are anchored
by struggling retailers such as Sears), and towards luxury malls that have continued to
thrive.

That’s why, over the past five years Macerich has sold $1.2 billion in low-quality
properties, and reinvested that cash into higher quality premium locations, (and
upgrades), that has returned 7% to 11% cash yields.

And with $900 million in new investments coming online in the coming years, Macerich
shareholders can expect continued steady growth in rental income and cash flow
(around 3% to 4% CAGR). Combined with a very low, and rock solid AFFO (what funds
the dividend) payout ratio of just 62.7%, this deeply undervalued REIT is likely to
continue rewarding patient investors with 5% to 6% dividend growth, and total returns of
9.4% to 10.4%. Combined with its low volatility, that means potential long-term risk
adjusted total returns of 12.9% CAGR, far better than the market’s historical 9.1%.

#7: Ingredion (INGR)

Yield: 1.7%
Beta: 0.68 (32% less volatile than S&P 500)
Undervalued By: 20%

Ingredion is a maker of ingredients for the food, beverage, paper, personal-care, and
pharmaceuticals industries. It’s products include: corn, tapioca, rice, potatoes, fruits,
and vegetables, and sweeteners.

The company’s large exposure to developing markets, which makes up 45% of sales,
gives it a strong long-term growth catalyst. However, thanks to disappointing sales in
the last few years (basically flat), the stock has been punished severely, and now trades
at a substantial discount to its fair value of about $147.

However, while the market is focused on weak short-term growth (which is now ending),
management has done an amazing job of slashing costs and maximizing economies of
scale. This along with an increasing focus on higher margin specialty ingredients has
led to incredible FCF growth that has allowed Ingredion to become a leading dividend
grower (23.5% CAGR over the last five years).

However, with a low EPS and FCF payout ratio of just 29% in 2016, and a strong track
record of well thought out bolt on acquisitions, Ingredion still has plenty of payout
growth left in the tank. That’s because long-term revenue growth of 4%, along with
ongoing margin expansion, and steady 1% net buybacks should allow 10% to 11%
CAGR EPS and FCF/share growth.

Combined with the low payout ratios Ingredion should be able to generate long-term
dividend growth of 10% to 12% per year, which means total return potential of 11.7% to
13.7%, even assuming the shares remain perpetually undervalued.

However, if you factor in the undervaluation then Ingredion has the potential for 14.3%
to 16.7% CAGR total returns over the next decade. And given its low volatility, and
stable business, Ingredion’s risk adjusted total return potential of as much as 24.2% is
among the best offered by the market today.

#6: L Brands (LB)

Yield: 5.0%
Beta: 0.72 (28% less volatile than S&P 500)
Undervalued By: 28%
Risk Factor: 0.48 (52% less risky than S&P 500)

L Brands is a premium fashion and luxury goods conglomerate with such well known
brands as: Victoria's Secret, Pink, Bath & Body Works, La Senza, and Henri Bendel It’s
also one of the many retail stocks that has been absolutely hammered in the past year
(down 25% while the market is up 20%) on fears that the rise of e-commerce will result
in slowing or even negative growth, and rapidly deteriorating margins.

And while there is some valid concern to this, given that sales in 2016 and Q1 of 2017
were just 3%, and 2%. Worse yet, even adjusting for the company’s exit from the swim
suits, its latest quarter’s same store comps were down 3%, thus explaining the market’s
hatred of the stock.
And while true that L Brands is likely to experience ongoing pressure from 48% of its
stores being in struggling B and C grade malls, management is confident that it can
ultimately return to 7% to 10% annual top line growth. This is from a combination of
efforts, including expanded store count overseas, as well as a fast growing online
presence.

And the good news is that because of the company’s wide moat, courtesy of its luxury
status, the company’s overall profitability hasn’t been deteriorating. In fact, its gross
margins are expected to remain steady at 40% to 41% in the coming years.

Combined with ongoing cost cutting, and steady share buybacks L Brands should be
able to convert steady growth (in 2018 and beyond) to around 11% to 12% EPS growth,
which will secure the current payout and allow for steady 10% payout growth in the
coming decade.

Combined with a very generous 5% yield that should allow for around 15% CAGR total
returns, which could end up at 23% once management proves the company isn’t in
secular decline.

#5: Kimco Realty (KIM)

Yield: 5.9%
Beta: 0.74 (26% less volatile than S&P 500)
Undervalued By: 30%
Risk Ratio: 0.52 (48% less risky than S&P 500)

Like Macerich, Kimco was hit hard in 2016 due to the bankruptcy of Sports Authority,
which dragged down its net operating income or NOI growth to just 2.8%. However, at
the end of the day, Kimco’s portfolio of 524 neighborhood and community shopping
centers are likely to easily whether the retail storm, as most are anchored by (thus far)
Amazon proof businesses such as TJ Maxx (TJX), Ross Stores (ROST), Home Depot
(HD), and grocery chains Albertson’s and Whole Foods (WFM). In fact, only 5% of its
customers are vulnerable to disruption by e-commerce.

And best of all, management is actively working to further improve its property portfolio,
focusing on investing heavily ($3 billion by 2020) in premium assets that it believes can
return 8% to 13% cash yields. Combined with a plan to both maintain and improve its
credit rating (from BBB+ to A-) Kimco believes it can achieve about 4%-6% NOI growth
in the coming years, which would allow for dividend growth of 5% to 7% CAGR. And
since Kimco is projecting a 66% AFFO payout ratio in 2017, that means that not just is
this one of the highest yielding stocks on Wall Street right now, but that dividend is also
one of the most secure in all of REITdom.

The bottom line is that Kimco Realty has the potential to generate total returns of 9% to
12%, and risk adjusted total returns of between 12.3% to 16.4% CAGR, making it an
excellent choice in today’s frothy market.

#4: Simon Property Group (SPG)

Yield: 4.5%
Beta: 0.63 (43% less volatile than S&P 500)
Undervalued By: 25%
Risk Ratio: 0.47 (53% less risky than S&P 500)

Over the past year the market’s hatred of all things non Amazon retail has caused
Simon Property Group to underperform the market by 37%. However, the market is
failing to take into account that Simon is a true Grade A mall owner.

In fact, it’s the only mall operator that is expected to growth its FFO by double digits in
2017, thanks to its strong development pipeline, and exposure to fast growing Asian
malls.

As for the company’s portfolio of over 200 premium malls, their increasing focus on top
tier customer experience, and luxury tenants means that its tenants are generating an
average of about $1000 per square foot in sales, double that of the average class A
mall.
In other words, Simon Property’s best in class portfolio of properties allows it to
generate strong releasing rates (10.9% increase in 2016), while still maintaining
incredible occupancy rates (98% forecast for 2017).

Combined with one of the strongest FFO payout ratios (62% is very low), in the industry,
Simon Property Group is likely to be able to not just maintain the current 4.2% dividend,
but grow it at 6% to 7% per year. That means total returns of 10.2% to 11.2%, which
jump to 12.3% to 13.5% CAGR should its share price rise to its fair value level.

#3: Hanesbrands (HBI)

Yield: 2.9%
Beta: 0.73 (27% less volatile than S&P 500)
Undervalued By: 40%
Risk Factor: 0.44 (66% less risky than S&P 500)
Hanesbrands is the producer of underwear and activewear apparel under brand names
including Hanes, Champion, and Maidenform. It’s another beaten down retailer, with
shares slammed 23% in the past year over concerns that the company won’t be able to
thrive as Amazon continues on its quest to conquer the online retailing world.

However, the truth is far less pessimistic than the stock’s poor performance would have
you believe. For example, in 2016 and Q1 2017 sales were up 5%, and 13%
respectively. Meanwhile last year EPS grew 32% on the back of strong cost cutting
efforts, and the company raised its dividend an impressive 36%. However, despite that
large increase the EPS and FCF dividend payout ratios of 31%, and 28% respectively,
mean that the dividend is rock solid, and likely to continue growing strongly.

In fact, analysts currently expect that management’s new dedication to stronger

dividend growth will translate to 15% to 16% payout growth over the next decade. That’s
backed up by long-term sales growth of 7% due to increased direct to consumer (online)
sales, growth in the world wide activewear market, and expansion into emerging
markets.

Combined with ongoing cost cutting that will improve the company’s already strong
margins and returns on shareholder capital (ROIC of 20%), along with steady 1% to 2%
annual net buybacks of its cheap shares, that should result in impressive 16.8% EPS
growth to power the quadrupling of the dividend by 2027.

All told, Hanebrands, if trading at fair value could be expected to generate around
18.5% in long-term total returns. However, with shares now dirt cheap, investors may be
in for as much as 30% returns over the next few years. And because Hanesbrands’
volatility is very low the risk-adjusted total potential return is as much as 42%, making
this one of the best long-term dividend growth investments you can make today.

#2: Teva Pharmaceuticals (TEVA)

Yield: 4.3%
Beta: 0.64 (36% less volatile than S&P 500)
Undervalued By: 33%
Risk Factor: 0.43 (57% less risky than S&P 500)

Teva Pharmaceutical is the world’s largest generic drug maker, though the reason
behind its 33% collapse in the past year is due to its specialty pharma segment.
Specifically, the company recently lost several court challenges that were supposed to
make its main cash cow, MS drug Copaxone, have continued exclusivity through 2030.
That means that the market is not so much interested in the strong growth potential that
resulted from its $40.5 billion acquisition of Actavis Generics in 2016, (and the 1800 new
drug launches its planning in 2017) but potential for two Copaxone rivals to ding that
drug’s sales by as much as $1.3 billion.

In addition, while Teva’s TTM FCF payout ratio means that its 4.3% dividend is safe, the
large amount of debt that it had to take on to buy Actavis means that the company plans
to redirect its fast growing FCF (guidance of 51% FCF growth in 2017) towards paying
down its debt.
That means little short-term dividend growth prospects. However, if you’re willing to be
patient, than Teva’s strong development pipeline (80+ drugs with the potential for over
$30 billion in annual sales) means that Teva’s dividend growth in the long-term should
remain a strong 8.5% or so.

That means a long-term potential total return of 12.8%, and thanks to its very low
historical volatility, a risk-adjusted total return potential of 20.3%. Combine that with the
fact that Teva is one of the most undervalued stocks you can find today, and you have
one of the least risky, and most appealing deep value dividend growth investments
around.

#1: Compass Minerals International (CMP)

Yield: 4.3%
Beta: 0.52 (48% less volatile than S&P 500)
Undervalued By: 23%
Risk Factor: 0.4 (60% less risky than S&P 500)

Compass Minerals is one of the world’s largest, and oldest (founded in 1844) salt and
potash sulfate (used in fertilizer) producer, with mines in Ontario, Louisiana, Utah,
Brazil, and the UK.

Over the past year falling commodity prices have dragged down the price of fertilizer,
and fertilizer ingredients, including Potash. That’s resulted in Compass Minerals
underperforming the market by 25% over that time period.

However, that has created an amazing buying opportunity, because Compass has one
of the industry’s most impressive dividend growth records, 10% CAGR over the past 12
years. This is courtesy of of a truly world class management team that has a fantastic
capital allocation history.
Specifically that means striking the ideal balance between a generous, secure, and
growing dividend, and still investing into future growth, including maximizing its cost
advantages in its Goderich mine Ontario and Utah Salt Brine operations. That helps
Compass achieve a major cost advantage and gives it a wide moat in an otherwise
commodity business.

And with a payout ratio of just 58% in 2016, Compass’s dividend is not just more than
double the market’s current yield, but should allow for solid 4% to 5% long-term
dividend growth going forward.

That means investors can expect up to 9.1% CAGR total returns, which may not sound
that good, but considering that Compass is one of the market’s least volatile stocks, that
translates to potential risk-adjusted total returns of 18.2%.

Better yet, with Compass 25% undervalued, investors have a chance to boost their
returns even more. That’s because once the cyclical potash market recovers,
Compass’s valuation is likely to return to fair value, creating a true can’t miss long-term
investing opportunity.